«This is why the Fed is under pressure.»

Traders,

The Fed’s job description includes a dual mandate: fight inflation and promote full employment. Sometimes employment commands their attention. This is not one of those times. Instead, runaway inflation has stolen the headlines and psyche of consumers.

Historically, the primary tool used to combat the destruction of purchasing power was interest rates. Specifically, when inflation rises, interest rates rise. The logic is that increasing the cost of money will cool demand and tug ballooning prices back to Earth.

When you plot interest rates and inflation, you’ll discover a solid correlation over the past 50 years. That link has detached over the past year. While inflation has shot to the moon, rates have risen, but not nearly enough. The gap between the ten-year yield and the Consumer Price Index is hilariously wide. No wonder the market is pricing in so many rate hikes!

Video of the Day: Jedi Options: Building a trade and picking the right options strategy on $GDX

In today’s Jedi Options, Coach Tyler teaches how to build a trade on $GDX and highlights how to pick the right options strategy for the current setup.

Chart of the Day: Bond Yields vs. Inflation

Here’s the historical relationship between the CPI and 10-year bond yields.  

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