Could the Fed Actually Be Right?

The Skinny on Inflation Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Could the Fed Actually Be Right? - “Biden policies are, at least, partly responsible for the recent rise in unemployment and might be largely responsible”… - Could the Fed actually be right about inflation?… - “Don’t believe the hype”… Recommended Link [Urgent Crash Warning for TODAY, May 17, 2021]( [Read more here...]( Everyone already knows that the stock market is in a bubble… But now some experts are starting to predict that the bubble will burst sooner than anyone expected and hit harder than anyone could have imagined. With some experts saying that we could see a stock market sell-off of 80% or more as soon as next week… This could completely decimate the retirement saving of millions of Americans all at once. So if you care about you and your family’s wealth the time to act is NOW. That’s why we flew in one of the top traders in America to tell you exactly what you need to do to get ready for this impending crash… [Click Here To See His FREE Presentation]( Portsmouth, New Hampshire May 17, 2021 [Jim Rickards] Dear Reader, You can’t have it both ways, but that doesn’t mean you can’t try. That’s what Joe Biden is doing right now. On the one hand, Biden policies are, at least, partly responsible for the recent rise in unemployment and might be largely responsible. They’re also responsible for the inability of employers to hire employees so they can reopen their businesses and return to full capacity. If that sounds like a contradiction, it’s not. The unemployment rate is rising, and job losses are still high. In addition to those actually counted as unemployed, there’s a huge group of Americans, perhaps ten million or more individuals, who don’t have jobs but are not technically counted as unemployed because they’re not looking for jobs. There are always some people in this category who may be retired, homemakers, students or have other duties that keep them out of the workforce. But that does not account for the steep decline in labor force participation in recent years. So, if unemployment is high and labor force participation is low, why are employers having difficulties finding employees? Why Work When You Can Make More Sitting at Home? There are literally millions of able-bodied Americans between the ages of 25-59 who are sitting around without jobs. Why won’t they take the jobs being offered? The reason is that millions of Americans make more money on unemployment and other benefits than they could make working. Unemployment benefits have been increased and extended with a $300 per week supplement on top of regular benefits. Other benefit programs come into play, including childcare tax credits, low-income tax credits, Obamacare credits, etc. It’s not difficult to make up to $40,000 per year with such benefit programs (and with very low tax liabilities). Recommended Link [FINALLY: Louis Navellier Is Revealing Everything]( [Read more here...]( For decades, investors have wondered how Louis Navellier’s quant-based stock-picking system works… and how it’s uncovered the biggest market winners before anyone. On May 19, he’s going to reveal how it works and how it could help you double your money at least 6 TIMES this year. [Click Here For More Details]( Why work for McDonald’s or Walmart for $31,200 per year (that’s a full-time job at $15.00 per hour with benefits and training) when you can get $40,000 per year to stay home? People can do the math, and they choose to stay home. And by the way, you can expect to pay more for a McDonald’s hamburger if they’re going to pay entry-level workers $15 per hour. They’ll try to pass along their increased labor costs to customers, as businesses generally do. One way to solve this problem is to cut the benefits and programs. Then people would take up the job openings available, and the country would move closer to self-sustaining growth. Instead, Biden is proposing more “rescue” benefits, continued high unemployment payouts and other goodies that gave rise to the labor shortage in the first place. Biden’s plan will be a headwind to growth in the year ahead. But it’s music to the ears of the progressives, who are actually in charge behind the scenes, calling the shots. Inflation: The Biggest Financial Story Today Economists had expected over one million jobs to be created in April. The actual number was 266,000, and March’s numbers were revised lower. Do last month’s woeful unemployment numbers undercut the mainstream theory that falling unemployment will lead to inflation? The biggest financial story today is fear of inflation. Inflation has spooked the bond market and raised expectations that the Fed will soon have to raise interest rates to fight inflation. Any increase in rates will also hurt stocks because stocks and bonds compete for investor dollars. If yields on bonds go up, prices on stocks will go down. Growth stocks, like many leading tech stocks, are especially vulnerable to inflation because much of their valuation comes from future earnings. As inflation rises, the present value of their futures earnings can fall dramatically. There’s no doubt that inflation expectations have been rising. This is especially true after a spike in the reported CPI core and non-core data on May 12. This inflation spike roiled the bond markets. From the low yield of 0.508% on August 4, 2020, the 10-year note yield peaked at 1.745% on March 31, 2021, and hit a recent peak of 1.704% on May 13 (intraday) on the CPI news before backing down a bit to the current level (1.640%). The dollar price of gold moved down in lockstep as the yield on the 10-year note rose. Still, there’s less than meets the eye in the recent increase in rates. Recommended Link [Strange 2021 Prophecy Rapidly Coming True]( [Read more here...]( America’s #1 Futurist George Gilder is telling American’s to “brace yourself” for the coming $16.8 trillion revolution. This same revolution could redefine millions of jobs and radically transform the way just about every major corporation does business. It could even change the way you get paid, save and invest for retirement. And, says George, it could make you exceedingly rich... [Click Here To See Why]( “Transitory” As recently as November 4, 2018, the yield on the 10-year note was 3.238%. On November 4, 2019, the yield was 1.942%. The fact is today’s “high yields” are actually quite low and are much lower than the two interim peaks of the past three years. In fact, real inflation is as elusive as it’s been for over a decade. The surge in CPI reported on May 12 was driven predominately by base effects and energy prices. The Fed isn’t right often, but in this case, I believe they got it right. Year-over-year price gains off the low 2020 base are to be expected. April 2020 marked one of the steepest output declines in U.S. history. Consumer prices plunged. In April 2021, many of those prices recovered, especially in travel, airfares, hotels, restaurants and other services that were almost completely shut down in 2020. They are also transitory because the 2020 output collapse was transitory. As we move into the third quarter of 2021, the new base will reflect the strong growth in Q3 2020. That’s a much steeper hill to climb for inflation metrics. Inflation will come down sharply, and the ten-year note yield will come down with it. Gold will rally, and stocks will breathe a sigh of relief. This does not mean all is well in the stock market. Bubble dynamics persist, although it’s impossible to know exactly when a bubble will burst. But, at least in the short run, inflation fears are a false alarm. Inflation will arrive eventually, maybe in 2022 or later, but for now, the disinflationary dynamic is fully intact. Don’t believe the hype. Regards, Jim Rickards for The Daily Reckoning Editor’s note: According to one of America’s most famous traders, [a major market meltdown might have just been triggered.]( But for those who are informed, it could be the opportunity of a lifetime. That’s why he’s put $10,000 of his own money into this type of trade that [could return 40X or more in just weeks if the market crashes.]( Just don’t expect to hear about it in the mainstream financial media. But as the saying goes... we report, you decide. This is EXTREMELY time-sensitive information. [Go here now]( for all the urgent details. --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. 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