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Can the Federal Reserve Stop Inflation?

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As inflation tensions increase, Wall Street and investors alike are closely watching the Federal Reserve. The question on everyone's mind is,  'Can the Fed jump in and aggressively stop inflation? or, at the very least, control it?

On Tuesday, Federal Reserve Chairman, Jerome Powell, said the Fed and policymakers will discuss plans to speed up the tapering of monthly bond purchases during December's Fed meeting.  Tapering, Powell said, could end months sooner than expected.

Inflation Is Here. How Prepared Is Your Portfolio? FREE Webinar

Recently, Susan McGinnis spoke with David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck during TheStreet's FREE webinar, How to Play the Inflation Trade. Watch an excerpt above.

WATCH: How to Play the Inflation Trade, a FREE webinar, hosted by Susan McGinnis.

Editor's note. The webinar was recorded on October 28, 2021.

Related: Gold and Crypto Should Be In Your Portfolio Now

Video Transcript:

David Schassler: I would love to believe that the Fed is going to be able to jump in and aggressively stop this, but this is not the 1970s. This is not the Paul Volcker generation. So at that time, the debt to GDP ratio was 30%. Right now, it's closer to 100%.

We live in a debt-fueled economy. It exists because interest rates are low. As soon as you start to increase interest rates, you're going to see stress cracks throughout. And that's going to force recession. So I don't see their ability to dramatically increase rates.

Quote by David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck, on the Federal Reserve

Quote by David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck, on the Federal Reserve

Related: 8 Assets to Inflation-Proof Your Portfolio

Paul Volcker took short-term rates up to nearly 20%. We know what that would do here. We're not suggesting you've got to take them to 20% to control inflation, but any meaningful increase in rates is going to cause stress, and it's probably going to lead to a recession. So the Fed, I think, is stuck. And that puts us in a pretty vulnerable situation where I think that we've got to tolerate higher inflation for longer because the alternative is directly fighting inflation. And when you directly and fight inflation through raising interest rates, that's going to make us vulnerable towards a recession.

So I think we have to get comfortable with the idea that inflation may be higher for longer. 

Quote by David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck, on the Federal Reserve

Quote by David Schassler, Portfolio Manager of the Inflation Allocation ETF, RAAX, at VanEck, on the Federal Reserve

Related: 5 Ways to Inflation Proof Your Portfolio

Susan McGinnis. So inflation will be with us for a while. And how should investors deal with that as far as how they-- the current generation of investors, which hasn't really seen this kind of inflation.

Schassler: Yeah, so I think people are waking up. People see inflation everywhere. They see it everywhere and they're starting to react to it. They're starting to challenge this transitory argument because they see prices rising all around them. You could see that in a bunch of places.

So consumer expectation surveys. You're seeing inflation rising. The fixed income market is starting to finally price in inflation. Real assets have been pricing in inflation for some time. Commodities prices react immediately to supply and demand. You're starting to see some gold prices respond a little bit. So you can see the markets starting to digest that there is an inflation problem.

Now, the second part of this, well, what do you do about it now? People have to buy real assets. People have to protect their portfolios with real assets. 

Video Highlights | How to Play the Inflation Trade

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