The Fed does NOT need a 3% Inflation Target | Here's Why.

okay I just realized something about the

Federal Reserve and it's quite important

almost nobody's talking about this even

billionaire Bill Ackman is not realizing

something that I think is up Jerome

Powell's sleeve

and I think I see it I want to share

with you and and see if you see what I'm

seeing okay but but first billionaire

Bill Ackman okay

who thinks Sam bankman freed is telling

the truth oh god oh oh I I didn't mean

to say that I'm sorry I'm sorry look I

respect the Lackman but there's some

things that I I don't like okay I don't

like it when you say you trust what Sam

bankman freed says I replied to you when

you said that and I said I thought you

were crazy I also did not like that at

the bottom of the market in 2020 you

went out on CNBC and told everyone the

entire country needed to lock down for

30 days leading to massive capitulation

and panic selling while you're

uh out of the money puts printed money

10x or more anyway uh with that out of

the way let's go on to what billionaire

Bill Ackman says here the Federal

Reserves some two percent inflation

Target is no longer credible no longer

credible he says okay

deglobalization that would be

disinflationary the trends well actually

globalization is disinflationary let's

get that right globalization is is when

we start using foreign workers

globalization is deflationary

disinflationary prices uh either rising

at a slower Pace or coming down

deglobalization is more home-based

manufacturing which we're actually we

are seeing that that actually raises

prices right and we're seeing that with

the chip sack to battery manufacturing

okay the transition to Alternative

Energy yeah that's actually also true

that is inflationary the need to pay

workers more okay uh that's a little

political lower risk shorter Supply

chains are all inflationary yeah that's

true the FED cannot change its Target

now but will likely do so in the future

so Bill Ackman is making this argument

that two percent will change in the

future but they've got to relax now with

two percent okay when asked Powell

recommitted to the two percent Target

but admitted that examining a higher

rate was possible a possible longer term

project businesses need price stability

but can thrive in a world with three

percent stable inflation I don't think

the Federal Reserve can get inflation

back to two percent without a deep draw

job destroying recession and if it gets

back to two percent it won't remain

stable there for the long term accepting

three percent plus or minus inflation is

a better strategy for a strong economy

and job growth over the long term okay

so it's actually not a poorly

constructed argument right not poorly

said so if this is the case that look

our economy can support three percent

inflation and we do have things that

create inflationary pressures short term

obviously we have War supply chain

shortages China's lockdown which leads

to manufacturing issues and shortages

worker shortages as we have

re-transition of workers more people

retired after covid a lot of things are

temporarily inflationary obviously you

also have massive money printing that

happened but this argument then of

alternative energy and deglobalization

are potentially also slightly longer

term inflationary

so Bill Ackman says we should raise the

inflation Target from two percent to

three percent which the FED has been

hounding on two percent for a very long

time and if they change their two

percent Target and in other words relax

to a three percent Target they would

substantially substantially hurt their

credibility this is very different from

what we had in the late 70s and 80s

where the Federal Reserve was able to

raise rates substantially and then lower

rates but they took an advantage they

took advantage of something called

opportunistic disinflation that's a

fancy way of saying they kind of just

let inflation go down over sharply one

year but then it took like 15 years to

get down to two percent they just sort

of like ah we're on the right path no

rush right

well what Bill Ackman here is suggesting

implies that the FED won't stop until

they get to two percent

which is actually not true see the

Federal Reserve told us they won't stop

until they are on the trajectory towards

two percent and we need to go back to

something that was announced by the

Federal Reserve in 2019 and that was

called fate fate is spelled

f-a-i-t but it's pronounced fate and it

stands for flexible average inflation

targeting how convenient that something

called fate would be released right

before some of the greatest inflation

ever uh since the 80s

but aside the point fate basically says

hey look we want inflation to average

two percent over the long term we don't

have to be at two percent right now we

just wanted to average two percent and

as long as it averages two percent we

actually don't really need to be at two

percent depending on how long we were

under two percent beforehand

and so this is quite interesting because

what was inflation before the pandemic

but not only that are we talking about

CPI or are we talking about pce

ah well don't worry I already have the

answer and no it is not you checking out

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the Federal Reserve

talcially

P inflation see here the fomc's Target

in terms of inflation is the headline

pce inflation rate and the target fomc

has set or what the target is that

they've set is two percent a level that

policy makers judge to be consistent

with achieving price stability and

maximum employment on average inflation

was slightly below this target before

the pandemic's economic shock how

convenient that the Federal Reserve is

actually talking about exactly what I

just said on the St Louis fed website

headline inflation on average was about

1.8 percent in 2020 the fomc adopted

this new policy framework they started

talking about in 2019 called fate and

