The Fed Is Still Hell-Bent on Melting the Market

Lee Adler

Core personal consumption expenditures (PCE) finally hitting 2% is more proof that common measures of consumption goods inflation follow interest rates higher.

As the U.S. Federal Reserve continues to rubber-stamp the tightening money markets by announcing increases in the Fed Funds target rate, the consumer price index (CPI) and PCE will continue to ratchet higher.

The Wall Street Journal looked at it this way: "A key measure of inflation accelerated last month to the fastest annual clip since 2012, as robust spending by consumers and businesses steadily pushed up prices for goods and services across the economy."

News Corp.'s Dow Jones sister ship, the more liberal free daily, Marketwatch, put it this way: "The strong economy has pushed a key inflation barometer to a six-year high and all but assured that U.S. interest rates will soon rise."

The media in general took the attitude of, "Wow, look at that. The Fed hit its inflation target, and it will keep raising interest rates."

Good grief. This isn't news. We've known all along that inflation has always been above 2% – if measured honestly.

Here's another thing we already know: As the Fed raises interest rates, increased borrowing, spending, and inflation follows. This pattern continues until very late in the cycle, when policy tightening becomes truly punitive.

Now, in the past, the tightening of the supply of money has tagged along with the rise in interest rates.

But there's a difference this time around. The policy tightening – the actual draining of reserves from the system – has preceded and driven the rise in interest rates.

The distinction is "live or die" important for the stock market…

Lee Adler

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Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.

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