Fed policy had little to do with soaring
commodity and food prices
Monday, March 7, 2011
By: Michael Pento
CNBC was competing with viewers from the Comedy Channel this morning when it aired an interview with Charles Evans, the President of the Chicago Federal Reserve. Mr. Evans claimed that U.S. inflation is currently low, even though oil prices were surging past $105 a barrel during his interview. He went on to explain that Fed policy had little to do with soaring commodity and food prices. As it is, of course, global growth that is to blame.
The Fed President didn’t care to opine at all as to why gold was hitting an all time high as he was speaking. I wondered--while struggling to watch the interview--if the record high dollar price in the monetary metal is telling him anything. I guess he would explain that the Fed doesn’t have anything to do with gold prices either and it is probably a sign that this year’s Indian wedding season will be a real gangbuster.
Some more comic relief came from his GDP predictions. Mr. Evans sophomorically stated that he expects 4% GDP growth this year and the next. But contrary to what that previous guess may have you believe, the interview didn’t give much hope for monetary responsibility returning to the country any time soon. In fact, even though the evidence of rampant inflation were scrolling under his feet on the ticker, Evans said that interest rates should stay low for an extended period of time.
Maybe that’s why consumer credit has reversed course and is now growing once again. Total consumer credit (both revolving and non-revolving) has now expanded for the fourth month in a row and is accelerating at a 2.5% annual pace in January. That’s after falling 4.4% in 2009 and dropping 1.6% for 2010. One of the baneful effects of the Fed’s zero percent interest rate policy is that it entices the consumer to borrow when they should be deleveraging. The truth is that Household debt as a percentage of disposable income is still well above historical levels and is now headed back in the wrong direction.
Yes Mr. Evans, the Fed is responsible for rising commodity prices and for encouraging the accumulation of debt. And they may soon share equal blame with the government for inflicting soaring interest rates on the American public.
Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE. Other Michael Pento Posts
CNBC Transcript of Evans Interview