Rate Hike Ammo

There are no more excuses.

The Fed keeps its eye on various inflation measures and indices but “prefers” the Personal Consumption Expenditures Index, Excluding Food and Energy, the so-called “core” PCE index, released by the Bureau of Economic Analysis this morning. The Fed bases its inflation target on this core PCE inflation index because it usually shows lower inflation rates than the Consumer Price Index, thus further understating the deterioration of the purchasing power of the dollar as consumers experience it.

But even core PCE inflation hit 2.0% in May for the first time since April 2012, in the bull’s eye of the Fed’s target (not rounded, thus giving a false sense of fake accuracy in very inaccurate data, the core PCE rate was 1.9553%):

The Fed’s target of 2% inflation isn’t a minimum, but a target. To emphasize this, the Fed has recently started to insert a new word into its communications: “symmetrical” – meaning the Fed doesn’t want inflation to go higher or lower.

In the chart above, note the low point in core inflation last summer, when Fed Chair Janet Yellen emphasized, while being roundly pooh-poohed by Wall Street economists, that this was “transitory.” She pointed at some specific factors, even as the financial media clamored for the Fed to back off its already “gradual” rate hike path.

The reason the Fed focuses on “core” inflation is not because food and energy are not important to consumers. They are! See the beautiful gasoline prices yesterday in our neighborhood in San Francisco:

But because food and energy prices can gyrate wildly and have a big but temporary impact on inflation data. This happened during the Oil Bust in late 2014 and early 2015 when fuel prices plunged. This shows up in the broader PCE price index that includes food and energy, as the chart below shows. This PCE index jumped 2.3% from a year ago, the biggest jump since March 2012.

That inflation is rising is no longer surprising anyone and is no longer being disputed. The data is cropping up everywhere. The Consumer Price Index, released two weeks ago, rose 2.8% in May from a year earlier, on its way to 3%. Companies have been complaining about price pressures on the input side, and they have been able to gradually pass this on to the next entity in line, and ultimately to the consumer, as this data shows.

This PCE inflation data will feature prominently in the Fed’s post-meeting statements to justify further rate hikes, with the probability of a total of four rate hikes this year – with two more to go – gaining steam, followed by more rate hikes in 2019.

Consumer products companies, retailers, oil-and-gas drillers, manufacturers, and other companies have been complaining about the soaring costs of shipping goods in the US as trucking companies and railroads are jacking up their prices. Everything is spiking, setting off “inflationary concerns.” Read… What’s Going On with Trucking and Rail?  

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  89 comments for “Rate Hike Ammo

  1. Tom Dapice says:

    The cost of our 7 day digital and print newspaper subscription has increased 41% yr/yr. The cost of a recent “stress test” recommended
    and administered by medial professions was $11,000. And to add insult to injury, the dentist filled a cavity,and the filling fell out within the week.
    Someone is going to have to try harder to sell the preferred inflation rate data series.

    • Justme says:

      I assume you meant “Medical Profession”? :-)

    • Frederick says:

      For comparisons sake I had an extensive physical which included blood testing and a stress test here in Turkey for the equivalent of 200 USD Administered by a cardiologist
      Colonoscopy was 250 including anesthesiologist

    • andy says:

      The cost of supplying your $11K medical was probably $1000.

      Here in Australia I did an aviation medical, with Eco stress test and Opthalmologist test for total under $1000, which I thought was too expensive.

      US healthcare prices are so far out of whack with reality it beggars belief.

      US healthcare at 17% of GDP will send the US broke (actually the US is already broke, $21 Trillion debt it can’t repay in purchasing power – it can print it, but not the same thing).

      I guess something will give sooner or later.

  2. Maximus Minimus says:

    Let me do some basic math. The core inflation (as opposed to real inflation) is 2%. The FED target rate is 1.25-1.5%. So the official money debasement rate is only 0.5-0.75%.

    • Finster says:

      The current official fed funds target is 1.75-2.00%. But since actual inflation is higher that official inflation, we’re still well into monetary debasement territory.

