After months of debating whether our surge in inflation was “transitory,” Fed Chairman Jerome Powell ultimately told Congress that it’s “probably a good time to retire that word.”
Now a month into 2022, the Fed’s getting ready for their first interest rate spike to combat inflation. Powell remarked, “if we have to raise interest more over time, we will. We’ll use our tools to get inflation back.”
But former treasury secretary Larry Summers remains skeptical. He explained that due to poor expectations, wage stagnation, labor shortages, unfair prices, and the fact that the Feds have been unable to successfully cool down such a heated economy in the past, it’s unlikely the Feds could fix the economy now.
In fact, Larry Summers adds there are a massive overheated labor market, a high ratio of vacancies to unemployment, and fewer people taking jobs. This is reducing the purchasing power of Americans and the lifeblood of the economy. All these elements, if not balanced, could lead to not just entrenched inflation but “accelerated inflation.”
When Biden unveiled the $1.9 trillion COVID-relief bill, Larry Summers warned Biden the bill could “set off inflationary pressures of a kind we have not seen in a generation.” He called it “the least responsible fiscal macroeconomic policy we’ve had for the last 40 years.”
This runs counter to Summers’ view when he was an insider advisor to President Barack Obama in 2009. Summers advocated the stimulus package should be bigger in order to counter the economic downturn and job loss by increasing public spending.
But this time, the situation is different. This time Biden’s stimulus was way too big, and Larry Summers suggested shaving $900 billion off the relief bill by withholding the stimulus checks to households that have gotten wealthier during the pandemic, among other things.
Even though the stimulus has curbed some of the devastation brought on by the pandemic, what we may be seeing now are symptoms of inflationary excess. Simply put, demand is outstripping supply, unemployment is falling too far too fast, and “accelerated inflation” could be unraveling in the economy (and undoing our stimulus bill).
All this could spell more trouble for Americans and investors everywhere as they try to gain a foothold after the recent health crisis. As market pessimism increased due to the Fed’s recent announcement to increase interest rates, the stock market has entered correction territory. Even cryptocurrency isn’t immune, with 50% of Bitcoin’s value erased from its recent all-time high.
An Alternative Investment For High Inflation?
Most investors never consider alternative assets, but 73% of ultra-high net worth Americans, surveyed by UBS, consider buying this particular alternative asset to diversify their portfolio. Recently, The Rothschild sold it for $197 million. Oprah Winfrey grossed $62 million. And Jeff Bezos sold Amazon stocks and purchased $70 million of them. Some of the ultra-wealthy are getting into art, an alternate asset class, for some reasons:
Blue-chip artworks have appreciated 23.2% on average when inflation is at least 3%. It has outpaced the S&P 500 by 164% from 1995 to 2021. And WSJ recently called art “among the hottest markets on earth.” And now, investors have the opportunity to invest in this overlooked alternate asset alongside the ultra-wealthy with Masterworks. There are more than 300,000 members on the Masterworks art investment platform; signup is required for investors.