The markets, as has been the case over the last few decades, seems to have taken the words of the US Fed Chair's commentary as gospel truth. As I will explain, this perceived duel of "Inflation Vs the US Fed" is going to be as one sided as the fight between David and Goliath. Quite often wrongly quoted as the victory of the underdog, here is the link as to why Goliath did not stand even a 1-in-100 chance before David.

Almost as misunderstood as the example of David and Goliath is the one between inflation and the US Fed. As I see it, the probability of the US Fed winning the perceived duel on inflation is the same as Goliath had against David i.e. almost Zero.

Why have I used the terms "misunderstood" and the Perceived Duel? While the above outcome is almost a certainty at this point, it is also a gross misrepresentation of the underlying Economics. The US Fed, is the engine for the inflation firestorm that manifested in consumer prices a year back and one that will intensify in the years ahead. We are closer to the trough of inflation than the peak as far as the current cycle is concerned. By the time Powell's objectives of price stability (and that certainly will not happen in his tenure), the fed funds rate will be in double-digits and the first digit is quite unlikely to be "1."

To paraphrase the inimitable Jim Grant, while the US Fed pretends to be the Fireman in public view trying to douse the fire of inflation, it is indeed the Arsonist behind the scene. In fact, the single most important lesson that the world will learn with the ongoing inflationary depression is this – Central Bankers, around the world and without exception, are Arsonists masquerading as Firemen. The differences between individual countries is one of degree and not kind.