This is an excerpt from Counter-Intuitive Inflation. We’ll be posting sections over the first two weeks of October.
Conclusion:
Right now, the Federal Reserve is doing the right thing. Inflation is a long-term problem, and sticky services inflation combined with rising energy prices mean the disinflation story is dead for now. Raising interest rates is the correct move. Chairman Powell can’t control Congressional spending so he’s using the tools available to him. Congress is going to want/need to monetize an additional $2 trillion of excess spending a year plus, we’ve just seen $400 billion of interest expense become $1 trillion. As higher rates make their way into the average borrowing cost of the government, and as the government takes on additional debt at current borrowing rates, interest expense could trend towards $2 trillion a year.
These are real obligations, and very large ones. Powell’s interest rate hikes are both the correct move and will create more inflation as the government has to monetize more interest expense on $33 trillion of debt which is growing quickly. As I write this, Deep Knowledge Investing remains well-hedged against the kind of inflation and currency debasement that we will continue to experience in the future. Premium subscribers are invited to reference our Current Recommendations page where we outline our hedging strategy. For those of you who have the same concerns we do and want some help protecting your portfolio, please reach out at IR@DeepKnowledgeInvesting.com. We can help.
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