Published June 11, 2021
Are we too late to invest? Are we too early? Is this an inflationary economy? Is it a Goldilocks economy (not too hot, not too cold)? Where should we invest? In precious metals? Bitcoin? What about bonds, stocks or commodities? Where does the COVID-19 virus fit into this scenario? These are all pertinent questions, for which there are no simple answers.
Similar to the mess that ensued from the financial crisis of 2008-09, the ramifications of the virus are omnipresent. First, inflation. Currently, the Federal Reserve estimates an inflation rate of 4.2 percent for calendar year 2021. This is no easy rate to peg. There is the rate at the store, or the gas pump, or the stated rate by the Fed, or the PCE inflator that the Fed prefers, but there is no one certain rate. Thus the published rate has many imperfections.
What is inflation and why does it matter? Inflation is the decline of purchasing power of a given currency over time. It matters because businesses and consumers make purchasing decisions based on the perceived rate of inflation: The higher the current rate of inflation, the more likely a business or consumer is to buy, thus fueling more inflation.
Also, the Federal Reserve makes interest rate decisions based on the rate of inflation. If inflation is higher, the more likely the Fed is to raise interest rates. The Fed does this because it does not want inflation to “run away.” Conversely, if inflation is too low, the Fed might lower […]