NY Fed President William Dudley says it may take "several years" before inflation returns to levels consistent with the Fed's mandate. Exactly when did the Fed establish a floor for "acceptable inflation?" Where is that floor: 2%? (The core PCE index is currently up 1.4% for the year.) If we are below the floor, where's the ceiling: 3%? 4%? In 1971, President Nixon imposed price controls when inflation averaged 4%. That rate was considered so high that emergency measures were needed. Is that still the case? How much higher do costs have to go for cash-strapped Americans before the Fed can be expected to take its foot off the gas?
Without better understanding of where these parameters lie for the Fed, the markets will be flying blind through an impenetrable fog.
If the Fed were serious about maintaining long-term price stability, which is its actual mandate, it would need to allow prices to fall after the speculative booms that it helped create. As we saw in the 1980s, unemployment resolves itself when the monetary system is sound, but no one will hire under the uncertainty of a rogue, inflationary Federal Reserve. As people on fixed incomes, increasingly impoverished by low yields and rising prices, desperately re-enter the work force, look for unemployment to head higher.
Peter Schiff`s comments on the economy, stock markets, politics and gold. Schiff is the renowned writer of the bestseller Crash Proof: How to Profit from the Coming Economic Collapse.