Did The Fed Change Their Inflation Target?

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Check out MoonPay + Trust Wallet To investors, The entire US economy runs on the assumption that the Federal Reserve is targeting 2% inflation. That number is supposed to create enough dollar debasement to incentivize consumption and investment, while not being so destructive that it financially hurts the average American. You can throw the academic theory out the window though. The Fed has been running inflation at approximately 4% per year since 2019. That is double their stated target, but more importantly it appears to be an intentional structural change that is being done in stealth. If you listen to various Fed Chairman’s words, you will hear them remain committed to the 2% target, but if you look at their actions, you will see a completely different story. Creative Planning’s Charlie Bilello points out that inflation has been significantly above the Fed’s target for 64 straight months, yet the Fed is still expanding their balance sheet in the last 7 months to the tune of more than $200 billion. You don’t expand your balance sheet while inflation is running hot unless one of two things are true: 1) you believe that a significant deflationary force is on the horizon and you are expanding the balance sheet in preparation, or 2) you have unofficially decided to run the economy hotter than your stated 2% inflation target. While I believe AI, robotics, deportations, and tariffs are deflationary, I do not believe the Fed is in the business of expanding their balance sheet in anticipation of those forces. In fact, the Fed has proven to be one of the most reactive organizations in America, which has been a big driver of the mistakes they have made over the last two decades. So the only logical conclusion I can come to is the Fed has decided internally they are comfortable with inflation running at 3% or 4% for the years to come. If that is true, investors have to update their mental model on how to invest their capital. I used to jokingly say the Crazy Uncle portfolio would be a great bet for investors. This would be what your crazy uncle talks about at Thanksgiving dinner, which consists of land, gold, bitcoin, and ammunition. Take Texas Pacific Land Corporation (Nasdaq: TPL) as one example. The company has increased 150% in the last 5 years. General Dynamics, one of the largest defense companies in the world, has approximately doubled in the same time frame. Bitcoin has struggled in the last two years, including a negative return, but that followed a substantial run up in the years prior. However, gold has been the big surprise to most investors, especially when you realize that gold’s return has outperformed the S&P 500 going back 8 of the last 10 years if you held until today. The reason I call attention to these types of assets is that I am convinced the Fed has made a change in strategy, but they are smart enough to know they can’t publicly admit it. The American central bank must keep the charade of 2% inflation target. They haven’t succeeded in that mandate in a half decade and I don’t see a world where they are going to get back to 2% in the official metrics any time soon. Thankfully, for all investors, investment assets are going to do well in a persistently higher inflation environment. But it is important to understand that non-productive assets may continue to outperform productive assets in that environment, which will break the brains of many traditionalists. Like I said, if the Fed has made a strategic change, you will have to update your mental model. Hope everyone has a great start to their week. I will talk to you next time. - Anthony J. Pompliano Founder & CEO, ProCap Financial (Nasdaq: BRR) Bitcoin's Next Move Depends On One Fed Decision Jordi Visser is a veteran macro investor with 30+ years of experience and the author of the VisserLabs Substack. In this conversation , we break down the AI stock slowdown, why China’s new Kimi K3 model is upending the AI trade, and the hidden cultural bias baked into these systems. We also discuss the cooler inflation report, Fed Chair Kevin Warsh’s early moves, Bitcoin’s reaction, and why robotics could be the next big AI trade. Podcast Sponsors Figure – True DeFi Democratized Prime to earn ~9% APY! They also have the lowest industry interest rates at 8.91% with 12 month terms! Take out a Bitcoin Backed Loan today and buy more Bitcoin. Check out Figure ! Figure Lending LLC dba Figure. Equal Opportunity Lender. NMLS 1717824. Terms and conditions apply. 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