After Tuesday's half-point rate (.50) cut, I sometimes wonder if the Fed really knows what's going on.
For example, after every FOMC meeting, a statement is released to the public.
As you'll see, one month inflation is a problem, and the next month, "core" inflation has "modestly improved".
On August 7th, the statement on inflation read;
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.
On Tuesday, the statement on inflation read;
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Here is my take on inflation. After Tuesday’s rate cut, inflation has gotten "modestly out of control".
The "Core" rate is meaningless. It excludes "real" items that "real" people count on daily. You cannot excluding certain items from the index (food and energy) and get an accurate read on the CPI.
So, what should the Fed have done???
Sometimes you have to bite the bullet. By not allowing the free markets to adjust its mistakes on their own, you cause a whole new set of mistakes that could result in a more painful consequence.
Putting a band-aid on an open gash may stop the bleeding, but eventually the healing process will leave a nasty scar for many years to come.
For example;
When central bankers begin to print money during inflationary periods, they are just creating a bigger problem. During times of economic crisis and low inflation, printing money is not a bad thing.
Gold (the real indicator of inflation and a stable currency) is quoted at $738.70, up + $15.70.- Today's Metals Quotes.
Oil is quoted $80.65, down -.20.- Today's Energy Quotes.
Here are the futures prices on Grain (Food) Commodities.
Quotes on Meats- Beef, Pork, Milk, Butter.
U.S. Dollar is in a depression- Currency Quotes.
The Dollar is now valued at $2.05 to the pound and to $1.38 to the euro. In Paris, American's are paying 9.5 euros for a can of Coke. Hotels in London are fetching $500 a night.
In short, prices for what you buy are going up. The dollars you use to buy these products is going down. Do you want to take a trip overseas? Forget about it. The dollars in your pocket
are like monopoly money.
This being said, remember what the Fed is telling you. "Readings on core inflation have improved modestly this year."
