Last week, Dudley also floated the idea of the Fed creating its own digital currency at some point in response to the surging popularity of cryptocurrencies. For his part, Paul suggested the meteoric rise of digital money, particularly bitcoin, could also be a signal that there’s a lot more inflation than people realize.
Yet “low” inflation remains in the spotlight for Fed policymakers, with government price data remaining tame over the past five years. Outgoing Fed Chair Janet Yellen has raised concerns about the trend — hence the bias to keep interest rates low.
Paul, however, suggested the data are misleading.
“In the ’20s, CPI [the consumer price index] and commodity prices didn’t go up, but the stock market went up,” he told CNBC.
The Fed “kept reassuring themselves ‘no inflation, no inflation. The CPI is not going up,’ But there was still a distortion — a bubble in the stock market, and there was a pretty big correction at the end of the 1920s,” he said.
And that’s where Paul, a medical doctor and former Republican presidential candidate, believes investors — as well as the Fed — could get blindsided. He’s been putting a lot of blame on the Fed for keeping interest rates low for so long.
“I think they see it, but they don’t want to see it. They don’t want to emphasize it because that would say they’re doing something wrong,” said Paul. “They’re worried about how do you have more inflation? How can we get the prices to go up, and stick it to the average guy that can barely survive?”
Paul can’t pinpoint when a plunge could happen. But he compares the current inflation environment to the Nasdaq bubble and housing crisis, which ultimately caused a steep downturn in the stock market. This case, he added, may be no different.
“There will be a race to the exit,” Paul said.