Powell & Brainard Suddenly Make Inflation #1 Priority in their Thank-You Statements

Looks like the start of a U-Turn on inflation. 2-year and 10-year yields jump.

By Wolf Richter for WOLF STREET.

The White House announced today that President Biden, eager to get something through the Senate without a long bruising fight, will re-nominate Republican Jerome Powell for a second term as chair of the Federal Reserve’s Board of Governors and will elevate Democrat Lael Brainard to vice chair. Powell is opposed by some prominent Senate Democrats, but supported by many Republicans. And Brainard doesn’t seem to face opposition from Democrats. Both will likely win Senate confirmation.

As you would expect, both Powell and Brainard released thank-you statements about their nomination.

But as you would not expect, fighting inflation was suddenly the number one priority in both their statements – after they’d driven inflation to a three-decade high through record gigantic money printing and interest rate repression, and then had stubbornly brushed off this inflation as something that would quickly go away on its own.

There wasn’t a word in their statements about this inflation being “temporary” or “transitory,” and about the Fed needing to be “patient,” and waiting for it to go away on its own. But inflation was suddenly a real problem that needed to be dealt with.

Powell’s first priority is now to “prevent higher inflation from becoming entrenched,” he said:

“The unprecedented reopening of the economy, along with the continuing effects of the pandemic, led to supply and demand imbalances, bottlenecks, and a burst of inflation. We know that high inflation takes a toll on families, especially those less able to meet the higher costs of essentials like food, housing, and transportation. We will use our tools both to support the economy and a strong labor market, and to prevent higher inflation from becoming entrenched,” he wrote in his statement.

“Other key priorities include…,” he said, well, the laundry list you’d expect, from “guarding the resilience and stability of the financial system” on down.

Brainard’s first priority is now “getting inflation down”:

“I am committed to putting working Americans at the center of my efforts at the Federal Reserve. This means getting inflation down at a time when people are focused on their jobs and how far their paychecks will go,” she wrote in her statement.

This looks like the beginning of a U-Turn on inflation.

There are seven positions on the Bord of Governors. One of them is already vacant. One of them opens up at the end of this year. And one of them is likely to open up early next year.

Powell will be chair, Brainard vice chair. Randal Quarles, the chair of the Financial Stability Board, has already announced his resignation effective the end of 2021. Which opens a second slot. And current vice chair Richard Clarida, being replaced by Brainard as vice chair, will likely ride off into the sunset when his term expires in January. This opens a third slot on the seven-member board.

No one knows what the Board of Governors is going to look like next year.

But the meetings that Biden had with Powell and Brainard must have been a hoot, to have this effect of inflation suddenly being elevated to the number one priority.

Did Biden explain to the pair what a bitch inflation had become, that people are getting frustrated and restless and very unhappy as their wage increases plus some are gobbled up by higher prices, that it’s hurting people that live off their labor? Did he say that it was time for Powell and Brainard to get off their high horse and do something about these crazy price increases?

A crackdown on inflation requires a political deal between the Fed and the White House. They have to sing off the same page when they talk to Americans about the fight against inflation. Volcker and Reagan had this down pat early on in Reagan’s first term.

Today, a crackdown on inflation would mean a quicker end to QE. So far, with brazen disregard for inflation, now tracking over 6% as measured by CPI, the Fed has continued its money-printing spree.

It just now reduced the amount of its asset purchases from $120 billion in October, to $105 billion in November and to $90 billion in December. But they’re still printing money! So I expect that asset purchases will end sooner than the previously announced time frame through mid-2022.

A crackdown on inflation would mean that after QE ends, some maturing bonds would be allowed to roll off the balance sheet without replacement, with the effect of shrinking the balance sheet – similar to what the Fed had done from late 2017 through August 2019.

The massively huge wave of QE since March 2020 – $4.4 trillion of money printing in 20 months – pushed down long-term interest rates to record lows and inflated asset prices to record highs, including the housing market, and helped fire up inflation to the highest rates in three decades.

The end of QE and a subsequent reduction in the balance sheet would allow long-term rates to rise and would drain exuberance from the financial markets.

A crackdown on inflation would mean raising short-term rates closer to the level of inflation, and if inflation doesn’t slow down, to raise them above the rate of inflation. So we can do the math on that.

The 2-year Treasury yield jumped 7 basis points today, to 0.59%, the highest since March 2020. The 10-year Treasury yield jumped 8 basis points today to 1.63%.

