Latest / Financial Survival Network / The Growing Threat of Inflation on Middle-Class Americans - Ted Thatcher #6068

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The Growing Threat of Inflation on Middle-Class Americans - Ted Thatcher #6068 · Financial Survival Network

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  At the end of the day, what has happened the last eighteen months is
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  that, more than anything, the rate of inflation has actually been what has
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  dictated FED policy, and not the other way around. The FED has been
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  reactionary. And I think that the rate of inflation is really what's in the
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  driver's seat here. And obviously the market had to swallow it after March's inflation
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  rate printed, and here, you know, there was some concern that we
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  were going to have as high of a rate of inflation as we did last
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  month. You were listening to Carrie Let's's Financial Survival Network, where you get
• 0:32
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  than ever. Welcome you are listening to and watching the Financial Survival Network.
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  Your nose, scary Lutz. Well, hey, inflation is proving to be
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  sticky? Is that the next step from transitory? What comes after sticky?
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  That's what I'd like to know. Well, Ted Thatcher is with us now,
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  Ted, great having you back, so sticky. What does that mean?
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  Is sticky as like, you know, you go to the movie theater
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  and you're walking through the aisles and your feet kind of stick to the floor.
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  That's what I think about what's sticky. I don't think of inflation as
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  being sticky. Sure, I can actually feel the soles of my shoes.
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  I think when you say that, actually just grip the ground. I think,
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  you know, you posed a really nice question there, which is at
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  first it was transitory, you know, then it was you know, peeking.
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  Now it's sticky. Where do we go from here? And I think
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  we're in this place carry because at the end of the day, what has
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  happened the last eighteen months is that, more than anything, the rate of
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  inflation has actually been what has dictated FED policy and not the other way around.
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  The FED has been reactionary, and I think that the rate of inflation
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  is really what's in the driver's seat here. And obviously the market had to
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  swallow it after March's inflation rate printed, and here, you know, there
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  was some concern that we were going to have as high of a rate of
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  inflation as we did last month. It's all will a little less than expected
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  or a little less than that last month rather, but it's not gone.
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  And as much as I think that, you know, there's this political pressure
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  and the markets desired at lower rates, it's just not happening. And so
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  what comes after, you know, what comes next, I think is we're
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  in these dol drums. You know, we've said so long interest rates are
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  going to be higher, you know, than we'd like, for perhaps longer
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  than we anticipated. And I think that this just proves that point continually.
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  And you know, we kind of joked beforehand saying it might be cemented,
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  and I think we're kind of seeing that, Yeah, well permanently a fixed
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  in place, but they don't worry about it. They're going to focus group
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  test. Another term is it's prolonged but it's easing, or something like that,
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  where it's it was bad, but it's getting better. It's all fed
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  speak, are right. It's just I think absolutely word salad as they say,
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  you know, I've seen soothing, you know soothing. Do you feel
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  soothed? I'm not sure that I do. I actually, well, not
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  to go two in the weeds here, but I actually saw a really really
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  interesting breakdown from Larry Summers the previous Treasury Secretary. Of course, you know,
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  you and I have discussed before how the way they calculate the inflation CPI
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  data now has changed so much from the way it used to be calculated.
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  Of course, nowadays they can use proxies supplements for different you know, aspects
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  of the underlying data. And one thing that Larry Summer is released on x
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  a couple weeks ago, I think it was now a semi viral thread breaking
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  down the way he tracks inflation the rate used to be calculated. One of
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  the significant considerations that they no longer put in the CPI data is the cost
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  of borrowing for consumers on top of using these different proxies. And so by
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  Larry's calculation the inflation rate, the CPI rate did not peek around that nine
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  percent figure that has been thrown around so often, but closer to twenty percent.
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  Of course, that just being over one anum, not not the total
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  total rate of inflation over the last several years. And so that to me
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  really matches much more with what I would say I experience when I go to
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  the grocery store or fill up my vehicle at the pump, and certainly matches
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  much more with what I find folks experience just in day to day hoverstation John
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  Williams, shadowstats dot Com. You know, when you look at the numbers
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  of governments putting out, he still calculates it the way they did in the
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  eighties, and it's not too pretty here. And obviously it's very difficult to
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  figure out inflation. You know, we didn't have iPhones back in the eighties.
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  Maybe that makes it easier to figure out the inflation rate, or at
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  least to see what the real rate is. But things were a lot different.
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  You know, they always talk about substitutes. So state gets too expensive,
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  then you substitute hamburger, it gets too expensive, Then you do chicken,
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  and then that gets too expensive, and you substitute spam. But you
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  know, it's ridiculous because your eyes are not lying, and the felt they're
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  not putting in debt payments in the inflation rate just shows. But we do
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  have an election year. They have to cut rates, don't they. So
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  this is absolutely I think where I would take the conversation too, because you
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  know, sure in its purest form, maybe the FED would only operate with
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  the data itself, right, the inflation rate and the unemployment rate. We've
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  already discussed the issues the way they calculate those numbers, that is to say
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  nothing of what you just brought up, which is the incredible political pressure that
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  is now placed on the FED, a more and more politicized organization, unfortunately.
