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"Probably the worst inflation call in the history of the Federal Reserve"

12-13-2021 11:30 AM By Blair Harris

“Probably the worst inflation call in the history of the Federal Reserve”

Back in May we presented an article from The Wall Street Journal where author James Mackintosh opined that investors are "woefully unprepared" for inflation" and, “It is too soon to go all-in on the idea that inflation is inexorably headed higher. But it would be crazy to build a portfolio that didn’t consider inflation a major risk.”

  

Recently a plethora of articles have been published advising inflation is not transitory. In one article published on December 12, 2021, Author Milton Ezrati wrote: “At the close of 2020, the Fed, using its preferred indicator the consumer price deflator, forecast 1.8% inflation for this year. Last spring, the new Biden administration issued a budget with a 2021 CPI inflation forecast of 2.1%. In the first six month[s] of the year, the CPI rose at a 7.4% annual rate.” Additionally, “By November, the most recent period for which data are available, CPI has risen at an almost 7.0% annual rate for the year so far, more than three times the White House’s original forecast. The consumer price deflator had risen at a 5.1% annual rate, more than twice the Fed’s original forecast.”

  

In another article published on December 12, 2021, Bloomberg quoted respected economist Mohammed El-Erian who stated “The characterization of inflation as transitory -- it’s probably the worst inflation call in the history of the Federal Reserve,” and “It results in a high probability of a policy mistake,” he said. “So the Fed must quickly, starting this week, regain control of the inflation narrative and regain its own credibility. Otherwise, it will become a driver of higher inflation expectations that feed off themselves.”

With Mackintosh’s and El-Erian’s perspectives in mind, it is worth reiterating what we have previously published; that according to the World Gold Council, “Gold has long been considered a hedge against inflation and the data confirms this. The average annual return of 11% in US dollars over the past 50 years, has outpaced the US and world consumer price indices (CPI).” Further, “In years when inflation was higher than 3%, gold’s price increased 15% on average.” Therefore, it may prove timely and prudent to add gold to your personal investment portfolio.

  

Sources:

World Gold Council, Gold Hub (2021 February 16) “The relevance of gold as a strategic asset”. Retrieved from: https://www.gold.org/goldhub/research/relevance-of-gold-as-a-strategic-asset-2021

Mackintosh, J. (2021 May 5) “Everything Screams Inflation”. Retrieved from: https://www.wsj.com/articles/everything-screams-inflation-11620163599

Martin, E. (2021, December 12) “El-Erian Says Transitory Inflation Call Likely Fed’s Worst Ever”. Retrieved from: https://www.bloomberg.com/news/articles/2021-12-12/el-erian-says-transitory-inflation-call-likely-fed-s-worst-ever

Ezrati, M. (2021, December 12) "Whatever Washington Says, The Inflation Will Last". Retrieved from: https://www.forbes.com/sites/miltonezrati/2021/12/12/whatever-washington-says-the-inflation-will-last/?sh=695247647ef0

Image: Ernesto Velazquez, Unsplash
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