Powell: Don’t Call High Inflation “Transitory”

Fed Chairman Jerome Powell


That was the word on my mind this morning as I read the latest statement from Fed Chairman Jerome Powell. After over a year of insisting that high inflation was merely transitory, Powell finally said “uncle” today when he admitted that it was “time to retire the word transitory regarding inflation.”

Powell continued, adding that the “threat of persistently higher inflation has grown.”

Does that ring a bell to anyone?

We’ve been arguing that high inflation would be a longer-term problem ever since Powell and Treasury Secretary Janet Yellen claimed it wouldn’t.

Now, following month-after-month of sky-high inflation prints, Powell’s thrown in the towel. Yellen will probably capitulate also so as to provide the façade of a united front against runaway prices.

I’d be more than happy to take a victory lap on this considering how much Powell, Yellen, the White House, and mainstream financial media have repeatedly balked at the notion of persistently high inflation.

But it’s really nothing to feel good about. The fact that it took this long for the most powerful central bank in the world to finally “catch up” with rational investors should be seen as extremely demoralizing.

These are the same people who control the US’s financial future. And they got inflation completely wrong.

Even worse, it’s likely too late to course-correct without decimating the US economy. The market already shrieked at the notion of that this morning when Powell’s remarks initially hit the airwaves. Then, he followed up with a comment that shook bulls to their very core:

“At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases […] perhaps a few months sooner,” Powell said. “I expect that we will discuss that at our upcoming meeting.”

All three major indexes sunk in response. The dollar soared, applying additional pressure to equities while gouging crypto and precious metals. The Dow officially entered “free fall” territory, dragging the S&P below last Friday’s low. Only the Nasdaq Composite remains within striking distance of its recent highs despite also tumbling.

Analysts went into full panic mode as a result.

“We have to expect […] that the scenarios, all scenarios, include discoveries of people in this country with Omicron and talk that the vaccines don’t work or if they did those who have had Covid have no immunity,” tweeted “Mad Money” host Jim Cramer.

“These all cause selling.”

Conversely, today’s news may be the last bearish gasp before another rally. The dip-buying has simply been too strong this year. That’s not to say stocks will touch new all-time highs in the coming weeks, though. They may have done so had Powell not come to his senses this morning.

Now, however, the taper timeline looks like it will shift forward. That’s delivered a veritable hammer blow to the market’s typically dependable seasonal trend. So, as we approach Christmas, beware of a fake “Santa rally” as dip-buyers flood back into stocks.

Traders who exit in time could make out like bandits with some short-term gains, of course. But for the buy-and-hold crowd, it’s arguably never been more dangerous to be a passive investor.


Please enter your comment!
Please enter your name here