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The Fed just cut interest rates by a quarter point, again!
But this time it’s trying to turn up the volume a bit on its anti-inflation rhetoric — trying to send the message that it “really means it.”
Baloney!
Instead of following Teddy Roosevelt’s dictum to talk softly but carry a big stick, the Fed’s talk is loud but its stick is non-existent.
Indeed, to make a dent in galloping energy costs, surging food prices and double-digit import inflation, the Fed would have to do a heck of a lot more than just talk.
To make a real difference, the Fed would have to jack up rates above and beyond the level of inflation!
But right now, even using the government’s jury-rigged CPI, inflation is running at 4%. And with today’s cut, the Fed funds rate is only 2%.
That means the real interest rate (minus inflation) is a full two percentage points below zero!
Strange, but true. Money here in the U.S. isn’t just cheap. Nor is it merely free. Instead, lenders are actually dishing out the money, and, after adjusting for inflation, they’re effectively paying borrowers to take it off their hands.
That just goes to show you how far the Fed has gone to drive rates down … and how little they’ve heeded the blatant warning signs of potentially rampant inflation.
Has this happened before in our lifetime? Yes, but only once — in the late 1970s. And that time it created such a hotbed of inflation that consumer prices, even as measured by the government, were soon zooming at a double-digit pace, the worst inflation since the Civil War.
Regardless of what may happen in the short term, this is not exactly good for the U.S. dollar.
Indeed, as long as real interest rates in the U.S. are below zero, and as long as the Fed’s actions to defend the dollar are little more than talk, the dollar’s ultimately doomed to much deeper declines.
You must act to protect yourself. Plus, for some of your money, the best defense is a solid offense, turning this situation into a potentially magnificent profit opportunity.
And no matter what, stay safe!
Good luck and God bless!
Martin
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Mathias Korzan, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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