Shock-and-Awe Rate Hikes Begin in the Emerging Markets amid Surging Inflation

“A front-loaded and strong additional monetary tightening.”

By Wolf Richter for WOLF STREET.

In a shock-and-awe move, the Central Bank of Turkey today jacked up its policy rate, the one-week repo rate, by two full percentage points, from 17% to 19%. Economists had expected a rate hike of half that magnitude.

The Monetary Policy Committee said in its press release that, considering the inflation developments – the inflation rate had jumped to 15.6% in February – it “has decided to implement a front-loaded and strong additional monetary tightening.”

And more hikes are on the way: “The tight monetary policy stance will be maintained decisively, taking into account the end-2021 forecast target, for an extended period until strong indicators point to a permanent fall in inflation and price stability.”

The battered lira – over the past five years, it has plunged 60% against the US dollar, even after the 15% rise since the low point in November – jumped 1.5% today against the dollar.

Turkey’s government and corporate sector have borrowed heavily in foreign currency, primarily in euros and dollars. That debt gets difficult to service with a plunging lira. This has left Turkey teetering on the edge of a financial crisis for the past three years.

Other developing economies are now facing a similar quandary: Inflation is shooting higher, their currencies need to be propped up, and debt levels have exploded during the Pandemic from already high levels.

Brazil’s shock-and-awe rate hike yesterday.

The Central Bank of Brazil put down the hammer with a rate hike of 0.75 percentage points yesterday, bringing its Selic rate to 2.75%. A rate hike had been expected but not a Volker-type surprise monster.

And it said that another biggie of “the same magnitude” is likely to come “at the next meeting.”

The primary topic in the statement released by the rate-setting committee (Copom) was inflation, and the rate hike was designed to combat it. Inflation shot up to 5.2% in February from 4.6% in January.

“The continuing increase in commodities prices, measured in local currency, are affecting current inflation and triggered additional increases in inflation forecasts for the next months, especially through its effects on fuel prices,” it said.

“The various measures of underlying inflation are in levels above the range compatible with meeting the inflation target,” it said.

And it added that “the Committee maintains the diagnosis that the current shocks are temporary.” Which is what the Fed has said it will say when inflation numbers become ugly over the next few months.

The Bank of Brazil is tightening monetary policy – engaging in “a partial normalization process,” as it said – because the stimulus is not needed anymore, with GDP “growing strongly at the margin” at the end of 2020, with inflation expectations “above target at the relevant horizon for monetary policy,” and with inflation projections “close to the upper bound of the target for 2021.”

Central Bank of Russia meets on Friday: Shock and awe for economists who expect no rate hike?

On March 19, the Central Bank of Russia – facing an inflation rate that has shot up to 5.7% in February from 5.2% in January, and from 3.7% six months ago – is expected by 27 of 28 economists polled by Reuters to maintain its policy rate of 4.25%, but communicate to markets that it will raise rates soon.

Are these economists underestimating the will of the Bank of Russia to fight inflation, like they underestimated the will of the central banks of Turkey and Brazil? Are they in for another shock-and-awe treatment?

The inflation target of the Central Bank of Russia is 4%, and that target was hit in October and now there’s the overshoot of 5.7%. When the inflation data was reported on March 11, the Central Bank of Russia said in a statement, “Moving forward, the monetary policy pursued will keep annual inflation close to 4%.”

In this statement, there was nothing about being happy with the overshoot and allowing the overshoot to overshoot further, as the Fed might say.

At its last meeting on February 12, the Bank of Russia  kept its policy rate at the record low level of 4.25%, but the statement focused on inflation. “Prices continued to grow at an elevated pace,” it said. Amid demand that “is recovering faster and more sustainably than expected,” supply restrictions continued “to exert upward pressure on prices.” And inflation expectations by households and businesses were “elevated.”

Then it said that rate hikes are on the horizon: “If the situation develops in line with the baseline forecast, the Bank of Russia will determine the timeline and pace of a return to neutral monetary policy….”

So what is “neutral monetary policy?” That would be 5% to 6%, according to Central Bank Deputy Governor Alexei Zabotkin last week, cited by Reuters, and this was possible sooner rather than later, he said.

Following this statement, economists now expect for the Bank of Russia to lay additional groundwork at tomorrow’s meeting, on top of the groundwork it has already laid, for a rate hike at the April or May meeting. So let’s see if the Bank of Russia follows those expectations or if it channels Turkey and Brazil and hits the economists with a surprise rate hike.

[Update, Friday, March 19: Yes, you guessed it. Against the expectations of 27 of the 28 economists polled by Reuters, the Bank of Russia at its meeting today raised its policy rate by 0.25 percentage points to 4.50%. “In the first quarter, the rate of consumer price growth has been higher than the Bank of Russia’s forecast,” it said in the statement, adding “The fast recovery of demand and elevated inflationary pressure call for a return to neutral monetary policy.” And it “holds open the prospect of further increases in the key rate at its upcoming meetings.”]

All eyes are on Nigeria.

Food price inflation is a particular issue because poorer population spend disproportionate amounts of their income on food, and food price inflation can be devastating for them.

In Nigeria, the inflation rate in February surged to 17.3% from 16.5% in January and from 13.7% six months ago. Despite the surge of inflation, the Central Bank of Nigeria kept its policy rate at 11.5% at the January meeting. Nigeria’s economy is in stagflation currently, and raising rates could hit the economy further, but allowing inflation to accelerate could turn ugly.

India’s markets price in most rapid tightening in Asia. RBI says no.

India’s inflation rate jumped to 5.0% in February from 4.1% in January, with food inflation more than doubling to 3.9%.

At the January meeting, the Reserve Bank of India maintained its benchmark repo rate at 4%. RBI Governor Shaktikanta Das has stuck to Fed Chair Powell’s line to keep monetary policy accommodative as long as necessary to support the recovery. And for now, inflation remains within the RBI’s wide target range of 2% to 6%.

