The truth always comes out. Sooner or later. It is only a matter of time.
For Jerome Powell and its “transitory” inflation, it came to light on November 30, 2021, during a Senate hearing.
Since the beginning of the year, the Fed chairman had indeed done everything to dismiss the idea of persistently high inflation in America. At first, he denied the obvious. As the rate of inflation in America increased, Jerome Powell had to adapt to talk about transitory inflation.
Since this transitory inflation had been persisting for several months, Jerome Powell had to change his speech again at the beginning of November 2021 when the inflation figures for October in America were revealed. Inflation of 6.2% indeed required a change of tone. When announcing the Fed's tapering, Jerome Powell started to talk about transitory conditions leading to this persistent high inflation.
The Fed chairman's ostrich policy continued to be applied to the letter.
Jerome Powell finally admits the truth about inflation being persistent
Just confirmed by Joe Biden for a second term at the head of the Fed, Jerome Powell must now officially face the facts: this inflation is not transitory, unfortunately.
During his Senate hearing on November 30, 2021, Jerome Powell stopped talking about transitory inflation. By dint of pushing back the horizon of a lull in rising prices, the Federal Reserve Chairman agreed that it was time to put the phrase away:
“Clearly, the risk of persistent inflation has grown.”
While this is not a surprise in itself to anyone who can step back and analyze things for themselves, Jerome Powell finally admitting the truth sent stock market indexes in New York tumbling. This came on top of the concern over the announcement of the discovery of the Omicron variant on November 26, 2021, in South Africa.
While one-year consumer prices jumped 6.2% in October 2021, the Fed favored another indicator (PCE). But this one follows the same trend, with a 5% jump over twelve months (+4.1% excluding food and energy). It is therefore impossible to continue to deny the obvious for Jerome Powell:
“The factors pushing up inflation will continue well into next year.”
The tapering schedule could be accelerated
Now that he has received the support of Joe Biden for a second term, Jerome Powell went one step further during his hearing before the Senate: he thus judged that it would be “appropriate” to discuss soon within the Federal Open Market Committee (FOMC) acceleration of the end of asset purchases (Treasury bonds and mortgages).
The tapering announced at the beginning of November had a rather modest timetable with a reduction of 15 billion dollars of asset purchases per month. Since the Fed was starting with a minimum of $120 billion of purchases each month since March 2020, this would take us to mid-2022. According to Jerome Powell, the increase in key rates should only occur at the end of this tapering.
Since this announcement, calls from economists and members of parliament have multiplied in America to cool down a monetary policy considered too accommodating. In order not to contradict himself, Jerome Powell justified a potential acceleration of the tapering by the strong job creation of October 2021 in America. A better understanding of the job market, which is constrained by a reduced supply, will be one of the five major tasks awaiting Jerome Powell during his second term as Fed Chairman.
The Fed's two mandates are clear: ensure price stability and maximum employment. To hope to return to the pre-pandemic labor market, Jerome Powell said it would take “a long expansion and stable prices”.
The Omicron variant could however be the pretext found by the Fed to continue a soft tapering
The next meeting of the FOMC will be held on December 14 and 15, 2021. By then, new indicators will be available with the number of job creations and consumer prices for November 2021. Jerome Powell also hopes that scientists will have been able to give more information on the dangerousness of the Omicron variant.
Because this Omicron variant leaves huge risks on the economy for Jerome Powell:
“The recent increase in the number of Covid-19 cases and the emergence of the Omicron variant present downside risks to employment and economic activity and increased uncertainty for inflation. Increased fears about the virus could reduce people's willingness to work in person, slowing labor market progress and intensifying supply chain disruptions.”
While inflation is now clearly a political issue for Joe Biden, and the White House has begun to activate an initial lever to combat it with the use of strategic petroleum reserves, the current turbulent environment has reignited Republican attacks on Democratic investment plans, particularly the Build Back Better plan, which still needs to be voted on in the Senate.
Treasury Secretary Janet Yellen, who was also heard on November 30, 2021, has been abused by the Republicans on the possible inflationary impact of the plan. A point on which Jerome Powell did not want to comment.
You need to make the right decisions to protect yourself. Bitcoin is your best hedge.
As I frequently say, as individuals, we are obliged to pay attention to what the Fed says and does if we want to take care of our money future. While it was obvious that high inflation was not transitory, to see Jerome Powell acknowledge it in this way is a game-changer.
For those of you in the stock market, it's time to consider taking profits in anticipation of the next few hectic months when a stock market crash could end the current bubble. Nothing urgent yet, but we need to start preparing an exit strategy. Then, it is obvious that we have to look for a hedge against this inflation.
And here again, you know the best-performing solution at the moment: Bitcoin.
Bitcoin's performance since the beginning of the COVID-19 pandemic has confirmed that it is now a store of value that is supplanting gold. Bitcoin's market cap is still 10 times smaller than gold's, but the current trend is clear: Bitcoin has the potential to overtake gold's market cap within the next decade.
If you believe in Bitcoin fundamentally, the good news is that the current macroeconomic conditions are going to make more and more people aware of what the Bitcoin system brings. It is therefore essential to continue to think long-term with Bitcoin by adopting a HODLing Bitcoin no matter what strategy.
More from the Fed will come in mid-December 2021.
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