by Midweek Memo
Compared to What the Fed Is Doing, What Powell & Company Are Saying Doesn’t Make a Lick of Sense
The central bankers at the Federal Reserve are saying one thing and doing another. They’re telling us that the economy is great and inflation isn’t completely dead. But they’re acting like the economy is crashing and inflation doesn’t matter. In this episode of the Money Metals’ Midweek Memo, host Mike Maharrey breaks down Fed officials’ recent words and actions and reminds us that actions speak louder than words.
Mike opened the show musing about TV commercials.
“One of the signs you’re getting is TV commercials stop making sense. It’s obvious that they are targeting a different age demographic than mine. And they’re just – weird. I don’t know how else to put it. There was some pharmaceutical commercial last night – think it was for some skin ailment – and this guy was stacking hamburgers on a raft in a swimming pool. What? I don’t get it.
“I feel exactly the same way when I listen to Federal Reserve people and watch what they’re doing.
“I don’t get it.”
Mike says what the Fed is saying and doing “doesn’t make a lick of sense.”
The Fed claims the economy is great and there is still some inflationary pressure.
“So, why did they just order a supersized rate cut? That’s the kind of thing you see in the early stages of a recession – or when people or worried about an election – er – I mean recession. What this tells me is that the central bankers are more worried about the impact of higher interest rates on this debt-riddled, bubble economy than they’re letting on. And as my mom used to say to me all the time, actions speak louder than words.”
Mike touches on the market reaction to the rate cuts, pointing out that they are juicing the stock market and have been ever since the Fed started signaling they were in the pipeline. Meanwhile, gold is outperforming stocks.
Mike then goes on to explain exactly what the Fed did — cut rates by 50 basis points. The FOMC also indicated it plans on cutting significantly more over the next 18 months.
So, what are the Fed people saying?
Even as they supersized the interest rate cut, Powell & Company talked about an ongoing elevated inflation risk and a strong economy. Mike quotes both Powell and Chicago Fed President Austan Goolsbee.
“While Powell and Company are saying the economy is strong and inflation isn’t quite beat, they’re acting like they don’t care about inflation at all, and we are in the midst of an economic downturn. At the least, the central bankers are worried about an economic crash. Simply put, you don’t aggressively ease monetary policy in a booming economy.”
Mike points out that while most of the mainstream consider this aggressive easing good news, starting an easing cycle with a half percent cut has historically been a prelude to a crisis.
Mike goes on to reiterate a point he’s made in previous shows – the Fed is once again expanding the money supply and this is, by definition, inflation.
“If expanding the money supply is inflationary, it logically follows that to slay price inflation, the Fed needed to significantly shrink the balance sheet. Rate hikes aren’t enough to ring all the liquidity out of the economy. In other words, if the Fed was serious about taming inflation, it would be talking about additional rate hikes and ramping up efforts to reduce the size of the balance sheet. It needs to undo the money creation of the past decade-plus. It didn’t, and it won’t.”
By slowing balance sheet reduction and super-sizing its initial rate cut, the Fed is telling you it plans to ramp up the inflation machine.
And why would it do that?
“Because, while they won’t say it out loud, the central bankers know the economy is addicted to easy money. They know the economy can’t function in a higher interest rate environment. (In fact, 5.5 percent is close to “normal” from a historical perspective.) And they know that they have probably already broken things in the economy.”
Mike sums up the show by saying, “The moral of the story is to watch what they’re doing and act accordingly.”
And what do you want to do when central bankers and politicians are destroying your money?
You want real money – gold and silver.
And that leads to Mike’s call to action – now is a great time to call 800-800-1865.