In the latest episode of the Money Metals Midweek Memo, host Mike Maharrey dives into the current state of the economy, inflation, and the Federal Reserve's monetary policy.

Mike Maharrey describes inflation as a "zombie" that never truly dies. He likens the situation to a horror movie where the monster appears to be defeated but keeps coming back to life. This inflation zombie is characterized by its persistent return, despite efforts to control it.

Maharrey explains that while there may be periods where inflation seems to cool down, it is never truly dead and continues to resurface, much like a relentless zombie. He emphasizes that the underlying policies and economic conditions continually revive this inflation, making it an ever-present threat that cannot be permanently eliminated.

Inflation's resurgence

Maharrey begins by highlighting the persistent inflation, likening it to a horror movie's monster that keeps coming back to life. Despite recent optimism in the media about inflation cooling, he argues that the numbers tell a different story. The April Consumer Price Index (CPI) report showed a 3.4% annual increase in prices, which is still significantly above the Federal Reserve's 2% target. This figure was a slight improvement from the previous month's 3.5%, but not enough to declare victory over inflation.

Breaking down the numbers:

  • Annual CPI: 3.4% in April, down from 3.5% in March.
  • Monthly CPI: 0.3% increase, below the projected 0.4%.
  • Core CPI (excluding food and energy): 0.3% monthly increase, 3.6% annually.
  • Used Car and Truck Prices: Decreased by 1.4%.
  • New Car Prices: Decreased by 0.4%.
  • Clothing Costs: Increased by 1.2%.
  • Energy Prices: Gasoline rose by 2.7%.
  • Shelter Costs: Increased by 0.4%.

Maharrey emphasizes that the slight improvements in CPI figures are not enough to consider inflation defeated. The media's portrayal of these numbers as encouraging is more about wishful thinking, driven by the desperate desire for rate cuts.

Producer Price Index (PPI)

The PPI, which measures the prices producers pay for inputs, rose by 0.5% in April. This increase in producer costs often leads to higher consumer prices down the line, indicating that inflationary pressures are still very much present.

Wages and purchasing power

Despite nominal wage increases, real wages (adjusted for inflation) fell by 0.2% in April. This decline underscores the ongoing struggle of workers to keep up with rising prices, effectively reducing their purchasing power.

Market reactions and monetary policy

Following the CPI report, the Dow Jones, S&P 500, and Nasdaq all hit record highs, driven by renewed hopes for rate cuts. However, Maharrey argues that these hopes are misplaced. The Federal Reserve's modest rate hikes and balance sheet reductions have not been sufficient to counteract the massive monetary inflation created during the pandemic.

  • Interest on national debt: The federal government spent $624.7 billion on interest payments in the first half of fiscal 2024, a 35.7% increase from the same period in 2023.
  • Comparison to other spending: Interest payments exceeded spending on national defense and Medicare, with only Social Security costs being higher.

Maharrey criticizes the Fed's actions as too little, too late. He points out that the central bank's historical monetary policy remains loose, with the Chicago Fed's National Financial Conditions Index at -0.53, indicating an inflationary stance.

Protection against the inflation zombie

Mike Maharrey emphasizes the importance of investing in precious metals as a way to protect wealth from the constant devaluation of the dollar. He argues that gold and silver retain their value better than fiat currencies, especially in times of economic uncertainty and inflation. Maharrey suggests that as the dollar becomes less valuable, the price of real money, like gold and silver, will increase.

He advises listeners to consider adding gold and silver to their investment portfolios and highlights that it's better to buy these metals before prices rise significantly due to economic shifts, such as the Federal Reserve pivoting back to rate cuts and quantitative easing.

Conclusion

Maharrey concludes that the Federal Reserve's approach has been insufficient to truly combat inflation. He suggests that the real solution lies in protecting one's wealth through investments in gold and silver, as these precious metals retain value better than fiat currencies in times of economic uncertainty. Maharrey encourages listeners to consider adding gold and silver to their investment portfolios to safeguard against the ongoing devaluation of the dollar.

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