But markets are beginning to price in rate hikes. The three-month government bond yield has risen by roughly a quarter percentage point since early January, and is today at 3.32%. Given the three-month time frame of the maturity, the rate reacts to expected moves within those three months.

India’s Five-year interest-rate swap rates surged 63 basis points in February, the biggest monthly move since the taper tantrum in 2013, according to Bloomberg. On Wednesday, the five-year swap rate closed at 5.38%, up from 4.5% in early January. According to Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership in Mumbai, cited by Bloomberg, these swaps are pricing in rate hikes amounting to about 1 percentage point over the next year, which would be the most rapid tightening of any country in Asia.

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  113 comments for “Shock-and-Awe Rate Hikes Begin in the Emerging Markets amid Surging Inflation

  1. John says:

    Thanks Wolf, looks like that short will be paying off. This interest rate upheaval is around for awhile. Really tough market out there now. Reading 3 on the ten year or even higher. Yikes. Well maybe some deals. Holding tight with no margin. Too much cash chasing too few goods. Thanks again!

  2. Memento mori says:

    Simple question, how is it possible that Turkey and Brazil can generate huge amounts of inflation implementing the same policies Fed and ECB have been following for years , yet we don’t have that kind of inflation here?
    I think no one really understands what causes inflation.

    • Depth Charge says:

      “…yet we don’t have that kind of inflation here?”

      You’re kidding, right? We have had massive inflation. They’re just lying and trying to hide it.

    • MalcolmM says:

      I’m not familiar with how countries other than Canada and the US measure inflation. But I do know that one method both Canada and the US use to vanquish inflation is with damned lies. Here in Canada I think Stats Can could teach the government of China a thing or two about fake statistics.

      • bb says:

        Yep,inflation,shrinkflation,lower quality ingredients substituted.How bad are prices in Canada?

    • VintageVNvet says:

      So mm, ”basic 4×4 work pick up truck , reg cab, 8′ bed, NO frills was $10K in 1990, ”msrp” $40K 2019 though sale price after much haggling and walking away, etc., $34K.
      RE in Berkeley in 1980 was $40K for 2BR,1Ba, now at $800K for same house, and many others that I know of same delta.
      Apt in Berkeley in 1970 was $50/month, now $2500.
      100# of organic oats was $4 in 1970, now about $100.
      Honey was $12 for 5 gal. in 1970, now about $15 PER PINT.
      Gasoline was $0.29 in SoCal, $0.10 when a ”gas war” was on when I had a drive away to deliver from Miami to WA, and $5 to get there. (Picked up every hitch hiker IF they had a couple $ for gas and made it.)
      Surely you have seen similar absurd deltas, if not completely hiding in the dark last 50 years???

      • John says:

        Vin,
        I remember the gas price cause cigs were about the same a pack, 31 cents.

        • khowdung Flunghi says:

          If you have a 1964 quarter and dime – 35 cents – current melt value of the silver is ~$6.50. Couple o’ gallons of regular or a pack of cheap smokes. (current values from coinflation website).

      • cb says:

        Nothing is in hiding in the dark. It has been right out front, open and continuous for decades. Good examples though. Hopefully a reminder for those who have lost their memories or power of observation.

    • Petunia says:

      Turkey seems to be trying to attract western real estate investors. Maybe western expats are bringing in cash and driving the prices up there. I also see migration out of US to Africa shown all over the internet. The big theme is retirees getting out of western countries, because they have been priced out, and living well in out of the way places.

      • Paulo says:

        Great idea, Petunia….until it deteriorates where people have fled to. You don’t want to be an obvious pukka sahib in a country having troubles.

        Hope they pick a safe place to land.

        • Frederick says:

          Paulo I’m from NY and live on the coast in SW Turkey and it’s very safe here as long as you stay off the roads that is Shoplifting, violent crime and drugs are unheard of . I also have a place in Warsaw ,also very safe Both are much safer than most US cities The violence is pretty much limited to the Far East of the country and I very much doubt that it’s us few expats driving this crazy inflation I think people realize that fiat money is dying and want real assets

      • w says:

        Knew a youngish bartender who had That plan all figured out back in the late ’90’s.At that time he was early fifties?Making bank in Vegas and had years before,bought a condo or land in Costa Rica.He was intending to work a couple more years and scoot down there.

    • Inflation is a currency issue. US had hyperinflation after we left the Gold standard and govt starting running deficits. The effects of outsourcing means the US labor force has a very small effect on inflation. When the US prints money, and engages in trade with the EM that govt has to print an equal amount of cash in their currency. The US doubled the monetary base in ten years. You see charts of durable goods sales, merch made in the EM. Demand is running ahead of supply which is the definition of inflation. JP said “you can only eat one dinner”, but you are not going to skip dinner either. Demand shifted out of services into durables and that extends to the BRIC. Why are US yields rising? When Fed QEs the volume of cash deposits in all forms increases. If Fed ends QE, stock market collapses. Very hard for them to raise rates and kill the recovery. If Fed buys more Treasuries and targets the longer end (which is what the market wants) then rates moderate, but that is more QE and more cash fueling more demand.

      • John says:

        AMBRO,
        Not doing what the market wants would be a good thing, IMO.

      • sunny129 says:

        The history of EASY-PEASY money striving for ‘little inflation! Once it get lose, it has it’s own trajectory! Market is calling Mr Powell a bluff!

        The late Paul Volcker summed up just one of many possible exposures resulting when he said, in his autobiography, “Ironically, the ‘easy’ money striving for a ‘little’ inflation as a means of forestalling deflation, could, in the end, be what brings it about.”

        As an investor in early 80s I am acutely of 15% inflation and 10yr at 14%! Wait untill 10y reaches 2.5%! QE5 will be on the way!

