The latest CPI report came out showing the price inflation numbers for August 2024.  The CPI was up 0.2% in August, and the year-over-year CPI now stands at 2.5%.  The year-over-year median CPI stands at 4.2%.

The 2.5% annual price inflation number is the best we have seen in several years.  But let’s realize that overall prices, according to the metrics used in the CPI calculation, are still 2.5% higher than this time last year.

Prices were already astronomically high last year, and we just added another 2.5% on top of that.  In other words, the average American is not seeing an improvement in overall living standards.

Since insurance (health, home, and car) takes up such a big chunk of the average American’s budget, the picture is probably even worse.  You can provide any statistic there is, but the real picture is when someone sits down to pay the bills each month and there is less money in the checking account than there was the previous month.

Gold Shines

The yellow metal is hitting new all-time highs in U.S. dollars, now crossing the $2,600 mark for the first time.  The mining stocks are not hitting new all-time highs for the most part, but they are still doing well with the rising price of gold.

Even though the rate of price inflation is supposedly going down, that has not seemed to impact the gold market in a negative way.

I still maintain that the gold price will likely drop in a recession, but that it won’t drop nearly as much as stocks and other assets.  It will also be quicker to recover when the Fed starts creating new money out of thin air again.

Silver has also risen, now surpassing $31 per ounce.  This is still well off the all-time high, which means the potential for silver is perhaps better than gold.  But it also has the potential to fall more in a recession.

A Fed Rate Cut?

Even though price inflation is still above the Fed’s supposed target of 2%, and even though gold is hitting new all-time highs, and even though stocks are still near all-time highs, the Fed is going to cut its target rate at the next meeting on September 18.

The big question now is whether it will cut 25 basis points or 50 basis points.  My guess is that it will be 25 basis points (a quarter of one percent) because they don’t want to give the impression that they think the economy is that weak.

The FOMC’s next meeting after September will start on the day after Election Day, and the policy statement will be released on November 7, two days after the election.  That is interesting timing.

Still, regardless of the election outcome, the Fed will still have two more opportunities this year to cut rates more after this September meeting.

Some will say that the Fed is cutting rates now for political reasons.  Of course, the Fed is always political in a sense.  But even if there were no election, I think the Fed would still be doing the same thing.  Even though asset prices are high, they see the inverted yield curve, and they see the slowdown in the economy coming.  All they know how to do with this problem is drop rates and create more money.  The creating of new money will come later.

The Election

It looks like the Democrats may get away with having an election without an economic meltdown.  It has already been a meltdown with middle-class America, but they can point to positive GDP and a booming stock market.

Things could change in the next 7 weeks, but we are running out of time.  It looks like the recession won’t become evident until after the voting happens.

It is still surprising that Donald Trump did not talk even more about the economy than he did at the debate.  Harris couldn’t answer the question about whether Americans are better off today than four years ago.

Trump went off on immigration, which is certainly important to some people, but he failed to show sufficient empathy towards those who are just struggling to pay their bills.  From his standpoint, that should have been his focus at the debate.  It should be the focus of his campaign.

And the answer is certainly not more tariffs.  That will just raise prices that much more.  The answer is to dramatically reduce government spending, but that tends to not be a winning message.

No matter who wins the election, the yield curve is still somewhat inverted, and there is no preventing the coming recession.  No matter what happens, there will be economic turmoil and there will be political turmoil.  That is to put it mildly.