Economic woes ahead?

According to a former Fed president, yes:

Inflation returning? Probably.

With inflation creeping back (the downturn was honestly too fast to be real and sustainable for a number of reasons), the Fed may revert to rate hikes.

(Bloomberg) -- Underlying US consumer prices rose in February by the most in five months, forcing a tough choice for Federal Reserve officials weighing still-rapid inflation against banking turmoil in their next interest-rate decision.

The consumer price index, excluding food and energy, increased 0.5% last month and 5.5% from a year earlier, according to Bureau of Labor Statistics data out Tuesday. Economists see the gauge — known as the core CPI — as a better indicator of underlying inflation than the headline measure.

This likely means a rate hike if not this month, then soon. 

Important pivot in inflation coming soon (but not really).

I recently discovered Mark Moss via the video below. He talks about how he expects inflation (and therefore eventually interest rates) to come down significantly, very soon.  He explains that it's happening due to formula manipulation, rather than real world improvements, and if he's correct that is very dangerous.  

It's also political. The BLS is very political. Take a look at Shadowstats (which he does mention) if you don't believe me. But if inflation and interest rates do drop to the extent Mark Moss is predicting, this is where the political matters.  It's important for the Republican congress to be aware of this and start getting out in front of it to take credit for it.  Don't play the reactionary game and instead GOP, go on offense.

Here's Mark Moss.  The video is a bit long but worth watching through entirely.

I'm not convinced the Fed will change rates very quickly, but it will happen eventually in response to the rates. That has political implications too but also a real impact on consumers as opposed to fake inflation numbers.  Lower rates will stimulate demand and borrowing. 

Are you ready for more pain?

 The June 2022 Consumer Price Index surged again ("unexpectedly") to 9.1%. To many Keynesian economists and their Democratic party ilk, this was unexpected.  To those of us who understand loose monetary policy and loose fiscal policy, and even those who have common sense, this was no surprise.  A four decade high inflation rate: no surprise. The more leading indicator, of inflation, the Producer Price Index, rose even higher. According to teh BLS (Bureau of Labor Statistics);

The Producer Price Index for final demand increased 1.1 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 0.9 percent in May and 0.4 percent in April. (See table A.) On an unadjusted basis, final demand prices moved up 11.3 percent for the 12 months ended in June, the largest increase since a record 11.6-percent jump in March 2022.

...Over half of the June increase in the index for final demand goods is attributable to gasoline prices, which jumped 18.5 percent. The indexes for diesel fuel, electric power, residential natural gas, motor vehicles and equipment, and processed young chickens also moved higher.

This is the result of an entirely preventable series of events.  Loose monetary policy since 2008 has created a massive bubble. This was compounded heavily by Democrat spending and also seriously exacerbated by Let's Go Brandon's effort to demonize and hamstring American oil and gas production.

What's worse, is if you look at the way inflation was calculated back in the 1980's, this is way, way worse than what's being reported as the worst since 1981.  This is the worst since 1947 (when it peaked at 19.7%) and soon potentially since 1920 (when it hit 23.7%).

This is not over.  Inflation will continue to rise, despite an expected 'aggressive' response from the Fed, raising interest rates by 100 bps. The Fed is responding slowly (too little) and too late. The Fed's interest rate hikes will have an effect but they will take time.  The previous rate hikes did nothing to stop the upward March of the inflation. That's because, just like the decisions that caused this, the reaction wiill take time to work it's way through the system.  On the plus side that means rising unemployement could take time to kick in. But be ready for more pain; shortages and on-going price hikes are going to continue for a while.

Good news / bad new from the Fed

A few days ago, Federal Reserve Chairman Jerome Powell said the Federal Reserve is not expecting a U.S. recession:


The news you don't hear:

• no looming recession
• job market growing faster than available workers
• strong market for consumer 
• moderate growth

Here's the bad news for president Trump and for borrowers, it sure sounds like rate cuts are not going continue. They will probably remain stable for the rest of the year, barring 

Trump abuses Fed Chair Powell

Maybe abuse is a little harsh, but he certainly criticizes Fed Chair Jerome Powell.  His criticisms are valid - without the aggressive rate hikes GDP certainly would have hit 4% and possibly even stretched to 5% for 2018.  And the stock market would have definitely responded with more strength than it has shown.  The fact that they are considering a rate cut only proves it.

Conversely, without the rate hikes we may have seen inflation but the preemptive nature of  the rate hikes was definitely too aggressive.  The president's criticisms of Powell while perhaps a bit strong, are not at all unfair.

Fed Chairman has damaged the economy and the Trump recovery

Jerome Powell, Fed chairman, gets my nomination for idiot of the year:


I had previously pondered "how bad can it be?" but apparently I was wrong.

10 year anemia

After 10 years of anemic GDP growth,  7 of which were on president Obama's watch, the Fed has finally decided to hike interest rates. It's curious that the Q3 GDP was downgraded only after the Fed made it's change. That strikes me as deliberate.

What is more striking is that the artificially low rates for so long has indeed created a bubble, and when the rates needed to be higher to clear the wheat from the chaff (say back in 2009) it didn't happen. The interest rate bubble hasn't popped yet, but I don't expect another rate hike any time soon.  Maybe they're aiming for a bubble equilibrium.

Yellen at the Fed

If The Telegraph is to be believed, the next Fed chair (whom the author of the piece, Ambrose Evans-Pritchard, seems to highly regard) is going to keep pumping.

After an entire article in which Yellen gets praised, the lead of the story is buried near the final paragraph;

So there we have it. The next chairman of the Fed is going to track the labour participation rate. Money will stay loose. Markets have been spared again. The Brics can breathe easier.

This leaves me deeply uneasy. We are surely past the point where we can keep using QE to pump up asset prices. My view is that emergency stimulus should henceforth be deployed only to inject money directly into the veins of the economy as an adjunct to the US Treasury, by fiscal dominance, as deemed necessary.

So despite all her supposed savvy and prescient skills, she's going to do exactly the wrong thing.  The article fills me with unease as much for all the misguided praise as for the correct conclusion.

The Fed Monopoly

This picture speaks for itself.