What Every Investor Needs To Know About “Temporary” Inflation
Dear Retail Investor,
“Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary.”
That’s what Jerome Powell, Chairman of the Federal Reserve, said in a speech at the end of August.
Powell was speaking to the Jackson Hole Economic Policy Symposium.
The annual event is sponsored by the Federal Reserve Bank of Kansas City and attended by bankers, investors, government employees, and highly credentialed economists.
The key word in this quote is the last word – temporary.
He said “temporary,” but his actions show he didn’t mean it.
After all, the speech was just 21 minutes long and he mentioned “inflation” 71 times (Here is the transcript of the speech).
If it’s really “temporary,” why mention “inflation” every 18 seconds?
We aren’t buying it at all.
The inflation is not temporary because the policies and conditions driving it aren’t being changed.
But then we realized that when he says inflation is “temporary,” he may actually mean “temporary.”
Well, at least “temporary” in the government sense of the words.
Because we all know of many “temporary” government policies and projects.
The Meaning Of Temporary
It’s not what temporary means to you and me.
Like some temporary pain from stubbing your toe on something.
It’s what temporary means to them.
In the government’s eyes, temporary can mean nearly anything.
There is so much of the U.S. government that’s “temporary.”
One of the best examples of “temporary” to the government is the federal gasoline tax.
The gas tax was initially passed in the Revenue Act of 1932.
It was set at one cent per gallon.
The justification for the tax was as a “temporary” tax to finance government spending during the Great Depression.
According to researchers at the American Action Forum, Congress recommended the tax should expire in 1934.
Long story short, the “temporary” tax that was supposed to last a year or two is is still here 89 years later, only now it’s up to more than 18 cents per gallon, and has collected about $1 trillion.
This is just one example of “temporary” in the government’s eyes though.
Another example is the Soto Cano Air Base in Honduras.
This air base has been a staging point for U.S. military, intelligence, and humanitarian operations since 1982.
But Honduras doesn’t allow permanent foreign military installations. There’s something about foreign occupation in its constitution.
That’s why despite its decades of operation, Soto Cano is still classified officially as a “temporary” base.
There are plenty more.
Like the Temporary Assistance For Needy Families (TANF) too.
The TANF program was created back in the 1990s as part of the “end of welfare as we know it” campaign.
This program has been around for decades, but the “temporary” in the title refers to how long it can be provided to needy families.
In this case the “temporary” is the five-year cap on benefits.
Again, this too is “temporary.” At least in the eyes of the government.
So that’s why we revised our initial view of Powell’s expectation for inflation to be “temporary” to being laughably bad.
Powell may be completely serious about “temporary” inflation.
It may mean his definition of “temporary” may be as it is in many other situations where temporary is anything but.
More importantly, judging by the details of his speech, he is not willing and ready to take actions that may seriously slow the inflationary spiral anytime soon.
As long as it’s “temporary,” it doesn’t need to be addressed.
Eventually that will change, but it won’t be for quite awhile.
– Dear Retail Investors Editorial Team
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