But the Treasury market is still held down firmly by the ongoing huge QE and the Fed’s gigantic balance sheet. The Fed owns about 25% of all marketable Treasury securities. It has been the relentless bid. It buys no matter what. It buys high. And it doesn’t sell. It’s not trading securities. It’s creating money (credits) and using this money to absorb securities. This has a huge impact on the market. And long-term yields cannot rise significantly until the Fed steps away from the market, stops buying, and then starts unloading its balance sheet.

 

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  302 comments for “Powell & Brainard Suddenly Make Inflation #1 Priority in their Thank-You Statements

  1. Minutes says:

    Inflation is just shaking in its boots I’m sure.

    • Jay Brainard says:

      The fed will do nothing and surrender to inflation and sacrifice the dollar. Raising rates isn’t an option but the markets believe it is. Let’s see what happens.

      • andy says:

        “Raising rates isn’t an option..”

        Didn’t 10-year rate tripled in like 15 months. From 0.55% to 1.65%.

      • 911Truther says:

        Roughly $10 Trillion in US Treasuries come due in the next 12 months. Refinancing at a higher rate of 0.25% will cost the Treasury a whopping $25 Billion. Chump change for the US Gov.

        The problem? Real buyers of US debt won’t buy Treasuries until yields exceed the rate of inflation. Maybe 10% could attract buyers. That would cost the US Gov an extra Trillion a year in interest expense. Volker and Reagan had to go to 20%.

        Buy Buy dollar, hello gold.

    • RH says:

      I predict this will be a S L O W U turn on inflation. The ultra rich love inflation too much: due to its reducing their employees’ wages, their banks’ liabilities (deposits from you and I), their overleveraged companies’ bonds etc., etc.

    • MillenialGirl says:

      Maybe not a prudent decision, but this Black Friday – I replaced all my old appliances.

      After struggling to replace my fridge for months I got scared. With the Black Friday deals I replaced everything so I don’t need to buy anything for a long while.

      On a side note, I did get some very good deals but delivery time is long.

      My bet is my dollars will be worth substantially less a year from now, so better get while the going is good.

    • DawnsEarlyLight says:

      Everything the Fed is doing was signed off by CONgress. They will keep this going, until the ‘coffin corner’ no longer works.

  2. polistra says:

    “We need to fight this fire! Thank you for helping me to fight this fire! Now excuse me for a minute while I touch off this can of gasoline….”

    • COWG says:

      Said the arsonist (Powell) to the parole board (Biden)…

    • historicus says:

      It is difficult to expect the arsonist to reach for the fire hose.

      • Brant Lee says:

        The damage is done to so many already. It’s impossible to climb out of the hole lots of people are already in.

        Just in the auto market alone, it’s going to take more stimulus payments to sustain the huge loans already on the books for 50-90k vehicles. These loans begin underwater and stay that way throughout.

        Equity has already been borrowed from overvalued homes. Renters just recently are now having to pay their rent. The good times will come to a screeching halt when the payments back up.

        • Joe Saba says:

          but dealers are happy to refi into new auto
          and longer term to keep debt payment same

        • El Katz says:

          JS:

          When I hear that kind of lament, I ask the person to show me the muzzle print from the gun held to their head when they signed the loan documents.

          People do stupid things without bothering to consider the consequences. To take a HELOC / refi for any reason – other than for home repairs – is foolish. Yet, it’s done to “free up frozen capital” to be squandered on shiny trinkets. Then these same people complain – after they whizzed through the cash – that they’re “underwater” in their homes and it’s all the fault of the banker/realtor/car dealer/insert villain’s name here.

          Gee. Who’da thunk? You’re playing with your place to live. Did you consider that?

          During the last downturn, we bought a home in Clayton, CA for our daughter. We bought it from the bank as cash was the only way to purchase it and she didn’t have it. The people who had previously owned the house borrowed extensively on the equity. This was a little tract whack ranch built in the 1960’s, but the previous owners put in Viking appliances, custom cabinets, high end bathroom fixtures, hardwood floors throughout, and probably $50K worth of landscaping/hardscaping. Then they had it appraised at the top, milked out more equity, and bought a motor home. Then it all flopped and he lost his job… and the motor home… and the house. The neighbors who were the previous owner’s friends wouldn’t talk to my daughter because she “took advantage” of their misfortune. We’re like “WTF”? A little girl even called my daughter “mean” for taking away her friend’s house.

          People are nuts.

        • Jay says:

          AND!!! All the parents are getting significant portions of their 2021 tax returns this year, so a lot of folks’ refunds next spring are going to be very paltry, further creating a drag on the economy.

  3. J M says:

    We’re about to pull the fed out of the market with about as much grace as we pulled troops out of Afghanistan.

