Why the Fed is doomed fighting inflation
Bill Smead, Chief Investment Officer at Smead Capital Management breaks down the options the Federal Reserve has for fighting inflation in the U.S. economy.
Video Transcript
- So you've got a series of forces at work here that doom them. The first one is when the Fed-- and the federal government spending-- provide massive liquidity to the system, for whatever purpose-- it might be the Vietnam War and Johnson's Great Society, or it might be the pandemic war and the quarantine shutdowns-- we don't care what it is. It is, right? Massive liquidity has been introduced into the system.
Now, when you do that and you have way more human beings in the household formation years of their life, like we did in the '60s and '70s with the baby boomers, and now we have with their children, the millennials, you've got a cocktail of inflation that is powerful. So you've got way too much money with way too many people who are going to do things out of necessity rather than by choice, right?
We're talking about necessity spending-- rent, gasoline, cars, houses, children, et cetera-- necessity spending-- too many people with too much money chasing too few goods. And then just for fun, in both cases, we had an oil embargo in '73, '74, and we had the Arab Spring in April of 2020. So you've got all the precursor all set in place to do an extended period of time where inflation becomes the most important thing in the economy, and then watching investments and everyone adjust themselves to those facts over the following 5 to 10 years.
