The Fed Just Gave Investors a Major Gift…
The big message from Fed Chair Jerome Powell and Treasury Secretary Steve Mnuchin’s testimonies to Congress yesterday was the following…
Even more money will soon be flowing into the economy.
Both Powell and Mnuchin were adamant that the recovery requires additional fiscal stimulus. Powell stated that the economy would likely slide back into recession without another stimulus program, while Mnuchin emphasized that the next stimulus program should target children and jobs.
So again… even more money will soon be flowing into the economy.
Remember, the U.S. government has already employed a $2.2 trillion stimulus program. A second stimulus program ranging from $1 trillion to $2 trillion is currently being held up by Congress. But it is clear that both the Fed and the Treasury feel that this money needs to be released soon.
And this is going to unleash inflation.
Why This Stimulus Program is Different
As I’ve written previously, the big difference between policymakers’ response to the 2008 crisis and their response to the COVID-19 pandemic is that this time around, much of the money being printed has actually made its way into the economy.
This is why the U.S. Dollar has plunged while inflation hedges like gold have exploded higher.
Both of these trends are taking a breather right now. But the comments from the Fed and the Treasury have made it clear that they want even MORE money to be funneled into the economy as soon as possible.
Which means… more money printing, which means a lower U.S. Dollar, which means higher inflation.
Investors now have a decision to make… do they try to bet against the Fed AND the Treasury? Or do they take steps to profit from what will be the biggest trend of the next 12 months?
Editor, Money & Crisis