In a speech in Boston, Fed Chair Janet Yellen talked about to using monetary policy to run the economy hot. She seems to be willing to tolerate a higher level of inflation than the current Fed objective. Higher inflation is inevitable if the economy is run hot with monetary policy tools. On the surface, it would seem that buying hard assets is the way to go to profit from higher inflation, but under the present economic conditions, investors will want to be highly discriminating.

We will explore gold, silver, oil, copper, nickel, zinc, iron ore, timber and real estate later in this column. First, let us understand Yellen’s plan in her own words.

If we assume that hysteresis is in fact present to some degree after deep recessions, the natural next question is to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a “high-pressure economy,” with robust aggregate demand and a tight labor market. One can certainly identify plausible ways in which this might occur. Increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending, especially if accompanied by reduced uncertainty about future prospects.

In addition, a tight labor market might draw in potential workers who would otherwise sit on the sidelines and encourage job-to-job transitions that could also lead to more-efficient–and, hence, more-productive–job matches.7 Finally, albeit more speculatively, strong demand could potentially yield significant productivity gains by, among other things, prompting higher levels of research and development spending and increasing the incentives to start new, innovative businesses.


Gold is often at the top of the list as a way to profit from inflation….Read more at MarketWatch

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