The Fed has been trying to create the illusion that inflation is an issue. The guys from the hard money camp also maintain that inflation is an issue and to a point they are right. Their definition of inflation is an increase in the money supply. TheFed, on the other hand, defines inflation as an increase in prices. The real definition of inflation is an increase in the money supply; rising prices are just the symptom of the disease. This article from mises.org summarises this concept quite succulently
Inflation, therefore, means an increase in the amount of receipts for gold on account of receipts that are not backed by gold yet masquerade as the true representatives of money proper, gold.
The holder of un-backed receipts can now engage in an exchange of nothing for something. As a result of the increase in the amount of receipts (inflation of receipts) we now also have a general increase in prices.
We are not going to spend time dwelling on this point as the crowd has bought the line the Fed has sold them and so the above point is moot. This article will focus on the price factor and not money Supply factor.
In numerous articles published over the last twenty months, we stated that Fed would be playing with fire if they raised interest rates as this economic recovery is based on ‘hot money’. We went on to state that if they raised rates, it would be a temporary ploy to buy them more wiggle room. Yellen recently confirmed that the Fed’s Hawkish bias might be coming to an end. She acknowledged that Inflation was below the Central bank’s target of 2%
This post was published at GoldSeek on 8 August 2017.
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