The Fed’s In A Box And People Are Starting To Notice – 09.26.2018

It’s long been an article of faith in the sound money community that the Fed, by bailing out every dysfunctional financial entity in sight, would eventually be forced to choose between the deflationary collapse of a mountain of bad debt and the inflationary chaos of a plunging currency.
That generation-defining crossroad is finally in sight.
On one hand, a tight labor market is pushing inflation to levels that normally call for higher interest rates:
Today’s Fed-heads are old enough to remember the 1970s, when failure to get inflation under control produced a decade-long monetary crisis that was only resolved with (not exaggerating here) interest rates approaching 20%.
On the other hand, the yield curve – the difference between long-term and short-term interest rates – is trending towards zero and will, if it keeps falling, invert, meaning that short rates will exceed long. When this has happened in the past a recession has ensued.

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