    • cb says:

      GOOD GRIEF!

      Could we stop the “no inflation” propaganda. Inflation has been large and continuous for decades.

      It stares us in the face on an ongoing basis.

      Open thine eyes.

      • cas127 says:

        If you don’t go along with the traditional frame job (inflation? Speculators!!) you are going to end up on a NSA ListenToCall domestic terrorist list cb (c rhymes with p…does pb stand for Proud Boy? Your Government demands to know…and insinuate).

        When you start outing inflation, you’re messin’ wit’ the G’s livelihood.

        • cb says:

          No hope for going along with the FED’s/Congress/Wall Street’s con-job and blatant theft. Let the larcenous liars be clearly identified for what they are.

          But thanks for the sentiment.

    • Dave Ryan says:

      The Fed is buying Treasuries and asset-backed bonds quite rapidly to hold down long rates. They added over $3T to the ledger in 2020 and are on track to add another $1.5T in 2021

    • cas127 says:

      Memento M,

      Good question!

      I can think up a few possibilities and I’m certain there are more,

      1) Because these literally “less developed” nations have less an existent total asset base (factories, buildings, developed land, public companies, essentially everything) relative to the US, it is easier for a money printing government (see #2) to lose control of the total printed money/total existent asset base (literal definition of inflation) than it is for an old, slowly decaying, asset rich superpower like the US.

      Literally, the US has a much broader, historically accumulated asset base over which to schmear politically goosed money supplies.

      2) Rightly or wrongly for today, less developed countries have a worse reputation for political abuse of the money supply (but looking at you, Zimbabwe Ben Bernanke and cohorts in the monetary helicopter).

      Because of this, both domestic and foreign investors have much more of a hair trigger about pulling money out of these less developed nations – the famed flight capital.

      Nobody wants their wealth diluted through Lira/Real printing just to safeguard the career of some sack-assed political class (who buy votes via the new money/inflationi they print).

      So, to beat back capital flight (into more trustworthy currencies or foreign assets…listening Zimbabwe Ben?) the LDCs have to hike interest rates dramatically to encourage capital/wealth to remain in country.

      And if that fails…they start talking capital controls…where you aren’t *allowed* to transfer money out of the country.

      That possibility (not uncommon historically) also tightens the hair trigger.

      3) There is also the traditional demand pull/supply shrink type inflation. But as you rightly intuit, those don’t seem to be the primary motivating factor in these pretty fast inflationary/foreign exchange/interest rate changes.

      Capital/wealth flows across countries much, much faster, so I think points 1 and 2 might have the most immediate relevance.

      If so it really isn’t demand/supply shocks in the goods mkts driving inflation – it is the manipulations of the money supply by governments…and savers’ response to them.

      In this case, the US doesn’t suffer (as much) because of its *historical* role as cleanest dirty shirt/least odiferous turd among politically manipulated fiat currencies.

    • bungee says:

      Memento mori,
      one way to see it:
      inflation is understood. but political reasons for buying another country’s debt is rarely taken into consideration. and politics matter in economics, like it or not. the dollar is more than the US currency. it has been the basis for the entire world’s financial system for a generation. so maybe it was kinda propped up by europe, then china. maybe they had plans that a failing dollar would have spoiled. central banks won’t load up on Turkish or Brazilian bonds unless they need stability there. so when those countries print, they really experience the inflationary effects.
      interestingly, foreign central banks haven’t (collectively) bought US debt since 2013. so when the foreign private sector finds the floor missing, watch out! inflation will come. we are on borrowed time already.

    • Auldyin says:

      In the 70’s when UK got to 26% pa at one point, it was easy.
      C + I + G + (E-I) = V x P = gnp ie money demand = money supply.
      Consumption+Investment+Govt+balance of trade=volumexprice
      They tried to increase volume by ‘goosing’ money demand but price level went up instead. A typical productivity failure. I don’t have a clue how it works now, I think it’s all done with mirrors and magic. I call inflation ‘the dog that didn’t bark’ this time round. I think all the excess money demand went to China as (E-I) and cheap goods coming back kept prices low and volume high. Renminbi should have shot up but didn’t. Clever Chinese.

  3. Depth Charge says:

    Powell is looking more and more the clown. He’s going to be forced to raise rates way sooner than that 2024 nonsense that was bandied about yesterday.

    • Swamp Creature says:

      I wish he were just a clown. He is a dangerous baffoon. He’s starting to sound like that Central Banker in Weimer Germany who launched the hyperinflation in 1922.

      • Yort says:

        Powell is a fool who somehow thinks that high inflation will create jobs. If true, those folks who get said jobs can then pay higher prices on every item they purchase on Earth into perpetuity. Then, as inflation continues to run “hot”, it will require a second night job to “compliment” the first day job, so that same person can then pay even more on the items the purchase as the perpetual machine of idiocracy marches forward.
        So perhaps the village idiot Powell is correct, inflation does create lots and lots of jobs, as in the second job, third job, maybe even a fourth for each citizen willing become a healthcare/wage/debt slave in Corporate States of America…basically modernized slavery with a few extra steps…

        Per CNBC March 18, 2021:

        The second message was the Fed was going to hold rates down, let the economy run hot and allow inflation to increase, to help recover lost jobs..

        • Robert says:

          “Powell is a fool who somehow thinks that high inflation will create jobs.”

          Powell is a bureaucrat and thus cares not a hoot about creating jobs. The US goes from
          financial crisis to financial crisis because bureaucrats only know how to react, not pro actively act to accomplish a real goal.

          I only wish Powell or anybody above the state government level cared about creating jobs. Instead we’re inviting in tens of milions of newcomers that send more people to the unemployment line and hurling invectives at anyone who questions this policy.