    The damage is done. Millennials and Gen Z are toast. The boomers put the final knife in our backs with this incredible increase in the cost of assets. Its going to take a decade for this to straighten out. The only assets our generation can lay claim to have been hoarded by bitcoin bros and venture vultures.

    • Confused says:

      JM,

      Please stop thinking like a moron and blaming everyone born between two dates on the calendar as causing all of your problems. A lot of us boomers have been screwed by the Fed, too. Good luck.

      • roddy6667 says:

        I’m a Boomer, born in 1948. I scrimped and saved for years to have savings when I retired. The idea was to use the interest to supplement SS and pension. So much for that idea.

        • Ron says:

          I’m in samesinking boat

        • Randy says:

          Thats just it you can never save for retirement when you have no idea what the cost of living and goods will be in the future. Fiat currency is the enemy of the people. Definition of Money is supposed to be a store of value. Fiat currency is far from a store of value but governments love it. They gain more control over the masses by spending money that dont exist. The FED will not and cannot stop. So they back off printing a few bucks. There still cranking them printing presses. And who is gonna buy the new treasuries coming to market? The FED the buyer of last resort. Its a ponzi scheme if they tighten the whole financial system will collapse. A ponzi scheme needs a constant inflow of new funds. Assets dont rise without new money entering the markets. The Rich own everything do you think they will allow that to happen. The FED will continue to print until they destroy the dollar and crypto will be the new currency where they have total control of the masses. Everything is planned and by design to keep the normal person down. The Gods have great egos and want to own it all. They already own most of everything. They make the rules and we obey.

      • Joe Saba says:

        and yet my 2 kids(23 & 26) already OWN THEIR OWN HOME for over 2 years and have $0 cc and other useless debt
        and both are married

        my mother used to say – THIS WORLD OWES YOU NOTHING
        so get a job and LIVE WITHIN YOUR MEANS

        otherwise my comment is simple to mils and gen Z – boo hoo

        • Jake W says:

          yeah it’s hard to OWN YOUR OWN HOME when the fed is printing trillions, making them unaffordable for people trying to buy them.

          your posts are insufferable.

        • Trucker guy says:

          Lol yeah, sure bud, a 21 year old owning a home free and clear on their own with no debt? What did daddy buy it for them or did they hit the lottery?

          Nobody without a college degree owns their home at 21 and no debt. Nobody with a college degree owns their home directly out of college. You’re full of shit. Nobody except rich kids are “self made” before they’re even legal to drink. Get lost troll.

        • Nick Kelly says:

          He didn’t say they owned them ‘free and clear, he said they had no credit card debt. Maybe they bought somewhere cheap.

        • Shells says:

          Did your kids skip college and learn a trade?

        • Trucker guy says:

          You don’t own your own home if a couple missed payments results in the bank kicking you out.

          You’re renting to own and are in debt. When did people get the idea that housing that they live in isn’t an expense and a liability?

      • NBay says:

        The boomers most RESPONSIBLE for the screw job are all doing fine, or much better than fine.
        I am ashamed to be one. It’s hard to face the kids. But wearing dirt cheap old jeans and t-shirts and what’s in my grocery cart helps some.

        OK, Boomer.

    • Truckman says:

      A generation is something one has no choice about membership of, no ability to affect, and probably hasn’t had a commonality of background since the 14th Century. Stop looking for people to blame that don’t require you to take action. Start working out who’s really at fault and do something about it.

  4. GvsCfa says:

    Taking about fighting inflation and actually fighting it are two vastly different things. Talk is cheap (which is the only thing that is [cheap] these days). If the choice is between (1) reverse QE and the wealth effect and let the bond/stock/real estate markets crash and (2) let inflation run hot while verbally “fighting” it… I will take door number two please, Monty.

    • Wolf Richter says:

      It’s funny, actually. There were people out there who said that the Fed would never taper QE, and there are still people out there who say that the Fed will never taper QE.

      And yet, the Fed has already started tapering QE.

      It’s no longer a question of “if” — but of how fast.

      • Depth Charge says:

        My definition of tapering is selling off the assets on their balance sheet and bringing it to zero. Until then, PFFFFFFFFFFFFT.

        • Pea Sea says:

          You can create your own definition of “tapering” inside your head if you like, but out here and in this context it means doing progressively less of something over time–which is exactly what the Fed is doing. Far too late, but they’re doing it.

        • Depth Charge says:

          Remember when Bernanke said QE was temporary stimulus, and would be unwound in a year? I do. Welcome to year 14 of “temporary.”

        • historicus says:

          Depth ..
          I remember Bernanke saying that in a WSJ article.
          I tore it out…I knew it was BS right away……but never envisioned they would blow it out like they did.

