The Fed’s desperate rate-cut moves unveil economic weakness during the inflation crisis.

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In a distressing revelation, the Federal Reserve anticipates three rate cuts next year, acknowledging the challenge posed by persistent inflation. The economic engine falters as demand plummets for homes, vehicles, and goods, painting a grim picture of financial distress among Americans.

Once deemed a lifeline, credit cards are now avoided, sinking below pre-pandemic levels. Soaring default rates further darken the economic landscape. Powell’s unexpected dovish shift marks a stark departure from his recent hawkish stance, signaling an alarming shift. The Fed’s surrender to inflation raises concerns, leaving a trail of confusion and uncertainty.

Powell’s abrupt change of heart, advocating for cuts despite prior dismissals, prompts an unsettling question: What prompted this shift? The FOMC’s conflicting rate-cut projections for 2024 reveal unprecedented uncertainty, hinting at unseen threats on the economic horizon. Bond yields plummet, and the Goldman Financial Conditions Index eases into troublesome territory, exposing a fragile economic foundation.

As highlighted by Goldman Sachs, hedge funds swiftly retreat from US financials, reaching exposure levels unseen since March ’20. The financial system appears rattled, and the Fed’s desperate attempts to combat inflation unveil the vulnerabilities within our economic structure.

In this foreboding scenario, with the economic engine stuttering and the Fed taking drastic measures, we find ourselves on the brink of a potential crisis. The signals are flashing red, and the unsettling question lingers: What awaits us in the dark abyss of economic uncertainty?

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The Federal Reserve’s disregard for the quantity theory of money, which connects monetary supply with economic outcomes, seems flawed. The rapid increase in the money supply (M2) since 2020 led to high inflation, and its current sharp decline suggests an impending recession and possible deflation by 2025. This situation highlights concerns about the Fed’s current monetary strategy and the risk of economic downturns.

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Jim Grant, editor of “Grant’s Interest Rate Observer,” expects Federal Reserve Chair Jerome Powell to remain cautious due to persistent high inflation. Grant criticizes the Fed’s previous underestimation of inflation and predicts gradual rate cuts, later than the market anticipates. The Fed, which misjudged inflation as “transitory” in 2021, raised rates 11 times since March 2022. Banks like ING and UBS forecast varying timelines for rate cuts, while the Fed plans a modest reduction in 2024.

Inflation Here to Stay, Eroding Purchasing Power Indefinitely: Jim Grant