      The question is, with the inflation rate accelerating as the Fed’s hiking program proceeds at a snail’s pace, will we ever get to a positive real fed funds rate?

    • Wolf Richter says:

      Slight correction: The Fed’s target range is 1.75% to 2.0% as of the meeting this month. But your point is still correct. The overnight rate (federal funds rate) is still below inflation, however you measure it. That’s why the current target range is still considered “stimulative” and not “neutral,” and that’s why the Fed is still “removing accommodation” as it’s called, rather then “tightening.”

      Once the federal funds rate hits neutral (everyone has their own idea what that is), then the Fed will embark on “tightening.” They’re discussing this bigly.

      • van_down_by_river says:

        The Fed completely trashed money markets and encouraged central banks around the world to join in. They set, by fiat, the cost of money to a ridiculous low level and basically never looked back. It’s been 10 years since the “monetary crisis” excuse to put their thumb on the scale and here we sit with rates still at crisis levels.

        How could the Fed possibly EVER normalize rates after flooding the globe with easy money and directly causing 10’s of trillions of dollars to be borrowed into existence. Those debts can’t be serviced at higher rates, those borrowers must be allowed to default through inflation.

        It is the Fed that gave Trump and congress the excuse to accelerate already large deficit spending. If the government couldn’t borrow cheap money they would have to stop, and despite what the Fed may say money is still very cheap.

        Ten years into a recovery should the Fed really be encouraging the government to embark on a new fiscal stimulus program. Why not raise rates 1% or 2%? If you say you are tightening then tighten.

        The Fed made their easy money bed and now they will need to lie in it. The Fed funds rate will never get above 3% (much less 5%) and the balance sheet will never drop below 4 trillion before it starts growing again.

        The fed discusses many things bigly. They use discussion to try to manipulate markets, in this case they want to make market participants believe they are not in a race to debase (though their new stated policy is debasement). The Fed is feigning tightening to try to calm market participants and prevent a dollar panic – they will fail.

        A long winded rant, I know, but my question is: do you honestly believe this so called tightening cycle is going anywhere?

        Inside of a year we will be looking at QE4. This whole mess is a disaster, it will be interesting to hear the Fed explain how it is not their fault. Courage to act indeed!

      • Eastwind says:

        I suppose the unwinding of Quantitative Easing should then be called Quantitative Accommodation Removal.

        Sounds like a company you hire to pick up a particularly large load of trash.

  3. Si says:

    I thought the fed did propaganda rather than math ;)

  4. Jim Graham says:

    Something interesting about your gas prices….

    Around here the price jump per grade is 20 or 30 cents compared to your dime a gallon…

    What a bargain. LOL

    • Wolf Richter says:

      I thought we were getting ripped off across the board. Are you saying we’re just getting ripped off on regular?


      • Marc D. says:

        You’re getting ripped off more on regular. Here in Northern Virginia, I just filled up at BP for 2.999/gal. Premium was 3.799. That’s an 80 cent spread.

        • Eastwind says:

          Taxes are a big component of the price of gas everywhere.

          Perhaps in some areas the spreads between grades are increased by higher taxes on higher grades, and in others the tax is uniform for all grades.

        • Marc D. says:

          I did a little research into that, and there are several factors mentioned. However, taxes aren’t one of them. Refining capacity issues are a possibility, because premium demand has increased in recent years, without refining capacity matching that increase. Also, gas stations (in some places, anyhow) may be jacking up the price more on premium, because premium customers are perceived as not being as price-sensitive as regular customers.

