Thank goodness for a case of no surprises. Today’s quarter-percentage-point hike in the Fed funds rate was expected. So was the Fed’s projecting three more rate increases in 2018.

The commentary, too, held no surprises, essentially reprising prior comments. For one, the Fed expects continued strength in the labor market. And it continues to believe that one of these days inflation will stabilize at around 2%, roughly 50 basis points above current levels.

In other words, with the Fed, it is largely status quo – which we might actually rephrase as “status just don’t know.” To some extent, after all, the Fed is operating in the dark given that there’s still no certainty that tax legislation will pass or of exactly what it might do if it does pass. Against these gaps in knowledge, we think the Fed did the right thing in not changing its stance.

Missing from the Fed’s latest statement and from earlier ones as well was any clear assessment of the outlook for productivity. That matters, since any economic variable you can think of, from GDP to inflation, relates to productivity.

Productivity will be affected by whatever emerges from Congress, including whether the budget allocates money for infrastructure investments. New and upgraded infrastructure, of course, would spur productivity gains. The post-Great Recession recovery has been a historically flat period for productivity.

Unfortunately, we see little likelihood money will go to infrastructure anywhere near the level needed to generate stronger productivity. This includes any impact from corporate tax cuts. As a result, we think inflation will likely rise.

Bitcoin Mania

As an aside, I think the bitcoin mania is showing signs of exhaustion just two or three days into bitcoin being traded on the futures exchange. Volumes are still light enough to exclude arbitrage, even though various trading platforms differ from one another by as much as 10%. That’s the kind of spread any arbitrageur with an ounce of self-respect normally would take advantage of. If and when liquidity picks up, we expect this currency not only will be subject to arbitrage but ultimately to short selling that will likely result in a crash.

In an aside to an aside, the advent of bitcoin is another reason to forecast inflation. Creating and using bitcoin requires huge amounts of energy, and that’s expensive. Right now China is footing most of that bill. But at present bitcoin is merely a rounding error when it comes to any meaningful contribution to global money supply.

Moreover, anyone thinking that bitcoin and gold are vying for investors’ hearts as an alternative to the dollar should think again. If we’re wrong about bitcoin’s direction, and it continues on its merry way to higher heights, the costs in terms of energy will be enormous, enough to generate quite a bit of inflation, and if it ever rivals gold, enough to dramatically move the inflation needle.

Our Latest Trade

All this bears on today’s recommendation, sent out earlier as a Trade Alert, to buy a call option on gold stocks. We recommended the VanEck Vectors Gold Miners ETF (NYSE: GDX) March 16, 2018 $22.50 call option. As most of you may know, I’m very bullish on gold long term, based in part on my view that it will become part of a new monetary system.

In initiating our gold trade, we are reacting to a fairly abrupt change in our gold indicator. Until very recently, it had been bearish. The current reading is what we would call a marginal buy. But when combined with today’s Fed statement, continued uncertainties about passage of and/or the impact from tax legislation, and the overall tumult in Washington, it suggests we should enter the market.

As with all trades that are directly indicator-based, our modus operandi is to give them very little room to fail. So stay tuned. While we hope this will be a long-term and very profitable speculation, we can’t rule out an immediate turnaround.