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The US consumer price level (inflation) rose by 4.2% year-on-year in April. Analysts were expecting a rate of 3.6%. Such an increase has not been seen in America for more than 20 years. Naturally, the dollar began to rise immediately, and all risky assets sold off.
S&P 500
Does Fed chief Jerome Powell think everything is under control?
What 2% annual inflation can we talk about when the Bloomberg Commodity Index of 23 commodities has risen by half in the last 7 months? The argument that rising commodity costs will have no effect on rising goods costs is a 5th grade schoolboy’s argument.
That said, the Fed has 2 main objectives. They are to ensure minimum unemployment and to keep inflation no higher than 2%. Both objectives have completely failed. The unemployment rate remains above 6% and inflation is already more than double the target.
What should the Fed do to stop the depreciation of the US dollar? Of course, raise interest rates and stop printing money out of control. Instead we hear assurances from the head of the Fed that everything is under control.
However, everything that Jerome Powell will say is known in advance. And it really is a mockery of common sense. Then why does the head of the Fed keep doing it? And why does the American elite, gritting their teeth, support him?
The answer is that the Fed is trapped. It has no good moves left. Anything it doesn’t do will be a bad decision.
Suppose the Fed raises the rate to 4% tomorrow. The outcome would be the following:
– A stock market crash and the ruin of many companies kept afloat by cheap money alone.
– Rising unemployment. Yes, a rise above the 6% mark.
– And worst of all. The US debt is $40 trillion. At 4%, it would need to spend $1.2 trillion annually just to service the debt.
How did America get to this point?
14.30 US retail sales in April
16.00 US University of Michigan Consumer Confidence Index for May
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