  5. Not Drinking the Kool Aid says:

    Americans get a raise (but not very much)
    Inflation is up only 2% HA HA (excluding asset inflation, gasoline, my dry cleaning, handyman for things I cannot fix myself, repairs, electrical repairs, oh my god!, tuition (they told my daughter it is up ONLY 4% this year, Hallelujeah!!!), rent was up but seems to be stabilizing, house prices past 2008 but stabilizing in some areas, food is ok as we have choices but organic is more. Health care don’t ask- I was an MD but I did something else but I have lots of MD friends and I can say for sure the system as a whole and especially the EMRs are a joke. (I suggest you look at your records from time to time). My dog could design a system much better and cheaper but it is owned by the insurance and drug companies so forget it.
    I think our educational system is crap and does not teach Americans what is what. I wonder how many can define inflation. GDP.
    I feel sorry for those that do not have great jobs and good money as their income is silently eroding quickly.
    But the economy is GREAT.

  6. Petunia says:

    My food bill has more than doubled in 3 years, my car insurance is up 25% in one year and at least 35% in the last two years, my cable bill is about the same after cutting back service to the bone, gas is up 40%+ in the last two years. Sure, core inflation is 2%.

    • Frederick says:

      I often wonder given the numbers you are quoting Petunia how on earth average folks are surviving It boggles my mind to be honest

      • van_down_by_river says:

        Many of us buy only food and nothing else, that’s how we’re getting by.

        The same way someone in sub-Saharan Africa might be getting by. Of course many of them are at least given the opportunity to live in a slum or favela but we must fend for ourselves.

      • DK says:

        I know several people that have full-time jobs and go to the food pantry every week. I think this is very common in lower income areas.

        • Emanon says:

          At a local grocery store, they told the workers years ago to give slightly dinged cans to the food bank, but to throw away the badly dented cans to avoid giving poor people food poisoning.

          Then they told them to stop giving any cans, even cans with just missing or torn labels, to the food bank. They still threw out the badly dented cans, but then started to sell the slightly dinged or badly labeled cans at a discount.

          Now they are selling the badly dented cans at a discount too.

          One grocery manager, who has since quit, complained that botulism was rare but will soon make a comeback in the USA.

          In other news, the 64 fluid ounce orange juice package (half a gallon) first became 59 ounces, and is now 52 ounces.

          “Shrinkflation” is eroding the purchasing power of everyone who drinks OJ.

          These sorts of things do not meet any reasonable definition of “making America great again”. We’re slouching into Third World status instead.

    • Ambrose Bierce says:

      Food is about the same, although once the Mexican produce gets pulled its anyones guess. Insurance (home and auto) is higher because asset prices and cost to rebuild are higher. For the average person in CA you should have CEA because your home represents more than half your net worth, and earthquake insurance is ridiculous and expensive. Gas is about the same still below $4. ATT has a new $15 cable service. And the cutoff for low income incentives keeps rising, which for fixed income folks means disinflation.

    • Rates says:

      Core inflation does not include food and energy as this article pointed out. Not sure about car insurance and cable.

      The Fed cares only whether your tablet computer is up more than 2% since last year as if people can eat tablets. I am sure in the future, there won’t be any real food, instead there will be food apps.

      • Ambrose Bierce says:

        I wonder if hedonics works in reverse, I can buy a refurbished desktop for less than the cost of the software upgrade.

  7. George says:

    And yet the 10 year is not responding. Why?

    • Laughing Eagle says:

      George, they know the true inflation rate.

    • Rates says:

      I was reading somewhere that the yield curve has started to invert, meaning someone thinks that recession is near. In that case, why would the 10 year go up?

      Also did anyone see that DB failed the Fed stress test? No doubt KPMG was doing its best to “doctor” the result and yet they still failed. A very nasty Brexit is probably going to be the final straw for DB.

    • Lance Manly says:

      There is still a risk-off given the performance of assets lately. When people dump risk assets the ten year rate goes down. Only temporary though as the US is going to be selling treasuries like gangbusters to finance its deficit. One thing else on the Personal Income and Outlays report was the fact that spending was only up .2% while PCE inflation was higher than that, hence negative PCE for the month. April was revised down as well. Look for 2Q GDP predictions to plummet. GDPNow was down .7% from the previous reading

    • Ambrose Bierce says:

      You have to read Doug Noland today. Creditbubblebulletin.com

  8. Rates says:

    So 50 bp next?

