May 14, 2024

Interest rates likely stuck for a while

The economics term Let's Go Brandon no longer uses, continues to linger like a foul stench over the American economy:

A key gauge of inflation surged by much more than expected in April, confirming that the pace of inflation has accelerated.

The producer price index for final demand, which measures the prices paid to U.S. businesses for their goods and services, rose by 2.2 percent in April, the Department of Labor said Thursday. Compared with a year ago, the index is up 2.2 percent, the largest increase in a year.

Economists had forecast a 0.3 percent gain in April compared with March and a 2.2 percent gain year-over-year.

The impact of the higher-than-expected figures for April was somewhat softened because the prior month’s estimate was revised down from a 0.2 percent gain to a decrease of 0.1 percent.

The so-called core producer price index—a measure that excludes prices of food and energy—jumped 0.5 percent in April after calling 0.1 percent in March. Economists had forecast a 0.2 percent gain. Over the year, core producer prices are up 2.4 percent.

That means that interest rates are likely stuck where they are at least for 2024

Federal Reserve Governor Michelle Bowman said she doesn’t expect it will be appropriate for the Fed to cut interest rates in 2024, pointing to persistent inflation in the first several months of the year.

Bowman made the comments in a Bloomberg News interview following a speech to bankers in Texas, where she urged the central bank to proceed “carefully and deliberately” as policymakers move toward the Fed’s 2% inflation goal.

This is due to two things:

  1. The government printing insane amounts of money, causing the numbers of dollars chasing each product or service in the economy to increase, thereby driving up prices.
  2. Massive government deficit spending, doing exactly the same thing.
Both monetary policy and fiscal policy has been run by imbeciles for decades but it has gotten far worse in the last several years. The economy is nearing the point where it could end up stuck on broken for a long time.

If you combine the state of interest rates, with the resurgent decline in real wages, the real, unreported unemployment rate and the real inflation rate and the ludicrous government debt now being serviced with massive interest rates, the economy is nearing a tipping point. The government's massive debt cannot be paid off at current interest rates, it will bankrupt the country eventually. 

A smart commander in chief  would be doing two or three things right now; (i) push for lower interest rates in order to ease the financial burden on ordinary Americans, (ii) dramatically reducing government spending on a permanent basis to help reduce America's debt burden and (iii) pushing for lower taxation and fiscal policy in a way that helps drive innovation and dramatically increase productivity in order to help the economy grow out of debt.  

The latter item might have inflationary implications and should be rolled out in a slower way than the first two items, but these things need to be done. They need to be done soon. But we are not witnessing a smart commander in chief, we are witnessing an incompetent, corrupt, clueless boob, so it isn't going to happen on this watch.   The only hope is that come January, someone with some business sense is in charge again. That will not immediately generate results, but it will ultimately do so in a very positive way. We had some positive household income progress in the previous administration that has been disappearing pretty dramatically since then.

Voters, you know what to do.

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