A big week for the Federal Reserve.
Though the chairman was nominated to serve another term, he and his board are coming under increasing criticism for underestimating inflation.
Last week, it was reported that inflation hit 6.8%, which is the highest since the Carter administration.
The problem appears to be the Federal Reserve won’t admit missing the fact that the problem is on the supply side not on the demand side.
The Fed has been easing monetary policies to help consumers overcome the economic adversity from the pandemic.
That created demand, but we can’t get the product to the consumer.
You can start with your next visit to fill your car with gas.
Next stop to buy groceries and the desert is when you go to your Big Box home repair store.
The fact is that you will spend more than you planned.
The real problem with inflation is that it pushes people to make poor financial decisions.
You don’t need a master’s degree in finance to understand that this level of inflation makes your savings at the bank worth less.
Getting almost 0 percent is a loser against almost 7% inflation.
This encourages people to take more risk.
Many invest in stocks with the only knowledge based on what they hear over coffee on the news about gains in FANG stocks.
Apple, for instance, rose 80% last year and is up another 30% this year.
Its capital value is approaching $3 trillion.
Why wouldn’t one put their savings toward purchasing Apple stock?
Moreover, add Amazon and Google to that investment.
Many people would purchase real estate, assuming they could qualify for the loan.
This what has happened in 2021 and it will be a very Merry Christmas.
All that said, what will happen next year?
That is where the actions of the Fed come into play.
There are those who feel the Fed will have to come to the table with interest-rate increases.
As usual, they will be late to the game and their tardiness may necessitate bigger than expected rate increases.
To say that it will not be received well is an understatement.
The real crux will be whether this means a correction with further movement north or the return of the bear.
I don’t see the Fed jumping rates significantly any time soon.
They will end easy monetary policies and the rate will have a long way to go before it even hits 2%, much less 3%.
It is an election year and I don’t care what anyone says, the Fed is not immune from politics.
There is all the reason in the world that this market can rise right along with rates.
It doesn’t make historical sense, but nothing of late about his market make sense.