    • Setarcos says:

      That would create a very big market reaction, an unnecessary shock.

      Now with that said, still at a loss of how the Yellen Fed justified ZIRP for so long. So if you recognize that the FED appointments are politics first, economics second, then you could imagine a scenario, albeit highly unlikely, where a shock gets administered. Bill Maher would like it, but not sure who else would.

      • Rates says:

        Plenty of people on the short side would be cheering. That includes pretty much everyone waiting for prices to become sane i.e. housebuyers that are still sidelined, etc.

      • Escierto says:

        Not only Bill Maher would like it. I would love it if they ratcheted up the rate 50 bp next time. I hope the Fed drives a dagger into the heart of the economy and kills it like a vampire. After all the Fed heads keep talking up how strong the economy is and how great everything is – ok, gang, now walk the walk.

      • Frederick says:

        Believe me there are millions who have been left out of this miraculous “ recovery “ who will be thrilled

    • Mean Chicken says:

      Isn’t a luke warm frog boil considerably more fat cat friendly when you’ve got trillions to move? ie: I guess the fat cats still are distributing into strength and thus the FED can’t pull the rug quite yet.

      How else does one explain bloated stock prices?

    • Wolf Richter says:

      “Gradual” still rules the day at the Fed. But they might space rate their hikes closer together next year, and they might throw in a surprise hike when everyone is asleep just to make a point.

      • Lance Manly says:

        >they might throw in a surprise hike when everyone is asleep just to make a point

        If I remember correctly there will be a news conference with every meeting starting in January.

  9. George says:

    So as we get closer to an inversion does the Fed slow down or stop their current process? Wouldn’t that destroy what little credibility they have left? Would they actually try to start selling their balance sheet to get the long end moving?

  10. JB says:

    the feds will not accelerate their tightening schedule. per their last statement they added “symmetric” to their 2 percent inflation rate. It is my understanding that “catch up inflation” over 2 % will not be cause for policy change. Why ? because of years of under 2 percent. you can’t make this stuff up.

    • Wolf Richter says:

      “Symmetric” means they want inflation to neither go over the 2% nor go under the 2% target.

      • Alistair McLaughlin says:

        I believe they mean more along the lines of they expect the rate to fluctuate equal amounts below and above 2% inflation.

      • van_down_by_river says:

        I hate to have to correct you, but they are using symmetric to mean inflation running above 2% to mirror the inflation they say ran below 2%.

        They are saying they are comfortable with inflation running hot because it ran cold (so they say) for a few years.

        • Wolf Richter says:

          “They” are not saying that that inflation should be let to run hot. Only one Fed governor said that as an idea, and it was shot down. That was Williams (at the time SF Fed). It was unrelated to “symmetric.” This was a theory he had been discussing for a few years, as part of how the Fed might want to consider changing its inflation targeting.

  11. Ambrose Bierce says:

    The Fed raises rates and that causes inflation, its that simple. Normalization is a farce, what is normal? Raising rates in order to lower them next year is a double farce. Why not just lower them now? The Fed has to raise rates to attract enough buying interest to fund the treasury auctions, and new bonds at higher yields puts a hurt on existing bonds, is no joke, but they can issue new debt at higher rates if they limit supply. The GOP controls all three branches of government, and they believe (ostensibly) in fiscal probity. The big market surprise would be a balanced budget in Washington. Growth is slowing, (TIP bond ETF is a signal) supply of credit should slow, fiscal and monetary policy have to dovetail.

    • Alistair McLaughlin says:

      Raising rates does not cause inflation. Leaving them too low or raising them too slowly is what causes inflation. Inflation is rising along with interest rates precisely because the Fed has been so slow and reluctant in raising them.

      I agree that raising them now just so they can lower then again at the first hint of a recession is beyond brain dead (they need to stay higher even throughout a lengthy downturn to set things right again), but that’s another conversation altogether.

