The Fed is arguing about inflation… as if they have a clue what they are talking about.
According to Team Trump, inflation has been defeated. One of President Trump’s closest economic advisors, Stephen Miran, has argued that “market-based” inflation is in fact close to 2%, despite the official inflation metrics (Consumer Price Index, CPI and Personal Consumption Expenditures, PCE) being closer to 3%. He is openly calling for the Fed to cut rates by 0.5% instead of the usual 0.2% rate cuts.
By way of contrast, numerous other Fed officials are concerned that inflation is NOT tamed. They point to countless metrics which indicate inflation has NOT hit the Fed’s preferred target of 2%. In fact, if anything, inflationary pressures are broadening in the data with nearly HALF (47%) of the components that make up the Core-PCE clocking in at over 3% year over year.
How is this possible? How can two sets of intelligent people have such different views over the same data?
The answer is that the inflation data in the U.S. is a joke and has been for years. So, the current inflation debate at the Fed is basically a bunch of white-collar intellectuals arguing over their interpretation of imaginary entity like the tooth fairy.
Some of the more egregious issues with the inflation data:
- The measures for shelter, which are the single largest component of the data, are estimates that the Fed invented, NOT market-based measures.
- The data doesn’t include food or energy prices, because after all, who actually needs those to survive?
- The data is so massaged and gimmicked that it claims healthcare insurance costs only rise 2%-5% per year. I’ve yet to meet a single person whose insurance costs rise that slowly.
And on and on.
The reality is that ALL of the inflation data is in the U.S. is designed to do one thing: understate the true rate of inflation to hide the fact that living standards have declined in the U.S. for decades.
This fact stares all of us in the face every day, but no one in the media or at the Fed has the decency to admit it publicly.
In the 1950s most families did fine with one parent working. Today, typically both parents work AND the family has a mortgage, credit card debt, auto loan AND possibly a student loan.
The above is IMPOSSIBLE if inflation is anywhere near the claimed rate.
The reality is that the true cost of living in the U.S. has skyrocketed relative to incomes in the U.S. at least since the 1970s. So, when Fed officials debate inflation in public, they’re basically debating an imaginary number that has no connection to reality.
I know this. You know it. And the markets know it as well.
People like to point to stocks as signaling that everyone is wealthier today than they were two decades ago. According to the charts, the S&P 500 is up over 400% during that time.
However, stocks are priced in the U.S. dollar. And thanks to the true state of inflation, the U.S. dollar has lost over 40% of its purchasing power during that time. When you price stocks in gold, which cannot be devalued, the S&P 500 is actually DOWN since 2006.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research
