What will the US Fed do this week about interest rates? Fed chair Kevin Warsh was full of bravado at the Jackson Hole Symposium in August. He said he was concerned about inflation. But talking about inflation and doing something about it are two very different things.
There is every chance that he could chicken out. So, not only do we have TACO man – Trump Always Chickens Out at The White House, but we could be about to see WACO man – Warsh Always Chickens Out at the Federal Reserve.
Point is, the predicament that America finds itself in is of Trump’s own making. He bumbled into the Trump tariffs without even checking if it was enforceable. He bumbled into a war with Iran without considering an off-ramp, if things went wrong. And the US-Iran has gone badly wrong for America.
Thanks to the bungling Trump presidency, inflation has remained stubbornly high not only in the US but elsewhere, too. The European Central Bank has warned that inflation could remain elevated for longer. ECB president Christine Lagarde has described its latest rate-hike as a no-brainier. Could that be a veiled jibe at The White House?
It is still a coin-toss as to whether the Fed will succumb to the pressure from bond investors and raise the Fed fund rate. But as long-term investors, we should be more focussed on company fundamentals than on what the central bank might or might not do.
If the ECB is right in its assessment that inflation might not return to its 2% target until late 2027, then stock markets everywhere could be in for a rough ride for quite some time. But bear in mind that inflation takes no prisoners. It will erode the purchasing power of our money unless the cash is properly invested.
Companies with pricing power will pass on price increases, if they haven’t already done so. Our job as investors is to identify those companies that have pricing power. They are not going to wait around to see what WACO man will do. Nor should we.
If you’d like to learn more investing concepts, and how to apply them to your investing needs, sign up for our free investing education newsletter, Get Smart! Click HERE to sign up now.
Get more stock updates on our Facebook page. Click here to like and follow us on Facebook.
