Bill Ackman doubts Fed 2% inflation target, and he believes the current backdrop of supply chain disruptions and pay strikes will force Fed chair Powell to raise the inflation threshold rate.
“The 2% inflation target is no longer credible. De-globalization, the transition to alternative energy, the need to pay workers more, and lower-risk, shorter supply chains are all inflationary. The Fed cannot change its target now, but will likely do so in the future,” tweeted Bill Ackman, here.
“The 2% inflation target is no longer credible”
Bill Ackman
Perhaps Powell is well aware inflation can not be tamed with negative real rates, which is why Bill Ackman doubts Fed’s 2% inflation target
So the anticipated Fed hike of 50 basis points in December takes the Fed fund rate to 4.5% in the face of a December CPI of 7.2% is still a negative 2.7% real interest rate.
Moreover, the 24 trillion USD treasury market, the pinnacle of prime western collateral remains negative yielding, in the face of 7.2% inflation.
The sovereign debt market is more perilous in Europe, where inflation is in the double digits and there is a currency crisis making the cost of living crisis worse since WW2.
If the Fed wanted to tame inflation then restrictive monetary policy would be to set rates above the current 7.2% inflation.
But Fed chair Powell knows he doesn’t have much wriggle room with a public deficit of 31 trillion USD and where interest payments are above 500 billion USD, the fourth largest payment item of the budget deficit.
“If the Fed wanted to tame inflation then restrictive monetary policy would be to set rates above the current 7.2% inflation”
WEALTH TRAINING COMPANY
The current Fed fund rate of 4.50% remains accommodating by historic perspectives, bearing in mind US interest rates averaged 5.42 percent from 1971 until 2022.
The Fed fund rate is minuscule compared to the Fed fund rate of 20% in March 1980, when inflation reached 14%.
So the current 4.50% is accommodative, by historic perspectives, and with core inflation at around 7.2%. The Fed hikes will do nothing to tame inflation because the hyperinflation is in food and energy.
So perhaps Powell’s next play is to make inflation look part of the plan, maybe it was meant to be that way all along.
“As one former Fed head said, don’t expect me to tell you to head for the hills. But if the treasury market indicates trouble ahead, perhaps that is what investors should be doing” – Wealth Training Company
Think about it. How else can the Federal government pay down a 31 trillion dollar debt, other than inflating the debt away?
Inflation robs savers and benefits debtors, the largest being the US federal government.
So the deficit is paid by monetizing ever more debt, which further debases the currency, making the debt less burdensome.
Bill Ackman doubts Fed 2% inflation and if correct, treasury yields could go higher
The study of the Fed reveals that Fed heads never give those outside the banking cartel, the private shareholders of the Fed, a heads up.
As one former Fed head said, don’t expect me to tell you to head for the hills. But if the treasury market indicates trouble ahead, perhaps that is what investors should be doing.
Higher treasury yields will suck global liquidity dry, potentially triggering a global depression. The Empire created all that liquidity, and now they want it back.