      • Chris Herbert says:

        That is an interesting episode. Although you got the wheelbarrows full of money picture, commerce in Germany continued throughout the hyperinflation. It was a complicated picture, made worse by the gold standard. Germany had no gold. It was hoarded by France and the United States. A lot of incompetence involved here. JM Keynes basically predicted the disaster, and resigned his position negotiating the Versailles Treaty. Read “The Lords of Finance.”

      • Frederick says:

        Hey nobody mentioned uncle Joe , Swamp

    • Paulo says:

      Plus, it could be very drastic and intense. All of us in our 60s have experienced this before.

      And all those who borrowed like there was no tomorrow will be angry and wondered just what buzz saw they stumbled in to.

      • Bet says:

        Ditto Paulo
        Thankful for parents who taught us about penny pinching. One a depression baby the other a german war child. I have zero debt. Sometimes wondered if I a dummy
        But I sleep well at night

      • Kurtismayfield says:

        Inflation is great for debtors.. what are you talking about?

        • Wisdom Seeker says:

          Sadly no. Inflation will destroy many debtors who face rising mandatory costs but whose revenue doesn’t keep pace. Those who haven’t got the cash flow to cover the rising expenses will get squeezed hard.

          Inflation isn’t like a rising water level in a lake, it doesn’t cause all prices to change uniformly.

        • Anthony A. says:

          Inflation is great for debtors if they own assets and have a good paying job. For others, not so good.

        • sunny129 says:

          Wisdomseeker

          Those debtors who cannot handle the servicing of the their debt shouldn’t be in the business, in the first place. Bankruptcy is part of Mkt capitalism (free kind or other wise!)

          B/c of Fed’s lose monetary policies, nearly 20% of S&P companies are zombies. It is high time they should take the required medicine.

          Way to go yield on 10y! I hope it reaches 2.5% and then 3% to start flushing out the insanity of CBers! We need a great reset!

      • Lisa_Hooker says:

        Those that borrowed like there is no tomorrow will profit greatly as their paychecks and the government largess inflates. Old folks that saved will be further screwed. Irritates me to no end. Fortunately my end is approaching.

  4. Tom S. says:

    The Fed seems to think that inflated prices will eventually come down due to low labor participation, yet here is a list of countries that have low labor participation and are raising rates to combat inflation. Dollar demand being the differentiator? I think the Fed underestimates how reluctant companies will be to lower prices.

    Either way, the Fed assumes the markets will behave efficiently in a completely manipulated fiscal and monetary environment. The board of governors sit up there and pretend like they have a good handle on what is going on and it is a big fat joke. Forecasting to them is as much about manipulating perception as it is about predicting reality.

    • polecat says:

      They Do seem to polish those divining bones to an ivory tower shine now, don’t they.

    • w says:

      They do Not forcast,they lie,withold info.,put on sleight of hand shows,and laugh their deepstate a. Off at us normies who can do 0 about their policies.A good read would be the just released state by state $ profiles released from The FED.Details about number of banks operating compared to 2019,amount in the banks,reserves,etc.Basically a reportcard.Please read! :-)

  5. Bill Grainger says:

    I HATE hikes TOO (last para) . On a fixed income!

  6. nick kelly says:

    ‘these swaps are pricing in ‘hate hikes’ amounting to about 1 percentage’

    Everyone knows what WR means, but to some market bulls this might seem like a ‘Freudian’ typo, because they do hate them. .

  7. polistra says:

    This isn’t shocking, it’s normal and healthy. It’s only shocking from a lunatic US or Japan viewpoint.

    Interest rates are meant to be the main automatic brake on runaway debt.

  8. David Hall says:

    The German 30 yr bond yield turned positive in 2021. The French 10 yr bond yield is near zero and rising.

    Gold bounced.

  9. gorbachev says:

    When you need money or anything for that matter and they know
    you need it the price goes way up

  10. Micheal Engel says:

    1) Option #1 : the $2T and NG will cause higher inflation in the next 3Y+.
    2) Option #2 : the $2T will fill a hole in the bucket, that’s it : TR for 3Y+.
    3) Option #3 : property owners frog cooking cont’ with inflation bs will send the market down, first slowly, then in a bearish viking horn.
    4) Dear Petunia, Petunia dear, buy the house of your dream, in mid 2024,
    when u see 4 dots on your landlord forehead, for cash, because the banks will be closed.
    5)

    • The banks will be closed and the electronic computer system will be all barter.

    • Petunia says:

      ME,

      I think you may be right sooner than 2024. I’m going to check my horoscope just to be on the safe side.

      Fannie Mae is issuing new guidance on investor lending April 1. They must have a good reason for doing it. They can see what’s really going on with forbearance.

  11. polecat says:

    Mr. Engel – “$uperb” Man! … here, take my shaman stick.

    You must of used only the Best chicken entrails ….

    • polecat says:

      And you could create a novella/novel on 4) alone! Seriously .. with #1,2 and 3 as lead-in chapters.

      • kitten lopez says:

        ah! but wait til Petunia and Lisa Hooker and i meet and become Michael Engel’s background singers to his divinations. we’ll be the spin off to Wolfstreet to end ’em all. the Jeffersons and Maude will have nothing on us.

        and i think Lisa Hooker may even be a man. if she’s not, any woman who’d come out the gate with “Lease-a-Hooker” as a hello, totally alpha tops me on that ribaldry thing and i’ll love it.

        x

        • Lisa_Hooker says:

          No amount of money can buy happiness. Enough money can rent it. Not that I like it this way, it’s just the way it is. Kind of like interest rates.

  12. timbers says:

    “We can’t raise here because no one would be able to afford the high debts they have which would plunge the economy (read: Wall Street) into a depression, including the govmit, and we can’t write off the debts because moral hazard.”

    Guess we’re trapped with the only remaining alternative: Continue doing what we’re doing.

