The Fed Monetary Policy Giant Blunder Part 1

Feds Miss the Mark on Why Inflation Remains Too Low for Economic Prosperity

The Federal Reserve Bank remarked this week that they had no idea why Inflation remains below their target of 2%.  They are baffled that their maintenance of lower interest rates and their current monetary policy is not working. Their blunder is enormous as the answer is right in front of them.

The Fed has examined the fact that corporations are still reluctant to give employees raises, despite the over employment situation and the lack of skilled workers to fill openings. They are surprised by the fact that corporate America is not finding any need to increase wages despite the fact that unemployment claims have dropped to 1073 levels. Usually as employment rates rise so do wages and salaries. But that is not the case this time, even with lower interest rates which are supposedly intended to fuel economic recovery.

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Payroll is a key factor for inflation as an economy expands inflation is typically inevitable as wages and salaries rise, and then consumer products and services rise in price as corporations are forced to increase their consumer prices to offset the increase in payroll costs.

This has not happened even as the Feds risk dangerously high levels of money flowing through the system, and drag out the inevitable need to raise the base interest rates charged to banks for overnight lending by the Feds. The risks of too much money flooding the monetary system has been dismissed by the Feds for several years now, as they continue to cite the need for “eased money via lower interest rates.”

The question should be: Is the policy sound or is it outdated, exploited and if so by whom?

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Without inflation, is the economy robust and growing or is the economy stagnated? For the average middle class American, the problem of meager to no raises in hourly or salaries for many years is slowly eroding their ability to be middle class consumers. That weakens the retail industry, auto industry, and many other consumer product based industries all of which are struggling at this time.

It is alarming to witness the Feds inability to pinpoint why this is occurring, what factors are causing the lack of inflation aka expansion of the middle-class income which triggers consumer spending. Is it that consumers are afraid to spend? Is it that there are hidden inflationary pressures not evident in the data that the Feds study? Is it because the economy is not that strong? Which is one of several theories economists and the Feds have considered.

The reason why the conditions are present is obvious, if you know what data is most important. There IS inflation in the system, it is just not in consumer income and consumer spending. It is elsewhere but the Feds ignore this reality, as they ignored the reality of a red hot Real Estate Market poised for a massive implosion and Credit Default Swaps sales by banks totally out of control.

Low interest rates keep the Dollar value down in a type of manipulation of the value. This downtrend for the Dollar value started in early 2017 and continues.

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The Weekly Chart of $DXYO the US Dollar Index, shows the bear cycle for the US dollar in 2017. Lower interest rates are primarily to blame along with inflation that is too low for an economy, which is supposedly robust as stated by the Feds recently.

Summary

The Feds are wrong when they say inflation is too low. There IS inflation in the economy but the Feds are looking in the wrong place.  This poses great risk to the middle-class Americans.

Next Week: Where is the inflation and how does it affect your job, your family, your retirement, and your future. We will use charts and data to show where the inflation is occurring and explain why.

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Trade Wisely,

Martha Stokes CMT

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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