      • Ambrose Bierce says:

        I have two things to that, one is the McLuhan concept of reversal and change, in which any technology pushed to its extremes reverses, the analogy to an airplane that breaks the sound barrier, the controls reverse.
        Second look at High Yield Junk bonds and OIL, junk went on a tear during ZIRP, fracking, money for any project, and oversupply, now you raise rates and what happens, the reverse. Supply is firming and oil prices are going up and there is no better inflation guide than energy. It applies in the service sector as well, while old industry unions have no control of wages service workers do. Raising rates raises inflation, just not as fast. Because inflation is rising and rates are rising you assume rising rates reduce inflation? think about that a moment.

        • Alistair McLaughlin says:

          Rising rates tend to follow inflation, not cause it. You’re getting your cause and effect backwards.

  12. Mean Chicken says:

    And $100K income is considered poverty level in San Fran!

    • alex in san jose AKA digital Detroit says:

      In all fairness I think that’s if you have 2 kids and a stay-at-home wife.

  13. TrojanMan says:

    So basically we are headed for an inversion and a recession, possibly with stagflation. The 10 year yield has actually been going DOWN and can’t seem to break through or even maintain 3%.

  14. OutLookingIn says:

    The intent of government statistics is not to tell you the truth, but to allow you to remain comfortable with the public lie.
    So how did we do? Let’s look:
    Global Debt
    2007 – $150 trillion
    2018 – $220 trillion (not so good)
    The total amount of consumer subprime debt is now in excess of the amount of subprime mortgage debt ($650 billion) at the peak of the mid – 2000’s credit bubble. And the savings rate continues to fall.
    The bottom 90% struggle with stagnating incomes which is now a structural reality. The central banks have forced price inflation when there is no wage inflation. The consumer has been tapped out and is experiencing high debt loads with attendant wage stagnation/deflation, resulting in shrinking demand. Stagflation is the result.
    The true inflation rate lays somewhere north of 10% which is purely price inflation, as labor faces wage stagnation, at worst deflation.
    Complacency? What we have is extreme greed and widespread ignorance, disguised as complacency.

    • Frederick says:

      Outlookingin is that you John Williams? You are spot on by the way

    • Mean Chicken says:

      Exactly. Keep in mind, all “our best thinking” over a period of decades, not months, got us to where we are today.

    • Bobber says:

      The people in the “ignorance” category are the smart ones. They spend freely, take on debt, and get bailed out.

      It’s the hard working professional class that are the suckers. They work long hours and save, avoid debt, and they wind up funding the eventual bailout for the ignorant poor and the greedy rich. The worst part is they see and understand what is happening to them the whole time. Kind of like cattle standing in line to be slaughtered.

      • Steve says:

        The ultimate hedge against moral hazard and Governmental stupidity.

        Buy land (11 acres) free of debt
        Get ag exemption (little to no property taxes) as farmer
        Grow fruits, vegetables, nuts and protein for self and neighbors
        Cut back on working for the man.
        Tell rest of world to f off. They can raise taxes all they want. (high tax rate x small income = F off to the tax man.

        I’m only half joking.

        • alex in san jose AKA digital Detroit says:

          Steve – that’s what I miss about the survivalist place. Some of the stuff we grew was really productive. We had prune-plum tree that was amazing. A winter crop of fava beans was a good thing to do; too bad I’m the only one who tried it. It was possible to be self-sufficient for 2-3 people on the 5 acres without too much work. Too bad the place got filled with, at least count, about 14 freeloaders and it was drama all day and night.

          A lot of places smaller than 5 acres were planted in walnuts. The walnut trees paid the property taxes, side-income, and are yummy besides. Now in that area it’s become a “bedroom community” and no one knows how to take care of the walnut trees, and you see the root stock growing up and taking over; it’s sad.

          In 2009-2010, it was possible, for a quarter-mil, to buy a few acres with a house and barn in that area. It’s very nice productive land and of course with skill it can be improved.

          I’m sure it’s possible to do something like this in many places in the US. The Southeast and East probably have tons of places that are viable that a normal person could save up and buy.