    • Old School says:

      Total profits for all US corporations has averaged about 2 Trillion for the last five years. That’s a pretty small number when you think about how much debt expansion, balance sheet expansion and negative real funds rate we have had.

      Fed and governments going all in to try to keep the confidence game going a bit longer.

  13. Micheal Engel says:

    1) Big red supply bars on high volume are back.
    2) Dr Benny Mandelbrot 3%+ volatility is back.
    3) Volatility cluster together, he said. USD is up.
    4) A minor correction til 3rd Qt and a bounce up will create a new open
    space.
    5) Early 2022 lower high, or a new all time high, don’t matter at all.
    6) What matter is a new open space for new dot.
    7) RE owners nightmare is an open space, but SPX don’t care.

    • cb says:

      Micheal Engel said: “7) RE owners nightmare is an open space,”
      ___________________________________________

      I should know better than to ask, since I can’t decipher any of your writings and thus probably won’t comprehend your response – – – but what do you mean by your statement #7 above?

      I know certain RE owners who hedge their positions by timely refinancings to pull out the maximum NON RECOURSE cash that they can. They have benefitted greatly by the FED’s inflationary money printing and simultaneous interest rate suppression. They get to refinance at reduced interest rates – pulling out lots of cash, yet having lower monthly payments because of low interest rates. At the same time they get to raise rents.

      If inflation continues, the owner keeps the appreciating property and the refinanced out cash. If property falls in value or hard times hit, the owner keeps the refinanced out cash and can walk away from the property and debt, leaving the lender holding the bag.

      Ain’t America great ? ………………….

      You think this might be by design?

      • kitten lopez says:

        oh but cb:

        Michael Engels doesn’t ANSWER anyone! that’s like giving Moses the third degree. you guys have forgotten the fun part of deciphering your dad’s love was the mere twitch of an eyebrow muscle in a stoic face.

        as it is with Michael Engel.

        so don’t ask. that’s part of his charm awe and mystery. the internet seemingly gives you Everything. Mr Engels comes from the world of Not So Fast, Pipsqueak. / a world of magic mystery and secrets and he doesn’t take anyone’s bait. he’s a throwback Man. i bet he doesn’t even answer his magic phone if he doesn’t want to.

        / that he stops to write love letters to Petunia shows he sees Her in his trances like we all try to, but come here in the hopes we’ll accidentally be spritzed with wisdom. / like we all hope.

        (smile)

        as you see, even Reverse Petunia couldn’t figure her out and crapped out early. another pilot episode canceled. kaput.

        x

        • Wolf Richter says:

          kitten lopez,

          Reverse Petunia has commented here under other screen names. He/she may have abandoned that screen name, it being fun for a while, but no longer.

        • NoPrep says:

          Michael Engel used to play bass with Jethro Tull. Which was a long time ago. But that’s where the mystery comes from.

        • Anthony A. says:

          NoPrep, you mean M.E. is the real live Glenn Cornick?

      • The dollar. With the dollar -and yields- rising foreign investors want to own Treasuries, not RE. The incentive for domestic home buyers is a fixed rate mortgage. SoCa Jim says take an ARM, which is supportive of the FED view, that the surge in yields and inflation is transitory. It always is, history supports that. Bernanke wanted to know who would buy a 30yr TIP to get 6 months of 5% inflation?? The most recent high in the dollar was 2000. 2% CPI is relative to money printing which is dilutive, and reflects their inflationary bias (we want MOAR – how else can they escape the mountain of debt they are under?). There was a transitory spike in CPI in 2008, then the chart resumes higher. Rising CPI is NOT transitory. The key here is peak stimulus. They will never be adding as much money to the monetary base as they are right now, in your lifetime. FED isn’t defining growth, they are only trying to predict and facilitate with dot plot hooey. Their take on growth is weak consistent with a shrinking money supply. Monetary Base was shrinking from 2014-20 when Covid gave them a reason to pump. Now this is it, no more, and the challenges of managing econ policy in a shrinking MB recall the 1930s. Then FDR banned gold, and there was no crypto (alternate currencies). If they don’t shrink the supply the dollar enters the dustbin of history.

        • John Turmel says:

          FDR banned gold, and there was no crypto (alternate currencies).
          Jct: FDR banned community currencies, let alone crypto ones. It does explain how the US population came out of the Great Depressions with 7 million less than expected souls.

      • Broker Dan says:

        Big problem with this theory for you is that investment property cash out, Max ltv is 70%. Meaning that investor planning on walking away would require a huge market crash (30+%).

  14. MonkeyBusiness says:

    I don’t get how the RBI can afford a hike at this point. India has at least 140 billion dollars of bad debt and by September 2021, the RBI expects the level of bad debt at the banks to jump to around 16.2% of all loans.

  15. fizee says:

    An important question the article raises is why does Nigeria have higher inflation than the US? Are the statisticians just more honest? Or could it be that when the Fed drops bags of money from its helicopters it gets used for asset purchases (cars boats houses stocks etc) and thus becomes sequestered. In Nigeria money is perhaps more likely to be taken down the street to buy essentials and then continues on its merry way with “velocity”. And when money circulates more freely and frequently it becomes more sought and so more valuable. The faster money transactions go round, the more quickly things are needed and used, then the more valuable they become. This is a non academic way of thinking about the inflation that has so perplexed central bankers. I would be very interested to hear what more informed members of the wolf pack think of this.

    • WES says:

      Nobody wants to hold cash for very long so they rush out and spend it today, before the cash drops in value and prices of goods goes up tomorrow.

      Classic case of bad money driving out good money. You spend the bad money to buy goods and keep the good money.

      If locals want to save some cash, they save in Euros or USD. Worked in Africa!

