Image source: Wikipedia

The Fed will be forced to start easing sooner rather than later.

Yesterday’s Fed FOMC announcement was a non-event, with the Fed leaving rates unchanged. The more interesting aspect of the meeting came from the level of delusion that Fed Chair Jerome Powell maintained during the subsequent Q&A session.

Specifically, Chair Powell maintained his bizarre argument that tariffs are inflationary, and could be highly inflationary depending on how high they remain. He said this with a straight face after acknowledging that consumer and business sentiment has fallen due to the trade war.

So… business and consumers feel worse due to the trade war, which means they’re less likely to spend money… and this is somehow inflationary?

No, the trade war has been highly DE-flationary, with companies ranging from Southwest Airlines LUV to Chipotle CMG, McDonalds MCD, PepsiCo PEP and even Walmart WMT stating that consumer spending has taken a BIG hit in the last month. In some cases, the collapse in spending has been the worst since the pandemic!

Moreover, there are clear and OBVIOUS cracks appearing in the labor market. Average Weekly Hours for All Employees in the private sector has collapsed down to pandemic levels. In fact, the only time it’s been lower in the last 20 years was during the Great Financial Crisis!

(Click on image to enlarge)

Let’s cut through the nonsense here. The Fed is WAY behind the curve once again. Rather than taking action to cushion the coming economic contraction, the Fed is prattling on about the potential inflationary impacts of tariffs (many of which haven’t even been put into place yet)!

We’ve seen this story before. It ends with the Fed realizing it screwed up and panicking with rapid rate cuts and more QE. I know it. You know it. And gold knows it, which is why it’s ripping higher once again.

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