        • RD Blakeslee says:

          I wonder how many of us are living somewhat more like subsistence farmers than cogs in the macro economy

          In any event its not half a joke – It’s no joke at all and it’s a good life.

        • TXRancher says:

          Seriously, some of us have already been doing just that…right RD!
          Living the dream…

        • sierra7 says:

          To Alex in San Jose:
          Great crop fava beans! First as a good food addition and then after harvest before the plants dry up turn into the ground to return tons of nitrogen and other earth supplements to the farm soil. We used to plant fava beans (farming on the peninsula) in between fields of lettuce and move those borders every year and return the nutrients to the soil. (From an old row crop farmer) and, from one who really remembers what Santa Clara Valley really looked like 60-70 years ago and is heartbroken to see all that incredibly productive soil covered in asphalt and cement! We will pay!!

      • Frederick says:

        It’s not merely a function of intelligence Many people were just raised to do the “right thing” Taking advantage of the situation may seem like the easy way but eventually that kind of thinking comes around to bite you in the keister

      • JZ says:

        Those who take on debt to consume and got bailed out lose their freedom.
        Those who does NOT take on debt can stu raise their middle fingers to their boss, the gov. This is called the freedom, the “F U” position.
        All these seemingly complicated financial phenomenon is very simple at its root. The battle on freedom/liberty. If they can NOT take your freedom away using guns, they will entice/nudge/force you into debt contract.
        Debt, same as cocain, is addictive.
        The world is addicted to debt like enslaved hookers is addicted to drugs so that they always come back to the mob boss asking for more.

    • van_down_by_river says:

      Two thumbs up!

      The Fed made debt cheap and plentiful – you will always get more of what you make cheap and plentiful.

      The Fed pushed governments, institutions and individuals to take on enormous debts, now those debts need cheap money to be serviced. There is no turning back.

  15. Setarcos says:

    There seems to be a recurring theme in the press that rate inversions cause recessions. Is this not like saying a runny nose causes a cold?

    Why not simply say something along these lines …. 1. The Fed can only set short term rates 2. The FED may have a little influence now on the long end with QE/QT 3. Raising rates contributes to a slowdown more so than the inversion?

    What am I missing?

    • Mean Chicken says:

      The rate spread modulates lending, probably?

    • Wolf Richter says:

      You’re not missing anything.

      A number of Fed heads have already brushed off the importance of a potential inversion. So what if it inverts, they said. They cited as reasons it might invert the very distortions that QE has caused, such as excess reserves, the huge liquidity, yield-chasing still going on, international factors such as NIRP in Europa and Japan, and other factors that would keep long-term rates from rising. And I tend to agree with them. An inversion would be more of a symptom of those factors.

      Eventually there will be a recession, that’s for sure, but it won’t be caused by a yield-curve inversion. It will be caused by the business cycle.

      • van_down_by_river says:

        Yield curve inversion does not cause recessions, but it very accurately predicts when we have entered a recession. If yield curve inversion fails to accurately predict the onset of recession it would be a very rare occurrence.

      • Todd H. says:

        And “business cycle” is just a euphemism for a build-up of excessive levels of debt. No banker or (mainstream) economist will admit this; we are supposed to think of it as a natural cycle like the weather.

      • KPL says:

        “They cited…the very distortions that QE has caused…”

        1. Does this mean they accept that QE has caused distortions?
        2. Are they then going to remove QE even if
        a. it causes a market crash?
        b. if the rate hikes and QT bites?

        IYO is it likely that they will change course given 2 above.
        Also is changing course the mostly likely action if recession happens.

        If you come to think economically and politically all actions have been a kind of band-aid solutions (e.g, agreement reached on migrants) and talking back (market has over-reacted due to misunderstanding.. this is what we meant- a softer approach). What happens when you run out of band-aids? How long can you tape it? At some point you may need to look at surgery.

