Inflation: A Problem for You and Not for the Fed?

The latest inflation report seems to underscore one of the problems with official inflation figures. While the 3.2% headline inflation figure remains above the Fed’s 2% target rate, it doesn’t seem to be enough to get the Fed to raise rates to continue to fight it.

It might be that we’ll have to wait until next month’s CPI release to get a firmer view of what the Federal Reserve might do with respect to interest rates at its December meeting. But in the meantime, elevated inflation remains a frustrating problem that is continuing to erode the wealth of millions of Americans.

The Inflation Situation Today

While inflation isn’t nearly as high today as its peak last year at over 9%, it remains problematic. The Fed had at one point gotten inflation down to 3% before a sharp spike to 3.7% a few months ago.

Although the official inflation rate isn’t super high compared to where it once was, it’s still far higher than the Fed’s 2% target rate. And perhaps more importantly, core inflation, which removes the potentially more volatile food and energy prices, is still at 4.0%.

What this could mean is that inflation is becoming stubborn and entrenched. And that could make it more difficult for the Fed to fight it.

The Fed has made good progress in bringing down the size of its balance sheet, which is down from a peak near $9 trillion to just under $7.9 trillion today. But the drop in the money supply hasn’t been quite as steady.

After the Fed had to intervene in the banking sector in March after surprising bank failures, both the Fed’s balance sheet and the money supply began to grow again. The Fed quickly resumed its balance sheet reduction but the money supply hasn’t fallen yet at the same rate it had before.

It may be the case that that money supply reduction could end up accelerating, in which case future inflation figures may end up falling once again at a rate the Fed finds more to its liking. But it could still take months for that to happen.

Inflation and Household Well-Being

It’s safe to say that inflation has impacted every household in America. When the inflation rate reached over 9% last year, that was the highest it had been in 40 years.

Americans have become so accustomed to low inflation that the thought of inflation surging caught them off guard. And even now, with inflation remaining higher than “normal,” many households are still desperately trying to cope.

Wages and salaries for the most part haven’t kept up with inflation, causing households to lose ground financially. And while they may still be spending pretty well, a lot of that spending is being done with credit cards, causing overall credit card debt to rise to record highs.

Does the Fed care about that?

Well, at least Fed officials pay lip service to the need to fight inflation. But they’re not the ones actually hurting from rising inflation.

They’re content to sit back and watch and wait to see what effect their policies are having on inflation. And they’re perfectly fine with waiting months to see whether their policies of monetary tightening are having the desired effect, or whether they need to tighten even further.

Meanwhile, American households are being squeezed by ever higher prices. While gas prices may have ameliorated somewhat, prices for food, healthcare, and cars remain high and keep growing.

That’s the thing about inflation: once prices rise, they don’t go back down. That chuck roast that you used to buy for $2.99 a pound that’s now $5.99 a pound isn’t going to magically return to its pre-inflation price.

Even if the Fed manages to bring inflation back down to its 2% target, which could still take months or even years, the new prices you’re paying now are going to be the prices you pay going forward. And if your income hasn’t kept pace with those price increases, your standard of living is going to suffer.

Can You Inflation-Proof Your Wealth?

The prospect of persistent higher inflation is something that generations of Americans haven’t had to deal with. And when it comes to retirement savings and investments, Americans are having to readjust to this new unfamiliarity.

While inflation has always been problematic, its effects generally take time to be seen or felt. This recent inflation has occurred so quickly that people’s expectations for the future have been completely upended.

The desire to protect assets against inflation is now at the forefront of many people’s minds, and they’re struggling to figure out how to do that.

One way that many people are choosing is to buy precious metals like gold and silver, which have traditionally maintained their purchasing power in the face of inflation.

Gold, for instance, has increased in value by over 5,000% since 1971, whereas the US dollar has lost over 87% of its purchasing power. It’s this ability of gold to withstand the forces of inflation that has helped develop its reputation as a safe haven asset and a store of value.

Many first-time would-be gold buyers may feel uncomfortable buying gold. The issues of counterfeits, storage, theft, or fraud may loom large in their minds.

But while you can buy gold coins directly to store at home, you don’t have to. With the introduction of gold IRAs a couple decades ago, you can now own gold in a tax-advantaged IRA account that offers the same tax benefits as your existing retirement accounts.

A gold IRA is just like any other IRA, only that it owns and holds physical gold coins or bars. A gold IRA can be funded with a tax-free transfer of assets from your existing 401(k), 403(b), TSP, IRA, or similar retirement accounts, allowing you to protect your existing tax-advantaged assets with gold.

If you’re worried about the effect inflation is having on eroding your standard of living and the purchasing power of your savings, maybe it’s time to start thinking about gold. And if you want to learn more about how gold can help safeguard your savings, Goldco’s representatives are happy to help.

With over $2 billion in precious metals placements and over 5,000 5-star reviews, Goldco prides itself on its quality products and stellar customer service. Call us today and find out why so many Americans are turning to Goldco for their precious metals needs.