My first car was always overheating. It was old and had over two hundred thousand miles on it and I think the radiator must have looked like Swiss cheese. Not to mention, I drove it hard. I learned quickly to keep an eye on the temperature gauge, or I would have a lot bigger problem.
The Federal Reserve has some gauges showing some signs of overheating too. Chairman Powell has been saying all year that inflation wasn’t going to be a problem. He hasn’t wavered in his belief that their policy of continuing to pour massive amounts of money into the market wouldn’t affect inflation. He even gave us some gauges (benchmarks) to watch when he spoke at their annual Jackson Hole conference last August to show the inflation was temporary.
Here are how Chairman Powell’s different inflation gauges (benchmarks) are reading so far:
1. Is the inflation in only a few areas or widespread across many fronts?
Powell said in August that the increased inflation would only be in goods and services, but now we are seeing inflation across all fronts.
2. Are employee wages being affected?
In August, Powell said wages wouldn’t increase which would compound the inflation. But that is not what has happened. In the last three months, wages and salaries increased to record levels according to Marketwatch which caused employers to raise prices to cover their labor costs.
3. Is technology continuing to keep inflation in check?
Usually, technological advances help keep inflation in check by making manufacturing and other things faster and cheaper. But even technology isn’t keeping these prices down. Prices for importing things from outside the country are one of the best gauges for inflation and they have risen dramatically this year despite good technology. Bloomberg is reporting that U.S. import prices have increased at the quickest pace in a decade.
From spreading price increases led by cars, food, gasoline, electricity, and fuel oil to rising wages and salaries, it seems Chairman Powell’s different inflation gauges are showing concern. The Fed’s favorite inflation gauge, the personal consumption expenditures price index, went up year-on-year 4.4% in September more than double the Fed’s 2% goal and the most since 1991 according to Bloomberg.
Am I worried about inflation? No, I’m not, but I am paying attention to it because it affects investments and the overall market. I’m particularly interested to see how the Federal Reserve moves to try to correct it. Having been a guy stranded on the side of the road with an overheated car I know the value of watching gauges. Inflation is overheating and the Fed will need to do something to correct it, but will it be a patch or a new radiator?
Have a blessed week!
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