Doubling Down on Deflationary Forces

Almost all other forecasters have been looking for a revival of inflation for years. And they still are.
Zeal for Gold
After the Fed bailed Wall Street out of the 2008 financial crisis, and exploded its balance sheet through quantitative ease, many investors, including astute hedge fund managers, foresaw hyper-inflation and charged into gold as the most likely beneficiary. They solemnly quoted Milton Friedman, who said that inflation is driven by central bank-created money, and leaping Fed assets foretold lots more of it. But inflation didn’t gallop, but receded – and with it, gold prices.
But that hasn’t dissuaded the inflation bulls. Wall Street Journal columnist James Mackintosh wrote in the recent September 8 edition: ‘The danger is that the low inflation consensus has grown far too strong, on too little evidence.’ A September 1 Journal headline sums up those folks’ problem: ‘Inflation Still Subdued, Posing a Conundrum.’ They point to the low U. S. unemployment rate, the weak dollar, and stronger growth worldwide, which, they maintain, should intensify demand for commodities and push their prices up. Yet the personal consumption deflator, the Fed’s favorite inflation measure, ex food and energy has been slowing since late last year.

This post was published at FinancialSense on 10/31/2017.