The Fed’s Goal is Now Clearly to Inflate the Dollar
In the last week of August every year, the Federal Reserve Bank of Kansas City hosts a central bankers’ convention in Jackson Hole, Wyoming, near the Grand Teton mountain range. This year, due to the coronavirus pandemic, the meeting was held “virtually” via Zoom. In his keynote address last Thursday, Fed Chairman Jerome Powell clearly stated that the Fed’s primary goal for the foreseeable future will be to fight unemployment and let inflation run however high it will run. He even said the Fed will now allow inflation to overshoot their previous 2% target. This is in directly opposite of what the Fed faced 40 years ago, in 1980, when inflation was enemy #1. Fed chair Paul Volcker faced inflation, unemployment and interest rates ALL in the double-digits, providing the basis for gold’s initial run up to $850 in early 1980.
With all these new trillions of dollars added to the financial system this year, the Fed will get their wish, as this new cash is virtually guaranteed to deliver the highest inflation since the early 1980s next year.
Another result of this new wave of unbacked “fiat” money is a suddenly weak U.S. dollar after years of a strong dollar (vs. the euro and other major currencies). The U.S. Dollar Index is now down over 10% in the last five months. After peaking at 102.8 in mid-March, the Dollar Index traded at 92.1 on Monday August 31, down 10.4%. If the dollar keeps falling, that will supercharge the rise of gold in dollar terms.
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