  16. GSW says:

    I thought most homeowners don’t even bother with CEA insurance, given its limitations and cost. Have talked to many people who just assume if the Big One hits, there will be enough busted gas mains to justify torching the home and claiming it under a homeowners policy.

    • Paulo says:

      Must be different up here. An earthquake caused fire would still require earthquake insurance for payout. I actually purchased earthquake insurance this year due to my age and not wanting to rebuild what I just finished building. It was a couple hundred dollars per year on top of regular home coverage, but requires a 10% dedectible/co-pay on the replacement rebuild. Replacement is replacement at current prices, including labour. Even if I just lost a couple of windows it pays to have the coverage. This is Vancouver Island…waiting for the big one.

      If it never happens, fine.

      Inflation is also way higher here than what the Govt states. Cdn stats are also bull#!it. I echo what Pentunia and others have written as to price rises. Plus, we are now in the land of reciprocal tariffs as on July 1st. I give thanks I am no longer feeding teenagers with expectations of a big Sunday roast. I saw one guy last year in the grocery store who was shopping for his belnded family. 2 carts! The till rang him up at $1100.00.

      Not being political with this, but until things change we now buy Cdn, Mexican, amd Asian products in that order. I just purchased a dandy barnd new Ham radio from China with more intelligence, options, bells and whistles than than a university science program. Cost? $329.00 Cdn. The dealer works out of his home in Vancouver and sells electronics as a sideline. Great online purchasing website. The programming software is terrible, but easily rectified with a Calgary based product. Welcome to the future. (I received it on day three after ordering it).

      • Paulo says:

        sorry for the typos. My mind automatically corrects the mistakes as I type and proof read, unless I wait awhile. Apparently this is common in the digital age.

        We don’t need no stinkin’ edit page. :)

    • safe as milk says:

      arson to collect insurance is no joke. people die from that scam. during sandy the inferno that burned up breezy point in the rockaways was rumored to have been started by homeowners (including nypd and nyfd) who didn’t have flood insurance.

  17. J.M.Keynes says:

    – When I look at the 3 month T-bill rate then the FED WILL NOT hike rates.
    – Still believing that Inflation drives interest rates ?

  18. raxadian says:

    Is inflation bigger or smaller that the internal (as in inside of the US) losing value of the dollar?

  19. DK says:

    Time for a recession. It will start in a few months and the Fed will recognize it somewhere in late 2019.

  20. Harvey Darrow Cotton says:

    The purchasing power of the dollar is increasingly eroding in the United States, but the dollar is surging versus a basket of currencies and especially EM. So does this mean that purchasing power is decreasing everywhere, or is there money to be made in arbitrage?

  21. safe as milk says:

    for the record, i think the fed will keep raising at the announced pace until the shtf. most likely that will be europe imploding. when that happens all bets are off.

  22. Bet says:

    The markets are in a long term topping mode. Under distribution. Nasdaq has been led up by five stocks. Semis are ready to pull back. They hate higher rates
    I figure late fall to early next year THE down will start. Support at 2016 break up levels. If this is a normal correction. All bets are off on supports this time. Thank moral hazard on steroids fed. Abby normal on the way up. May just be Abby normal on the way down.

  23. Alex says:

    Premium is ~$0.60 more than regular. It used to be $0.30 more so extract it from richies.

  24. blowfish says:


    2% a year yields 22% over 10 years – raise your left hand, put your right hand over your heart and say with me: my cost of living has appreciated less than 22% over the last ten years!

    7.2% a year inflation yields doubling prices every ten years

    when home prices double in 6 years, that’s ~12.5% a year

    according to my mini survey of previous generations across continents, in continuously inhabited economic areas where local economies did not collapse (significant economic and political shocks permitted) home price appreciation over 30-40 years averaged 7-8% (so roughly doubling every 10 years)

    perhaps the reason home sellers are demanding such prices is precisely to recover the original value of their purchase price, which makes the 7-8%-ish yearly inflation more plausible

    bear in mind that homes as physical structures ought to naturally tend to depreciate in value even under regular common superficial maintenance
    (bigger, much needed maintenance jobs are more typically left to the new buyer, to be financed on top of the 7-8% a year appreaciated purchase price)

