The Federal Open Market Committee (FOMC) held its meeting this week, which was the last before the election in November. The next FOMC meeting is scheduled for November 4thand 5th. While the actual voting will be over, it is some doubtful that we will have the official results.
Either way, the FOMC is bipartisan in the sense that it will always do the bidding of the establishment. It won’t really change anything no matter who is declared the winner of the presidential election.
The FOMC released its latest monetary policy statement. There is no surprise that its target range for the federal funds rate remains the same, which is near zero.
It is now part of its official statement that the Fed wants higher inflation. It says, “With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.”
As Peter Schiff pointed out, what sense does it make to average out what has already happened in the past? If there was low inflation two years ago, why should that dictate policy going forward?
The FOMC statement also says, “In addition, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”
In the Implementation Note, it interestingly mentions commercial mortgage-backed securities (CMBS). In 2008/ 2009, it was assumed that the Fed was buying up mortgage-backed securities because of bad loans on residential real estate. Now the Fed is going to bail out the banks from the delinquent loans from businesses that were shut down. This is a major example of one government destructive policy leading to another destructive policy.
The major item reported by the financial media from the meeting is that most Fed officials agree that rates will remain near zero until at least 2023. Three years is a long time, so why the rigid stance?
Did Someone Forget About Inflation?
It seems odd that the Fed members would take this stance that rates will stay near zero for at least three more years. Going back to the FOMC policy statement, it said, “the Committee will continue to monitor the implications of incoming inflation for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.” This statement by itself isn’t scary, but it is when coupled with the fact that the Fed sees near-zero rates for at least three years.
What risks could emerge that hadn’t already emerged in 2020 other than high price inflation? Sure, we could see banks collapse, more defaults, and a host of other things, but that would just mean that the Fed will go that much more crazy with its monetary inflation.
If three trillion dollars added to the balance sheet doesn’t do it, why not an additional 10 trillion? Why not 20 trillion?
So the Fed is willing to be accommodative and flexible when it comes to more money creation, but it is taking a strong stance that they will not tighten monetary policy under any condition.
Here is the question I want answered. What happens if, one year from now, the annual price inflation rate as measured by the CPI is coming it at 20%? Does the Fed still leave its target rate near zero? What if it is “just” coming in at 10% per year?
I have long said that I think hyperinflation is a highly unlikely possibility in the United States. While I would still consider it not likely, I think the chances have gone up a little. I would put the possibility of hyperinflation in the next 10 years at over 1% at this point.
The U.S. dollar is still the world’s reserve currency, but this could work against it at some point too. It could make the inflationary effects that much more dramatic if people start dumping dollars quickly. It will be amplified when foreigners send their U.S. dollars back to America in an attempt to secure some hard assets in exchange for the quickly depreciating currency.
It is easy to forget that in the year 2020 we have seen tens of millions of people file for unemployment, trillions in new spending, and hundreds of thousands of businesses shut down permanently.
While many are suffering, some of the suffering was covered up with generous unemployment benefits and stimulus checks. But there is no free lunch. In fact, you are going to find that the lunch is more expensive than ever. I believe that inflation is the number one financial threat in the near future, and you should be preparing for it now.