      • Cobalt Programmer says:

        Liquidity trap…
        More it happens, value is lost more and hence the inflation. Also, people lost their full faith in the government. Happens only to the soft currencies. Hard currencies like US dollar are safe (cough… cough…). Once a Nigerian prince wants to send me that extra money. Still waiting on that.

      • Douglasstout says:

        I have been holding lots of cash for a while. I am smart enough to know this is the Feds game of financial repression to try to get you to spend it and much of it is ending up in leveraged assets.

        I can eat the slow bleed of 2% plus for a decade or so just to have the opportunity of buying assets when they are cheap. Might not work out that way, but it’s the most likely scenario in my opinion.

    • Wolf Richter says:

      Inflation pertains to the currency (loss of purchasing power of the currency). Each currency is different. If people have zero confidence in their currency and try to get rid of it asap (Argentina comes to mind), inflation keeps roaring higher.

  16. Ron says:

    And good old USA owes China 1.7 trillion load up this isn’t going to end well Alaska meeting China basically called USA weak

    • MonkeyBusiness says:

      China has pretty much stopped buying our debts. I mean they still buy some here and there, but we have had no problem issuing debts.

      • Chris Herbert says:

        My understanding is that the USA dollar is about 65% of the world’s reserves. We import everything which means everyone else accumulates dollars. If one of our exporters were to ‘cash in’ all their Treasuries, what would they then have? Dollars. See what I’m getting at. China or any other exporter cannot become a reserve currency.

    • Depth Charge says:

      “Alaska meeting China basically called USA weak”

      That’s no surprise – just look at the leadership. Have we ever had a weaker President? This guy is so frail and mentally incompetent that it’s scary.

  17. max says:

    The Official Counterfeiter (1969): A Classic Cartoon Booklet on The Federal Reserve System

    Gary North

    The primary function of all central banks is to send false signals to borrowers and creditors all the time. Their secondary function is to bail out large commercial banks that suffer bank runs and even face bankruptcy (bank + rupture). Bank runs are the consequence of commercial banks’ implementation of the central bank’s policy of deceiving borrowers and creditors.

    A central bank is the government’s officially licensed counterfeiter.

    Counterfeiting is illegal because governments, central banks, and commercial banks want no competition. What they are really protecting is their government-protected trademark. If anyone could create money, this would destroy the purchasing power of money.

    A financial bubble is always fiat-money created. It is created by interest rates that are set below what would have prevailed on a free market. When it pops, and investors lose money, they rarely blame the official counterfeiters: the central bank and the commercial banks.

    Your silver has become dross, your best wine mixed with water (Isaiah 1:22).

    The sin of monetary inflation was one of those listed by the prophet.

    An arsonist in charge of the fire department comes to mind.

    • Chris Herbert says:

      So since you are quoting the Bible, it’s OK to have debt forgiveness. The old fashioned way, correct? Bring it on! It worked beautifully for Germany after their WWII debts were forgiven.

  18. Sir Eduard R. Dingleberry III says:

    Flipper bought a fixer in Seattle suburb for 800K a few months ago and is trying to sell it for 1.5 million as of yesterday. Wow. House was maybe 400K back in 2012. This is going to be better than 2008. Hold on to your hats!

    • Depth Charge says:

      Somebody with brass balls and no common sense. Keep us posted on this, I have a feeling it’s going to be a massive loss. Do you have an mls#?

      • Sir Eduard R. Dingleberry IIII says:

        It’s this one:

        4215 160th Ave SE,
        Bellevue, WA 98006

        • Depth Charge says:

          Wow, that’s bad. Look at that back yard, and tiny rambler of a house. That’s a $250,000 house without this bubble.

        • Anthony A. says:

          In a nice neighborhood in The Woodlands, Tx that house won’t sell for $200 K.

    • Depth Charge says:

      PS – $400k used to buy a gorgeous large, old house in Montlake before all of this nonsense. Check out the price history on 2200 E Newton St, Seattle, WA 98112. Sold for $563,000 in 2002. Sold for $1,650,000 in 2019. The bubble is bananas.

  19. Old school says:

    My nephew and his wife just bought a newer more expensive home in a better neighborhood. They had a nice house and had just finished a multi year remodel on the entire house to latest finishes.

    His old house was bought by a realtor. Not sure if it’s to flip or to live in, but sounds like a top indicator.

  20. historicus says:

    For those who remember the 70’s ..
    the Fed FOLLOWED the rate hikes….

    The banks were raising the Prime, and the Fed would then follow.

    Sometimes, the market is bigger than the Fed.
    We enter that phase now..

    • Wolf Richter says:

      historicus,

      What I remember is this sequence: the Fed announced the rate hike, and a little while later (minutes, hours?) on the same day, Chase Manhattan announced that it raised its prime rate, which was the benchmark prime rate at the time for floating rate loans (loans were priced at Chase + x%, instead of Libor +x%).

      • Swamp Creature says:

        As I recall back then wasn’t there was some cap on interest rates at 10% for a conventional mortgage. I got mine at 9 7/8%. I bought in a panic. When the market rates went well over 10%, money for mortgages dried up. There was a credit crunch. This was another thing that did Carter in, along with the gas lines, and stagflation. After Volcker came in mid 1979, they lifted the cap and the rates went to 18% for a conventional mortgage. Can you imagine what would happen to the value of these leveraged homes if that happened again? 2009 would be a walk in the park in comparison

        There was a country western song released that year that became a big hit. It was called the “Gas line Blues”. It described a dude who waited in a line for over an hour in a gas line and by the time he got up to the pump he had run out of gas and the pump was empty. Back then people paid teenagers to go get gas for their cars and wait in the lines. I remember getting up at 3AM and being the 1st car in line.

