{"id":321725,"date":"2022-10-21T04:00:19","date_gmt":"2022-10-21T08:00:19","guid":{"rendered":"https:\/\/www.sgtreport.com\/?p=321725"},"modified":"2022-10-20T13:17:06","modified_gmt":"2022-10-20T17:17:06","slug":"i-call-the-feds-bluff-theyll-pivot-long-before-inflation-hits-2","status":"publish","type":"post","link":"https:\/\/www.sgtreport.com\/2022\/10\/i-call-the-feds-bluff-theyll-pivot-long-before-inflation-hits-2\/","title":{"rendered":"I Call the Fed\u2019s Bluff: They\u2019ll Pivot Long Before Inflation Hits 2%"},"content":{"rendered":"
by Jeff Clark, GoldSilver<\/a>:<\/em><\/p>\n <\/p>\n It was a fight!<\/p>\n My keynote presentation at the New Orleans Investment Conference pitted the Fed against gold, me playing both parts by using different caps when one or the other was talking. I wanted to do this because I\u2019m continually flabbergasted by how much faith mainstream economists and investors put in what the Fed says, what I view as nothing much more than marketing.<\/p>\n TRUTH LIVES on at\u00a0https:\/\/sgtreport.tv\/<\/a><\/p>\n So, I decided I would go through 5 major claims from the Fed, and then have gold refute each one of them\u2014using the Fed\u2019s own data. It was both fun and useful, and we\u2019ll post the video once it\u2019s available.<\/p>\n One of those claims is the Fed\u2019s public statement that they\u2019ll lower the CPI to 2% by \u201clate 2023.\u201d This is a joke on its face. Here\u2019s the proof, right from the Fed\u2019s\u00a0own<\/em>\u00a0data\u2026<\/p>\n Fed Chair Jerome Powell said last month that they are \u201cresolute\u201d in bringing down inflation. They \u201chave the tools\u201d and \u201cit\u2019s been done before,\u201d referring to the Paul Volker days when inflation was in runaway mode and he brought it down.<\/p>\n But history shows it wasn\u2019t that simple. And it definitely wasn\u2019t that quick.<\/p>\n This chart shows the CPI (bars) and the Fed Funds Effective Rate (line) from the time Paul Volker was hired in 1979. Look how long it took for him and his team to get inflation below 5%.<\/p>\n <\/p>\n After Paul Volker was hired, the CPI continued to rise for over a year. In other words, the tools the Fed used at the time took a substantial amount of time to begin to work.<\/p>\n Further,\u00a0it took the Fed almost 5 years to push inflation below 5%<\/strong>. Those counting on inflation to cool had a long wait.<\/p>\n And then look what happened\u2026 the CPI popped back up to 7% almost right away and didn\u2019t fall below 5% again for another two years.<\/p>\n You might claim that inflation today is nowhere near the lofty levels of the 1980s. True\u2014but it\u2019s all relative. Reducing inflation from 22% to 5% is the rough equivalent of reducing it today from the 8% range to 2%. Both require the CPI to fall by over 70%.<\/p>\n What\u2019s clear from the historical record is that lowering inflation from high levels\u2026<\/p>\n The Fed proclaiming they\u2019ll do it a year is poppycock. You can believe them if you want, but history shows it is quite different than the lofty proclamations they\u2019re making. More likely is that it\u2019ll take years. With the added bonus that it doesn\u2019t stay down but pops back up again.<\/p>\n There\u2019s something else\u2026<\/p>\n The consensus of most analysts is that the Fed will stop raising rates once they \u201cbreak something.\u201d<\/p>\n That could be any number of things:<\/p>\n Most analysts are focused on when the Fed might \u201cpause.\u201d But what many are not expecting is a full-blown pivot, where they begin to lower rates again. It could come quicker than most realize.<\/p>\n You want to guess how long it takes the Fed to lower rates after the last time they hike them? Most people are shocked when they see this data.<\/p>\n <\/p>\n Looking at all rate hike cycles since the 1950s, the average time from the last rate hike to the first rate cut is a measly 5 months!<\/strong><\/p>\n This is an abrupt reversal from a governing board that just 5 months earlier was\u00a0raising<\/em>\u00a0rates. Not only does this question their acumen and foresight, but it also means we can reasonably expect the Fed to begin lowering rates not long after they pause.<\/p>\nThe Ghost of Paul Volker<\/h3>\n
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What a Fed Pivot Historically Looks Like<\/h3>\n
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