that is to ensure that the policy uh

would average or inflation would average

two percent on average

so what is the pce inflation rate what's

actually a lot lower than the CPI

inflation rate in fact if you look at

what CPI is right now CPI right now fell

to

7.1 percent which is phenomenal we're

happy that CPI fell to 7.1 percent we

could see that evidenced right here on

the Bureau of Labor Statistics website

what we can now do is same place PC

inflation rate give that a quick little

slap into Google and the PC inflation

rate in October set at six percent which

is almost a whole percentage Point lower

than CPI right but not only that take a

look at this

this is a chart showing you the average

pce inflation rate year over year so

it's throughout the year what was the

average in that year relative to last

year and what you can see are these

various different inflation rates here

and you can see a lot of these are

actually under two percent 1.8

1.2 1.5 1.35 1.86 you get the idea so

what I decided to do was export this

data put it all on a table

and then average these numbers up

starting at a certain decade for pce

inflation and the results are actually

quite interesting I'll delete this for a

moment I read the bottom one look at

this the average inflation rate for pce

since 1990 has been about 2.12

since 2000 2.17 since 2010 2.2 I'm

obviously purposely leaving out the 70s

and 80s because the average will skew

slightly higher though even if you took

those periods into account not much you

could take this entire chart into

account and you'll end up with something

like three point something percent but

we've had the great moderation since

then and I don't think we really need

the last 100 years to average two

percent probably more or less it's going

to be something like the 10 years before

and after a certain point that the

Federal Reserve will want to see

inflation average ten or two percent so

in my opinion the fed's probably going

to want to see something like a 2010 to

2030 average two percent inflation rate

and what would it take to achieve that

well what I did is I went all the way

down to where we sit now 2022 I threw in

6.1 for a year-end average here and then

I took the summary of economic

projections from the Federal Reserve 3.1

2.5 and 2.1 and threw those in so yellow

is roughly what the Federal Reserve is

estimating for inflation or what we

could expect inflation might be for the

next few years the once again listed in

yellow the FED does actually think

2022 median inflation will end at 5.6

percent I think that's a little bit low

so I personally went with 6.1 but let's

use their number just for the sake of

this and now let's assume that inflation

actually goes under two percent we'll

play with this let's assume it actually

goes under two percent for the rest of

the decade

if that's the case what does inflation

actually look like on average well we'll

paste up darn it I ruined my paste

formula so we'll go ahead and do it

together average so that way you could

see it is legit and we're just gonna go

grab it from 2030. I'm gonna go ahead

and pull that all the way to

2010 that's 10 years basically in either

Direction look at that

2.08 which is actually less than any of

the other inflation scores now obviously

it would take up a little bit if we went

over here and increase this to just two

percent right if we made each of these

two percent and we just happen to stay

around two percent what does it end up

looking like it looks like 2.18 which is

actually not terribly off of the other

decades anyway

so in other words

the market right now at least some

individuals in the market think there's

no way we're going to get back to two

percent inflation that's insane there

the fed's going to crush us to Oblivion

we're not going to invest in the market

until the FED ruins their credibility

and changes the two percent inflation

Target and I'm looking at it going oh my

gosh nobody's realizing this the FED

literally told us right before the

pandemic hey hey new policy framework we

do flexible average inflation targeting

around here called fate now when Jerome

Powell was specifically asked about

potentially changing their inflation

Target above two percent he actually

responded quite frustratingly suggesting

absolutely not would there be a

consideration of raising the inflation

Target that's because remember folks

Jerome Powell needs to talk inflation

down but actual written policy at the

Federal Reserve says while I talk

inflation down don't worry our policy

averages it out anyway so we just have

to be moving in that direction because

then we'll get an average we had a

substantial period of lower inflation

now we have higher inflation and if we

have lower inflation on the other side

it's okay we don't have to rush to two

percent

that's actually in my opinion very

bullish now I don't want to be

misunderstood for suggesting that's it

this oh my gosh Kevin made a revelation

that's it it's time to go all in no it's

actually to show you that even though

markets could be pessimistic and sit on

Sidelines waiting for the FED to say

that's it we're changing our inflation

Target which I don't think they will do

because they'll shoot their credibility

in the foot whatever's left of it

the FED May soon one once inflation

actually consistently shows it's on a

downtrend reiterate hey y'all remember

how we have a policy of fate

yeah so we're actually going to drop

interest rates now because we're we

think we're substantially on the way to

lower inflation and you know since we're

going to average it out anyway we we

don't necessarily have to rush it and we

want to support the economy a little bit

more

historically the best time to invest is

when the Federal Reserve not pivots

which is reducing the rate of increases

or pausing but rather when the Federal

Reserve actually starts cutting

we'll see it's an interesting Revelation

let me know what you think in the

comments down below and check out PP