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  And so now when we look at the futures markets, the market is
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  pricing in I think it's around a seventy percent likelihood chance now that we will
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  get a interest rate decrease literally in September before the election cycle. Of course,
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  I think President Biden would prefer that to I would say, sort of
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  put some proverbial lipstick on the pig to prop up the value of financial assets
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  going into election season. And you know, I think that the market for
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  a minute there after last months the March inflation print data came out kind of
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  corrected a bit because because of how sticky inflation has been, it just makes
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  it that much harder for Jerome Powell to have a justification to lower rates up
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  until I think it was two fridays ago. Now the labor market data came
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  out and the labor market had I believe, lost more jobs than it had
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  in six months, or the rate of new job growth was as low as
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  that had been in six months, which is of course the other analytical piece
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  that the FED looks at the unemployment rate. And so I think that Jerome
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  Powell will use the cover of those types of soft jobs numbers to justify a
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  what will end up being, in my opinion, a reasonably likely political move
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  of a rate decrease potentially later this year. All right, well, hey,
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  you know transitory. You know I always say had the best things in
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  life are transitory. I think Jerome would agree with you. All right,
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  hey, you know, looking at the FEDS two conflicting, and I would
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  argue they have three functions now. Number one insure stable prices. Number two
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  is ensure full full employment, and number three is to make sure the stock
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  market never goes down. Indeed, it's three plates spinning in the air.
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  And you know these Fed guys, man, they could be in the circus
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  juggling dishes, right, getting those dishes to stay up in the air.
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  I think that they would say that their jobs are so hard. But I
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  would say, look that they just keep putting out. Like we said before,
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  this word solid. Then yes, I mean I effectively agree with the
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  last, you know, joke of the comment there a little bit that they
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  are trying to keep the market up again, and at the end of the
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  day, it seems like it's been a political game as much as an analytical
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  one. Unfortunately, you know, and ultimately I think that it really erodes
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  confidence of the American consumer because you and I, like you said before,
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  our eyes aren't lying to us, and so we have this huge discrepancy,
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  this canism really that's been created between what's happening on Wall Street and what's happening
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  on Main Street. It's this huge dichotomy, especially when you combine what we've
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  discussed today, even just to put a pin in it, of such high
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  inflation combined with slowing job growth, and so the average American is not seeing
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  their wages increase coincidentally with the rate of inflation, if there's less jobs available,
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  if everything's more expensive. We're all looking at each other asking what's happening
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  here, and at the same time we're getting headlines of the market reaching all
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  time highs or approaching all time highs. All those things can only be separated
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  for so long, at least in my opinion. Yeah, something has to
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  give, right absolutely, But my things though, and I don't know if
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  we have the perfect answer to that. Everyone has their for reveal Crystal Ball.
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  I think if there is a likelihood of such a large amount of political
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  pressure this year, if we do lower rates, you know, inflation aside,
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  I think it's more likely that we might get a sort of melt up
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  in the markets before we actually saw that crash down. Again, depends on
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  how heavy handed the side wants to be. All right, Okay, So
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  when we have this conversation come January first, Ted, where are we going
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  to be? Well? The truth is, Carrie, if I had to
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  guess, I think we will see at least one rate decrease this year,
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  perhaps too. Again, it ultimately comes down to how heavy handed that political
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  pressure is and what the Fed does. But I'd be very surprised if we
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  didn't still have some let's say, sticky inflation and a lower albeit maybe slightly
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  interest rate environment, to say nothing of, you know, the potential banking
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  consequences that might be on the horizon. Okay, So when we look at
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  the sticky inflation, if you will, right uh a bed, you think
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  it's going to be well, I mean, essentially we've seen this annual year
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  over year rates stick around the three to three and a half percent mark.
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  As of you know, this recent month's print, it's at three point four
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  percent year over year. Again, that's not considering the other adjustments you and
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  I have discussed today. How bad can it get? Well, I think
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  if they're willing to lower rates, they're willing to have well, ultimately more
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  moving money around any economy, chasing the same goods and services. It wouldn't
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  surprise me at all, although it might take time to lag if we saw
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  you know, rates certainly in the high threes in terms of inflation with the
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  way the CPI is currently calculated. And I just think that that means that
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  the Fed has said, you know, tongue in cheek perhaps or just in
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  their own silence, that they are betting that and the average American is willing
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  to accept an inflation rate in the three or four percent range instead of the
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  you know, I guess alternative consequence of dealing with rates that are on the
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  interest rate side even higher than they are today. All right, Hey,
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  Ted, just tell us where we find you, how we connect with you
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  on the web. Oh, I appreciate it. You can find us at
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  bright Lake wealth dot com. All right, And the link is in the
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  show notes this interview on Financial Survival Network dot com. Please go there and
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  sign up to your free newsletter. Click through to Ted's link and connect with
• 12:28
  him. Ted appreciate you coming on as always, and we'll talk to you
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  again real soon. Thanks, Kerry, have a great one. Thanks for
• 12:33
  listening to Carrie Lets's Financial Survival Network, your solution to today's trying times.
• 12:41
  For the latest, go to Financial Survivalnetwork dot com. Financial Survival Network now
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  more than ever,