    so by this reverse argument inflation may be a bit higher than 7-8% a year in the long term

    my little rule of thumb / thesis is: inflation is 10% wherever, whenever

    this is due to markets

    in a market participants are in a never ending race to raise prices: the one who can raise them slightly faster than others will be slightly better off, falling even slightly behind is fatal in that it ultimately leads to loss of price setting power altogether and the participant is forced to join the army of the powerless. The power to set and raise prices, is what differentiates people, it is the source of inequality. It rests, of course, on a multitude of other powers manifest in institutions that exist precisely for this purpose, but ultimately what matters is whether you have the power to raise your prices that others will pay. Raises come in multiples of 10% increments. One day dairy is up 20% after two years of no raises, next month baked goods and accounting services… so it is not uniform, but on the long run averages out. Consumers and workers are the losers in this game as they wield no such power: their income resp. expenses are set by others. We are yet to see any meaningful wage growth in the US. If workers were powerful market participants to recon with, they’d raise their wages by 30% tomorrow just to catch up and then some just because they can. But they can’t and they don’t. Instead, the price of avocados goes up by 30%, then gas. When price setting power is lost, a product/brand/vendor falls behind and gets debased/rebranded/acquired for a fresh start at the game. And so it goes.

    Inflation is the side effect – or essence – of the functioning of markets: raise or be raised. Sometimes the race slows sometimes it goes a bit faster, but it averages ca. 10% a year. My guess is because that’s a number / pace that comes naturally to people.

    granted, there are product areas that experience an entirely different race: race towards greater efficiency. Say cpu-s and cell phones in the 90s and early 2000s. That’s a dash for a market driven by new technological opportunities, and has nothing to do with the above. Once the market is found and participants established, the above dynamic kicks in.

    if one is interested in falsifying inflation, such product areas can come handy, I suppose. surely there are endless other ways too.

  25. Silly Me says:

    The world has become so simple: just about everything seems to be based on powerful entities rigging the stock market.

  26. KEVIN says:

    If real world inflation is around 10% for the average American consumer, the Fed, even after starting its rate hiking cycle still has rates at around negative 8%, which is highly inflationary.

    If anyone thinks they will be able to raise them much above 3% considering the amount of debt in the system, I have a bridge to sell them. Anyone concerned about the yield curve needn’t worry, they have that one coverd as well, they are going to control issuance of long bonds so that the yields do not spike, by maniplating the balance of issuance to the short end and restricting it at the long end, they hope to achieve control over the yield curve and prevent it from inverting. Total central bank control over bond and stockmarkets, but that isn’t communism, no it’s capitalism, honest.

    And should the stockmarket take a hissy fit and collapse, QE4 will be introduced to prevent further falls, this however is likely to lead to the collapse of the dollar, as the Fed would be admitting to the markets that it can never end QE and will in future just monetise compleletely the entire government budget deficit. So the government won’t default on its $21 trillion and all future issuances, it will repay it in increasingly worthless dollars. Trump is the KING of default, it makes you think that was why he was allowed to get the job, to be the patsy and to deflect blame away from the real culprits for this fiasco – the Fed

  27. Larry says:

    If the banks can not make money by making loans with customer deposits, they will not provide loans which will cause a recession.

  28. Procopius says:

    The Fed’s target of 2% inflation isn’t a minimum, but a target.

    Members of the Fed have stated for many years that it is a ceiling, not a “target.” If they have begun inserting the term “symmetrical they’re changing their tune, which has been, “We will absolutely not approach the target from the upside.”

    • Wolf Richter says:

      It’s a ceiling for the ECB, whose target is “near but below 2%.” Since the Fed instituted the 2% target, it has been a symmetrical target, not a ceiling.

      This is how the FOMC has expressed this, per its owns words:

      “The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment.”


      There is no “up to” or “below” in this. 2% is the bull’s eye of its target.

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