{"id":161988,"date":"2019-12-18T12:12:50","date_gmt":"2019-12-18T17:12:50","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=161988"},"modified":"2019-12-18T07:05:56","modified_gmt":"2019-12-18T12:05:56","slug":"inflation-threat-looms-in-2020-as-fiscal-and-monetary-stimulus-ramp-up","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/12\/inflation-threat-looms-in-2020-as-fiscal-and-monetary-stimulus-ramp-up\/","title":{"rendered":"Inflation Threat Looms in 2020 as Fiscal and Monetary Stimulus Ramp Up"},"content":{"rendered":"
December 18, 2019<\/div>
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By Money Metals News Service<\/b><\/p>\n

The Federal Reserve left its benchmark interest rate unchanged as expected last week. However, Fed Chairman Jerome Powell made news with some of his most dovish remarks to date \u2013 stating flatly that he won\u2019t hike rates again until inflation moves up significantly.<\/p>\n

\u201cIn order to move rates up, I would want to see inflation that\u2019s persistent and that\u2019s significant,\u201d Powell said at a news conference following the Fed\u2019s announcement.<\/p>\n

He would be anticipating \u201ca significant move up in inflation that\u2019s also persistent before raising rates to address inflation concerns.\u201d<\/p>\n

He could get his wish in the months ahead as monetary policy, fiscal policy, and the economy all seem to be lining up to push the inflation rate higher. In 2020, inflation may become a front-page problem for the first time in many years.<\/p>\n

The government\u2019s release of a blockbuster jobs report this month diminishes the odds of the economy falling into a recession next year. At the same time, it increases the likelihood of inflation rates rising.<\/p>

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It\u2019s not that the economy is at risk of \u201coverheating.\u201d Overall GDP growth is likely to come in moderate at best next year.<\/p>\n

Rather, the economy is merely showing signs of sustaining its expansion at a time when fiscal and monetary policy are extremely stimulative.<\/p>\n

The U.S. government is now running trillion-dollar budget deficits for the first time since the aftermath of the 2008 financial crisis. It will effectively pump $1 trillion worth of artificial demand back into the economy in 2020.<\/p>\n

Needless to say, there is no will or way in Washington to cut spending or raise taxes in an election year.<\/p>\n

At the same time, the Fed is holding its benchmark short-term interest rate at 1.50%-1.75%, which is a negative real rate.<\/p>\n

Explains Barron\u2019s<\/a> columnist Randall W. Forsyth, \u201cThe fed-funds rate is actually below zero in real terms, that is, after factoring in inflation. Negative real rates usually are imposed to spur spending and investment to stimulate an economy in recession, which is far from the present state.\u201d<\/p>\n

Inflation as measured by the Consumer Price Index is running at 2.1% annually according to the latest data reported by the Bureau of Labor Statistics on Wednesday. Consumer prices have climbed more than expected this fall on rising energy costs.<\/p>\n

But it\u2019s still not enough inflation for the Fed\u2019s liking!<\/p>\n

The central bank\u2019s preferred inflation gauge is the core Personal Consumption Expenditures index, which is running only at an estimated 1.5% year-on-year. Jerome Powell and company want to push it to 2%…and above, on a \u201cpersistent\u201d basis, before tightening monetary policy.<\/p>\n

Let\u2019s not forget (like some in the financial media apparently have) that the Fed is also pursuing a massive balance sheet expansion. Even though policymakers refuse to call it QE, the monthly liquidity injections and T-bill purchases are of similar magnitude as previous rounds of Quantitative Easing.<\/p>\n

In fact, since \u201cnot QE\u201d was announced in September (and subsequently expanded), the Fed\u2019s balance sheet has been growing at a 28% rate. The money supply itself is expanding at an 11% clip.<\/p>\n

All this stimulus will have consequences, and they won\u2019t just show up in the form of higher stock prices. Although the stock market seems poised to continue advancing, higher commodity and consumer prices could begin to spread through the economy as well.<\/p>\n

Though long depressed, crude oil prices have started to trend higher in recent months.<\/p>\n

\"Inflated<\/p>\n

Copper and precious metals prices are also showing some strength and could be on the verge of major breakouts heading into year end.<\/p>\n

When Americans think of nasty inflation, they tend to recall the late 1970s stagflation. It coincided with spikes in gold and silver markets.<\/p>\n

The inflation monster wasn\u2019t finally tamed until Fed chairman Paul Volcker stepped in and jacked up interest rates to double-digit levels, triggering a recession. Volcker\u2019s decision wasn\u2019t popular on Wall Street or in Washington, but it did restore confidence in the dollar and set the stage for the expansions of the 80s and 90s.<\/p>\n

The current crop of central bankers is too cowardly, too beholden to bankers and politicians, to do what Volcker did. He passed away this month<\/a> and will be remembered as an inflation hawk.<\/p>\n

But today, the doves are in charge at the Fed \u2013 and they bound and determined to create a new inflation cycle.<\/p>\n

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The Money Metals News Service provides market news and crisp commentary for investors following the precious metals markets.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Money Metals News Service The Federal Reserve left its benchmark interest rate unchanged as expected last week. However, Fed Chairman Jerome Powell made news with some of his most dovish remarks to date \u2013 stating flatly that he won\u2019t hike rates again until inflation moves up significantly. \u201cIn order to move rates up, I […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-161988","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/161988","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=161988"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/161988\/revisions"}],"predecessor-version":[{"id":162015,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/161988\/revisions\/162015"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=161988"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=161988"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=161988"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}