I cannot do it anymore. I just cannot watch CNBC or Bloomberg. It isn’t because the market is falling (it is). And, it isn’t because I cannot bear to hear the usual batch of cheerleaders (so-called “analysts”) extolling the virtues of being long in an uncertain time.

Unlike 99% of the analysts, Joe Lavorgna is about as reasoned of an analyst as CNBC ever has as a guest. Yet, he too denies inflation and says that the Fed needs to relent and “let the economy run hot.”

The problem with Lavorgna’s reasoning is clear: the Fed has a dual mandate of full employment and price stability. Price stability is achieved by fighting inflation and ensuring that the real value of the US currency maintains its current level of purchasing power. If $100 today becomes $102 in a year, but has the purchasing power of $90 today, the economy falters. People need to earn enough in their savings accounts and other risk-free investments in order to ensure that they don’t lose the value of their money because that will cause the wealth of the nation (and consumer confidence) to collapse.

Were Chairman Jay Powell to allow the Federal Reserve’s mandate to become the growth in the stock market (as Wall Street would like) and cheap borrowing costs for real estate developers (as the President would like), the Federal Reserve would be risking a diminution in our nation’s wealth in order to get a continued rally in the stock market.

But, Wall Street’s cheerleaders are pushing for this short-term gain over long-term economic security when they try to explain that there is no inflation.

Let’s clear this up:

First, there is inflation. Annual rates of inflation are calculated based on the Consumer Price Index, issued monthly by the Labor Department’s Bureau of Labor Statistics. The CPI number issued on December 12, 2018 indicates a move from 246.669 to 252.038 from November 2017 to November 2018 for an inflation rate of 2.20%. This rate is still historically low, although much higher than the measure for the last several years.

The CPI indicator is controversial for many reasons, but one thing that economists universally agree upon is that it is backward looking. The Fed, therefore, looks at a variety of other factors many of which are going to try to measure incipient inflation.

Second, there are all sorts of reasons to believe we could have serious inflation in 2019 that will not show up until it is here.

I see at least four significant inflationary pressures in 2019 that weren’t present in 2018.

• Continuation or escalation of the trade war with China is inflationary as we have long relied on China for all sorts of low cost items and inputs. Tariffs placed on those items will cause the cost of goods to increase or purchasers to find alternative - and more expensive – replacements.
• Brexit and its March 29, 2019 deadline present a range of possible outcomes. A hard Brexit or anything that might resemble it will be tragic for the British economy, but the disruption that it will cause in global markets will be inflationary.
• Commodity prices collapsed in the second half of 2018. If oil does anything other than continues to fall in a straight line, transportation costs will increase. If other commodities bounce, input costs will rise.
• Minimum wage has just increased on January 1, 2019 in 20 states (including California and Florida) and a bunch of other cities (including DC). This affects the wages of 17 million people. In New York City, the cost of employing someone is now $15 an hour. If you don’t think that higher wages get passed on in the form of higher costs, come visit New York.

When analysts stop their market cheerleading and look at the same risks that the Federal Reserve and Jerome Powell are looking at, the inevitable conclusion is that the Fed needs to continue to hike rates in 2019.

Jerome Powell in his speech this morning at the Economic Club of New York stated that the Federal Reserve is “just below” its neutral rate.

The Federal Reserve is poised to raise the Fed Funds rate by 25 basis points to 2.25% to 2.50% in December. The Fed had previously indicated that it would bring the rate above 3% in 2019, meaning that there would be another 25 point move in March, one in June, and at least one more in the second half of the year, perhaps two.

By so publicly moving away from the 3% neutral rate, Chair Powell has bowed to pressure from a President, adjusting his policy to accommodate a man who is browbeating him on Twitter, expressing his regret at having chosen him for the position, and publicly musing about firing him.

I suggested earlier that Trump could successfully and legally fire Powell. At the bare minimum, what Powell made clear today is that he likes his job and doesn’t want to be fired.

However, Powell also crossed a line and created a dangerous precedent. A strong Federal Reserve is data dependent and takes action to protect the economy, not to protect a President, a dictator, or his family’s real estate empire.

It is my view that we are likely to face tremendous inflation over the next year. Inflation is already apparent in the costs of goods and services, the result of an hourly minimum wage that is now $15 in most of the country, and increased costs of transportation that will likely escalate unless oil and gas prices continue the precipitous decline we have seen the past two months.

Raising the Fed Funds rate, perhaps well above its neutral rate, could very well be necessary to stomp out inflation, and failure by the Federal Reserve to be responsive could result in a decline in the real value of just about every asset class (except perhaps precious commodities like gold). By bowing to pressure from the President, the specter has now been raised that we could find ourselves in 12 months time with a Federal Reserve that is not acting independently but rather responding solely to a dictator’s interests.

It is a dangerous precedent indeed.

Because my predictions for 2018 have proven to be largely correct I have been emboldened to release my predictions for the coming year.

I correctly predicted online savings and money market rates going above 2% before October 2018, online one-year CD rates going above 2.50%, and 5-year rates going to 3.50%. I am now predicting that online savings rates go above 3% in 2019, and that 1-year rates will go above 3.50% and 5-year rates above 4.50% in 2019. The Fed is guiding that way. And, even if Trump tries to remove Jay Powell, rates will continue to move up and it is good for the country to normalize interest rates. If you follow my prediction, you will basically continue to be in savings accounts and you will not lock into CDs longer than one-year.

I also predicted the stock market’s assent and its decline, as well as the decline in bitcoin. Bitcoin is going below $1,000 and it is never coming back. The stock market will go much further down over the coming months, but it will ultimately end 2019 a little higher than where it is right now. Bond yields will climb and real estate will continue to fall. Cash in the form of savings and CD rates will match the stock market’s performance in 2019, and outperform everything except perhaps oil, gold and some other precious resources (that are all starting the year at such low bases that they have nowhere to go but up).

My 2018 prediction about the 25^th Amendment was premature and based on hopeful speculation. It didn’t come to pass in 2018, but it will in 2019. Pence will also become implicated in the Mueller probe, leading to his quick resignation or impeachment. Pelosi’s elevation to the Presidency will be the impetus that causes the stock market to stop falling.

And, just like 2018, we’ll be happy and surprised at the end of the year that the country is still intact at all.

Happy New Year.