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Higher for Longer – Again

This piece was originally published on August 16th, 2023.

Earlier this week, we got retail sales data indicating the US consumer continues to spend without pause. Today, we got to see the minutes from the most recent Federal Reserve meeting where they wrote:

“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”

Many people have complained and warned that the Fed is raising rates into a recession. They may be correct, and it won’t matter. DKI has two pieces of advice for the situation:

  • It’s important to understand the personal motivations of the players involved. I believe Jerome Powell isn’t worried about putting the US economy into a recession. I also believe that he’s terrified of being the next Arthur Burns, the Fed Chairman who presided over more than a decade of huge inflation in the 60s and 70s. Powell wants to be the next Paul Volker, the Fed Chair who followed Burns and “cured” inflation by hiking interest rates almost to 20%. Given the level of US debt now, 20 % interest rates are not going to be possible, but in any situation where there’s a trade-off between a weaker economy and attacking inflation, we would expect Powell to prioritize the latter.

 

  • There’s no point in being happy or unhappy with the Fed’s actions. Any coming disaster was baked in with a decade and a half of near-zero interest rates and trillions of dollars of quantitative easing and money printing. The best course of action is to design a portfolio that’s hedged against inflation and higher rates. That’s exactly what we’re helping DKI subscribers do now.

 

At this point, you all know the line:

GB@DeepKnowledgeInvesting.com if you have any questions.

 

Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use.  The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so. 

 

The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write. 

 

Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose. 

 

In no event shall DKI be liable for any costs, liabilities, losses, expenses (including, but not limited to, attorneys’ fees), damages of any kind, including direct, indirect, punitive, incidental, special or consequential damages, or for any trading losses arising from or attributable to the use of this report. 

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