Walking the Economic Tightrope

Annie Edson Taylor famously sat in a barrel and plunged over the Niagara Falls in 1901.

But that’s nothing compared to what Charles Blondin did in the area 42 years earlier…

In 1859, the French acrobat walked 1,100 feet across the Niagara Gorge. He did it on a tightrope that was roughly 3 inches wide and suspended 160 feet over the water.

And then, he did it several more times!

Blondin later did it blindfolded… while pushing a wheelbarrow… on stilts… after cooking and eating an omelet on the tightrope… and while carrying his manager on his back.

That’s quite an impressive list of achievements.

These days, the Federal Reserve is attempting to walk a different tightrope – an economic one. But folks, the central bank is sitting in a precarious position…

It pumped the economy full of money to try to save us from COVID-19. Then, we ran straight into supply shortages. And global supply-chain issues further decreased supplies.

Everything culminated in a massive price spike. We’re facing multidecade-high inflation today.

And so, the Fed’s tightrope act begins…

You’ve probably noticed the out-of-control inflation by now. It’s hard not to see it. Even if it hasn’t hurt your wallet or pocketbook too much, it’s all over the news…

Home prices are up. Gas prices are up. Food prices are up. And if you’re trying to buy a car or specific consumer electronics… good luck.

Inflation is up 8.5% on a year-over-year basis. And there’s seemingly no end in sight.

Plus, President Joe Biden’s administration wants to revive some form of its “Build Back Better” plan. That would pump even more money into the economy. And it would only make this situation worse.

To combat surging inflation, as we discussed yesterday, the Fed has decided to taper its bond purchases and raise interest rates. That means bond prices are falling, too.

But there’s a big problem…

The Fed doesn’t have anything close to Charles Blondin’s successful track record. And that means we could be in for some recessionary trouble here in the U.S. very soon.

You see, the Fed has raised interest rates nine times since the 1960s with the goal of heading off inflation. And importantly… it led to a recession in eight cases.

Simply put, unlike Blondin, the Fed regularly stumbles and falls when it’s on the tightrope.

So my question to you, our loyal readers, is…

Would you rather deal with 8% to 10% (or higher) inflation for the next few years until the situation (hopefully) resolves itself? Or would you rather the Fed raise interest rates, knowing that the possibility of the whole saga ending in a recession in the U.S. is high?

Make no mistake… The Fed is in a tough place today.

But remarkably, most folks don’t see it as a “lesser of two evils” situation. The mainstream media sure isn’t reporting it that way. It’s making it seem like a “soft landing” is still likely.

However, like it or not, that’s where we are right now. The Fed is currently walking along the economic tightrope while carrying us all on its back. And if it slips, we’re in trouble.

Here’s hoping it gets across safely this time. America needs it.

Good investing,

Karina Kovalcik

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