Listening to Jerome Powell's testimony today gave me the distinct impression that the FED is in complete denial about inflation. He used terms like "transitory", "passing", and "temporary" to describe the ill-effects of inflation on the economy. He persistently pointed the finger at "durable goods" as the primary reason inflation was as high as it is. And he went on to say about how his predecessors made a mistake in fighting inflation too early back in the 1950's.
It wasn't long ago when the FED at least gave lip service to getting ahead of inflation. This FED has their head in the sand when it comes to persistent pricing pressures and real live shortages of goods. I personally find their outlook frightening. The largest and most powerful central banker in the world is essentially waving off inflation pressures.
Just as concerning was the multiple contradictions Powell made. Several times he used the word "unprecendented" or something akin to that in describing the current economic situation following the outbreak of Covid. Of course, I can't deny the past 18 months have been unprecendented. But Powell then went on to quote historical data as if these times were not unique in any way. Either, the post pandemic economy is unique and thus history is not a good guide or the post pandemic economy is analagous to some other time in history and that time in history would be a good guide in navigating the current environment. However, he states that "no, there is no other time like now" to justify titanic monetary inflation and then reverses course and says, and I"m paraphasing here, "we can't do it like they did back in the 50's and fight inflation until it has firmly set in".
Of course, the equity markets responded well to Powell's comments. Both equities and treasuries are higher on the news that the FED is perfectly willing to whiff in their fight against inflation. But what happens when more shortages take place? What if consumers start hording? What if, and I shudder to think of it, interest rates begin to provide a real return in excess of inflation?
While the FED is laying down, we are taking a proactive approach to fighting inflation for our clients. We are investing in hard assets and not just gold and oil. We are also allocating capital to agriculture through both equities and futures. For quite some time, alternative energy including uranium has been a favored inflation play of ours. Recently, we have added rare earth minerals as well and thus far our positions in this space are doing well. We wholeheartedly disagree with the transitory narritive being used to discount future inflation. And we believe our strategy will benefit from an a strong inflation emphasis.