    • Swamp Creature says:

      Yep, this is what happened during the Carter administration. The Carter appointed Fed chief Miller’s total experience in business was in running a golf cart renting company. He followed the interest rates upward and was always a little late in hiking rates. Inflation got completely out of control. The we had the OPEC curtailing production and gas lines. That was the end of Carter. To his credit he appointed Paul Volcker and he straightened things out. I was there and saw the whole thing evolve.

      • Chris Herbert says:

        Volcker’s interest rate manipulation was like taking a hammer to kill a fly. Interest rate manipulation should stick to clearing checks and making an effort to maintain a stable overnight interest rate. That’s about it. Japan doesn’t even pay interest rates on reserves. Commercial bank reserve requirements have zero influence on bank lending. Banks don’t lend out reserves. They make loans which creates a corresponding deposit. Want to fight inflation? Tax it away. Very effective way to cut demand. Of course the ‘contented’ class doesn’t like that.

        • sunny129 says:

          Chris Herbert

          Having survived 15%+ inflation and 10y yield of 14%, I remember investing whatever ( had just started working in mid 70s) saving I had, in 10y bond!

          My hearfelt cudos to Mr. Volcker who took necessarysteps to tame the inflation beast, contrary to demand of politicians of that time.

          His integrity is solid unlike who followed after him, who all are boot lickers!

          I hope that 10y bond will bring sanity to credit/debt addicted world!

  21. Mike R. says:

    Here’s the conundrum in a nutshell.
    The Fed wants inflation; lots of it to reduce the debt burden in the economy.
    But the Fed doesn’t want high interest rates for obvious reasons
    Much of the inflation created by Fed printing is channeled into housing and the stock market. But the Fed doesn’t want things going crazy there either (such as recently).
    And of course, the Fed abhors gold and silver rising to reflect dollar devaluation, so they need to hammer that down from recent highs.

    Bottom line, rates will be allowed to climb a bit more and take some gas out of excesses in housing and stocks and gold. If things move to far, the Fed will jawbone about raising short term rates. If that doesn’t work, more QE to buy Treasuries.
    The Fed cannot allow interest rates to cliimb excessively. That would crash the economy.

    • Depth Charge says:

      “Much of the inflation created by Fed printing is channeled into housing and the stock market. But the Fed doesn’t want things going crazy there either (such as recently).”

      Your 2nd sentence is absolute, 100% bullsh!t.

      • VintageVNvet says:

        Please clarify what you mean (without the BS) DC:
        His second sentence is, “The Fed wants inflation; lots of it to reduce the debt burden in the economy.”
        Is that what you mean is BS, and if so, why?

        thank you

  22. Rcohn says:

    Kevin Costner made a movie called “No way out”
    In many ways the Fed and the Treasury is in a position of their own making where it is boxed in and has no way out
    Either the Fed continues with a strongly negative real interest structure ( through the 10 year) and eliminates any foreign buyers of our debt and risks a declining dollar or it faces reality and raises rates to defend the dollar, resulting in a crash of the most overpriced stock market in history
    A weaker dollar has ramifications that few commentators have mentioned.It raises prices on all imported goods. It encourages the use of fewer dollars in international transactions, resulting in greater economic power for China.It reduces the US ability to influence foreign policy .
    In many ways strength/weakness of the dollar is analogous to blood pressure. A steady dollar permits the US to pursue its economic and foreign policy goals, while a weak dollar is like high blood pressure where a stroke is an increased possibility .
    We have seen actions in the financial markets that I could not imagine . Oil at negative $ 40/ barrel, stocks which have no viable way towards positive cash flow, SPACs which only promise to invest in specified industries, strongly negative interest rates ETC. I can not imagine a day worst than 1987; is that also going to be breeched?

    • timbers says:

      “Kevin Costner made a movie called “No way out”

      That’s a pretty darn good movie which I revisited recently, and when I was on the fence about getting it, and read it was based on an earlier British movie The Big Clock with Ray Milland and Charles Laughton…I immediately bought it.

      You post mirrors mine…No Way Out for the Fed…well, other than raising rates and giving Wall Street the middle finger. Which it won’t do.

    • Old school says:

      Somebody big is going belly up soon in my opinion. My understanding is if dollar strengthens much several emerging market countries are going to default. I guess some people are thinking Fed is going to have to cap 10 year at around 2% or systems going to blow. Fed can do it, but it will have major ramifications for other debt too.

      • sunny129 says:

        Post WWII, when Fed applied YCC, the inflation flared and went out of control. Same thing will happen again!

    • Swamp Creature says:

      Who was that chick in the opening scene of that movie “No Way Out” , “Murial Hemmingway” . She was a big distraction.

      • Lisa_Hooker says:

        That was Sean Young in “No Way Out”, definitely a distraction. Mariel Hemingway is 5ft 10 ½ inches tall, she is a big distraction.

  23. SocalJim says:

    The beach close housing market has gone hog wild. So far, I see no sign of slowing at all. Instead, it appears to be slightly accelerating. In a few weeks, we will see if the higher rates have dented the momentum. So far, it does not seem to have mattered, but it is still early.

  24. Mark says:

    The Fed and Government has been telling us for several years inflation is 1%- It’s at least 8% now – Total liars by 8X

    The Fed and Government has been telling us for several years unemployment is 4%- Its close to 20% in actuality – Total liars by 3-4X

    When your multi-millionaire rulers are like this , Who needs enemies?

  25. YuShan says:

    It always surprises me that everybody is so focused on what the Fed might do. Because once the wheels come off, it is really not up to the Fed anymore.

    This situation in Turkey is once again proof of that. These guys can also print their own money and do MMT. They are just a bit further down the path that the USA/EU/UK are taking. At some point it is just not in your own hands anymore and the bond market (and possibly mobs on the street) will force the hand of the central bank.

  26. Wolf Richter says:

    Bank of Russia — update, Friday March 19: Yes, you guessed it. Against the expectations of 27 of the 28 economists polled by Reuters, the Bank of Russia at its meeting today raised its policy rate by 0.25 percentage points to 4.50%.

