Fed News Friday: The Fed’s Self-Fulfilling Prophecy

As last week’s Fed News Friday article read, deflation has been the trending topic through the week. The funny part about that is economists and Fed members alone can’t decide whether it is the actual threat or not.

The other possibility is the complete opposite:  inflation. The broad range of this argument leaves me wondering, didn’t the administration appoint these people for their expertise?

From articles I have seen and previous knowledge of the Fed’s behavior, my guess is either economic phenomenon will occur. The only deciding factor is: Which one does the Federal Reserve want to occur?

That’s right. The Fed officials know they hold the power to expel their preferred self-fulfilling prophecy. Once they publicly announce which the larger threat is, deflation or inflation, the market and their personal printing press will react accordingly.

To prove this prediction is an article from the National Inflation Association who reviewed deflation as a trending topic in the news. The majority of the time deflation was brought up in the media, prices began increasing across the board (an repercussion of inflation). For example, in 2003 deflation was a hot topic and for the next 4 years prices rose 257% in the gold realm. Oil prices increased 390%. Record breaking highs for both commodities at the time.

With all the fears and gasps about deflation AND inflation whirling around even the other “-flation” was brought up:  stagflation. If you all remember the U.S. had a brush with stagflation during the gas price spike in 2008. The economy was slowing down and finding a comfy seat on the recession couch, and all of a sudden we were paying $6.00 a gallon for gas.

So the conclusion the media and the Fed have reached is actually no conclusion at all. Free market economists are suggesting that the Fed get their heads out of their a$$es (they also suggest to delete this counterfeiting business all together) and spend less time worrying about “short-term inflation and more with the potential long term inflation,” which we all should know the story behind by now. With the amount of money being printed by the Fed and released into circulation, we are surely in for an inflationary pattern ahead.

Published in

Post a comment