Talk Is Cheap… Inflation Is Not
Amanda Heckman|April 9, 2022
The Federal Reserve came out swinging against inflation this week.
Gone is the timidness and the talk of gentle 25-basis-point hikes.
The Fed is now taking a tougher stance, insisting that the only way to get a handle on the biggest inflation spike we’ve seen in decades… is to go BIG.
But talk is cheap (and inflation is not).
In other words… we’ll believe it when we see it.
Nasty and Ugly
If you’ll recall, the Fed took a cautious stance with its rate hike in March. Citing concerns over Ukraine, it inched rates just slightly higher so as not to spook anyone.
But with predictions that the March inflation numbers (which come out next week) will be “nasty” and “ugly”…
The Fed’s feeling the pressure more than ever.
St. Louis Fed President James Bullard did some damage control this week. In a speech on Thursday, he tried to convince folks that things aren’t as bad as they seem.
He said the Fed needs to raise rates substantially to control inflation… and that, really, they aren’t as far behind the curve as it seems.
Sure.
Given the huge misstep they made by insisting for months that inflation was “transitory”… we’d say they’re so far behind the curve they can’t even see it.
After all, Bullard is now calling for 100-basis-point hikes by June, which – according to our calendar, anyway – is less than two months away.
That’s some big talk for being just “a little behind the curve.”
Joining the chorus, Fed Governor Lael Brainard also tried to reassure folks on Tuesday that her team was dealing with the inflation mess (that, ahem, they created).
“It is of paramount importance to get inflation down,” Brainard said.
Then she added this head-scratcher:
The committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.
If?
With inflation raging at 40-year highs, we’d say we left uncertainty in the dust a long time ago.
Go BIG
That’s why the only solution is for the Fed to go big… to pull a page from former Fed Chair Paul Volcker’s book.
It’s time for the next “Saturday Night Special.”
On the evening of October 6, 1979, [Volcker] unholstered his “Saturday Night Special.” It was a series of big, swift moves. It changed the way the Federal Reserve fought inflation. Gone were the timid, step-by-step moves his predecessors had failingly used in an attempt to tame market volatility and runaway prices…
Volcker knew he was creating a recession – and a nasty one at that – but he was convinced his recession would be less lethal than what would come if his Fed did nothing.
The Fed’s done some serious damage with its timid approach to correcting the course we’re speeding down.
They took big, bold moves to rescue the economy in March 2020 (and in 2009 before that) with near-zero interest rates and endless money printing. It’s going to take moves just as big to clean up the mess all the rescuing has left behind.
Enough with the talk. It’s past time to take action.
Amanda Heckman
Amanda Heckman is the editorial director of Manward Press. With unrivaled meticulousness, she has spent the past 15 or so years in the financial publishing industry. A classically trained musician and a skilled writer in her own right, Amanda takes an artistic approach to the complex world of investing. Her skill has led her to work with numerous bestselling authors, award-winning financial gurus, and – lucky for us – the fine folks at Manward Press.