    “In the first quarter, the rate of consumer price growth has been higher than the Bank of Russia’s forecast,” it said in the statement, adding “The fast recovery of demand and elevated inflationary pressure call for a return to neutral monetary policy.” And it “holds open the prospect of further increases in the key rate at its upcoming meetings.”

    • w says:

      Super surprised,ha,ha,ha! :-) There will be an increase just as there will be an increase here this year.The FED has its own agenda,its own puppetmaster/s which are not the American people.Not mentioned earlier re. A weak dollar is the benefit to U.S. Co.s exporting from here. Everything is fake and a lie,plan accordingly! :-)

    • sunny129 says:

      Will that be enough to contain inflation? I very much doubt about it!

  27. kitten lopez says:

    to Petunia and the other artists here:

    UPDATE ON ME TRYING TO START A NEW FASHION ART MUSIC SCENE IN SAN FRANCISCO OFFLINE EVEN THOUGH I DON’T MUCH LIKE PEOPLE IN REAL LIFE OR ONLINE ANYMORE AND THUS HAVE A HARD TIME NETWORKING IN REAL LIFE…

    so yesterday i come back from the gym and James hands me a few monster prints the young neighbor below handed him to give to me, and i told my neighbor that i’m staring at them (they’re next to my Wolf postcard of the boat in the waves when he sent me the mysterious $100 that made it through the SF mails!… miracles are spewing everywhere like male excitement!)

    anyhow, wanted to make CLOTHES out of his monsters. they almost seem baroque like Versace prints.

    then somewhere in the twilight zone of last night and 3am this morning, i decided my new San Francisco art thing would be to make clothing and bags based on local art!

    i have that feeling right now where i wanna fling myself to the floor super hard, and make out with myself and explode from happiness because i think it’s such a good idea it’s all i could do to not type this in all caps.

    amazing idea, huh?

    i’m thinking bags for women but still custom clothes for men. i can’t see women wearing anything but yoga pants and commercially ripped jeans for the next 100 years. but i think Petunia you are right about ART bags.

    why will women carry wild bags but wear yoga pants in 1 of 3 color choices? pray tell, Petunia. i’ve got big tits that’re all mine and i’m coming off a 10 day period as i type this (i frolic and rejoice in them now that i’m 53), so i’m all girl and i love being a girl but i don’t GET women, Petunia. WHY???

    women used to wanna be the only one wearing a dress, not one of 50. and they’d have darts pointing to their breast apexes and not their chins.

    someone tell Judy Woodruff to stop wearing those claw opening collars. they make her look like she has monster tendons going up her neck.

    x

  28. Swamp Creature says:

    Was in Home Depot again this morning. Apparently the lack of bank tellers and post office clerks is not the only place where there is a labor shortage. I bought 10 bags of mulch for a landscaping project. Drove around to pick up the stuff after paying for it in advance. Instead of having 3 or 4 hunks there loading my Subaru SUV, there was NOBODY there! I could have loaded double the amount I paid for. I noticed some late 70s seniors loading their vehicles themselves. So I joined in and even with back problems loaded it all myself. So with 20% unemployment we have a situation where Big Box retailers won’t even hire people to do the basic functions to service their loyal customers.

    • VintageVNvet says:

      Same in Lowes in the saintly part of tpa bay area at 1000 this am SC; all the staff I saw were stocking like crazy, and had to wait for someone to show up at the paint counter where there are usually two folks busy. Guy in front of me said he had been waiting 5 minutes without seeing anyone.
      My timing intended to be between the early pro rush and the noonish pro rush for the stuff they forgot early…LOL
      Not many customers either, and every body wearing masks!
      Boat prices, top to bottom, seem to be dropping these days, as opposed to a year or nine months ago when they seemed to be going crazy up…
      Thinking a lot of folks are beginning to understand that with the real unemployment along with the various fore bear aunts coming back to earth soon, we in a deep hole and the guv mint folks didn’t get the message about stopping the digging…

    • RightNYer says:

      In most states I’ve looked into, state unemployment is 50-60% of what you were getting before (up to a cap), and now there is the $300 federal “enhancement.” So if someone made $600/week, or $30,000 a year, they’ll break even being on an unemployment. For the record, the $30k per year is the $15/hour minimum wage on a full time basis. It’s no wonder that companies can’t fill low wage jobs.

    • Anthony A. says:

      After golf yesterday, 4 of us stopped at a Cracker Barrel restaurant to have a late lunch. It was 2:15 PM and we have done this before. But yesterday, we were in line to get seated for about 20 minutes (strange, never happened before at that time) and when we got up to the hostess, she said we have an additional 1/2 hour wait to be seated!

      The restaurant was about 1/2 full as we looked into the dining room. WTF? I asked……she said it was “shift change” and they are short waiters.

      We walked out and went to Whataburger.

  29. Beardawg says:

    Despite US gubment machinations on CPI etc. it seems other countries are feeling inflation worse than US. I guess that bodes well for US in the short / mid term.

  30. Auldyin says:

    Turkey, Brazil, Russia, etc, iffy adherants to the conventional world order low rates wisdom at the best of times. They could almost be expected to be the first to break ranks and go to competitive revaluations to protect their plebs and avoid riots. The real fun will come when one of the true believers breaks ranks and tries to go it alone. The Euro keeps all it’s members in the club together. How much would Italy or Spain or Greece, for example, like to make their own calls I wonder. There’s nothing like a street riot over rising food prices to focus political minds.
    Great reporting as always Wolf. Nobody talks about Russia. They should.

  31. MonkeyBusiness says:

    The Lira just collapsed again.

    It’s weird how there’s been no fallout from all the inflation happening within Turkey’s economy.

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