          WSJ July 2009

        • Jackson Y says:

          $0 is not practical. I’d be surprised if they could get it down to $7 trillion from $9T after tapering ends. They planned to shrink from $4.5T to $2.5-3T in 2018, and got to $3.7T before markets started barfing.

        • Wolf Richter says:

          The central bank’s balance sheet cannot go to zero for a number of reasons, including “currency in circulation” (paper dollars = $2.2 trillion), which is a liability on the Fed’s balance sheet, and the banks buy that “currency in circulation” with securities or cash (reserves) from the Fed. So the Fed will always have at least as much in as assets as in paper dollars outstanding, at a total theoretical minimum, which would be $2.2 trillion at the moment.

      • max says:

        “Watch what we do, not what we say,”

        https://wolfstreet.com/wp-content/uploads/2021/10/US-Fed-Balance-sheet-2021-10-28-assets-long-.png

        The Mirage of Inflation
        Central banks manipulation of interest rates create artificial boom and mirage of wealth.

        That manipulation can not last forever and when finally stops, and stop it must if we are to avoid a runaway inflation, then the day of reckoning will arrive.

        Boom and Bust is explained by Ludwig von Mises in The Theory of Money and Credit Originally published: 1912

        It does not take monetary deflation to produce the recession. All it takes is a reduction in the rate of monetary inflation.

        Start – stop -start -stop –but bubbles are getting bigger and bigger.

        once upon a time 1 million was serious money –today if you do not have billions you are just average.

      • Marco says:

        Wolf, it seems a ‘given’ that the FED , whatever they are saying, will not or cannot let Interest Rates rise too high….therefore how do you see them restraining those rates without QE or a version of that ?
        The short-term pretence to taper is very different from completing its program or bringing QE back in a few months. Do you really think they will allow the free-market to now take the Rates as high as they want ?

        • historicus says:

          The problems we have are from subsidized debt from the artificially low interest rates.

          For decades, the Fed has raised Fed Funds to meet the inflation rate….and often beyond…to fight inflation.

          Now with the massive debt on the books from the orgy of debt creation, people say they cant raise rates. This is like the college student saying he borrowed too much money. You did it….live up to it.

          THE CAUSE of the situation, rates well below inflation, CAN NOT ALSO BE THE SOLUTION.

          Rates must rise in draconian fashion to snuff out this inflation, and end the era of TRILLIONS of debt laid upon future generations.

        • Wolf Richter says:

          You believe whatever you want to when it comes to the Fed. And the Fed can do anything it wants to. This is way too much inflation for the backers of the Fed, and they’re screaming. And the Fed will eventually act. Tapering has started and will be finished by mid 2022 or sooner — meaning the end of QE. Balance sheet reduction and rate hikes are coming after that.

        • Julian says:

          I think this whole Inflation “scare story” is just that – a scare story.

          There is no issue with Inflation, it is a media beat-up.

          I have certainly not noticed any around here.

      • ivanislav says:

        The 30,000 foot view is that not only did they not taper but they doubled down on QE. Only if you zoom in on specific timeframes did they taper.

        • WES says:

          The supply of money will continue to increase until moral improves!

        • Wolf Richter says:

          Not only did they taper and finish the taper, they also actually reduced their balance sheet until markets started to crash and Trump had a hissy-fit.

        • ivanislav says:

          Wolf, that’s my point. Yes, I agree that they tapered and slightly reduced the balance sheet. I’m saying that big-picture and long-term, the balance sheet will only increase. The last taper and this taper are just noise in the long term trend and that’s why you’re getting push-back from the commentariat.

        • Tony (one of them) says:

          Didn’t the BOJ just ‘taper’ and then backed off straight away?
          I think they finally hit the wall. If they taper the markets go down if they don’t then the dollar goes down.
          Looks like popcorn time to me.
          And Wolf shot me down a while ago that this is not the start of hyperinflation. But I still wonder if it is.

        • Wolf Richter says:

          “Didn’t the BOJ just ‘taper’ and then backed off straight away?”

          Nope. The BOE ended QE altogether at the end of October. It didn’t even bother to taper. It just ended it, let it expire. It’s finished. See the flat spot at the top over the past three weeks?

      • historicus says:

        Slow play

        Inflation might be higher by the time the pumping stops…in June.
        ‘Then, what of the inflation damage to that point in time?
        The Fed is late, and they seem to relish the situation.

        This all is too pat to the MMT playbook….
        which reads, Dont raise rates to fight inflation, but raise taxes instead.
        Kinda what’s going on here….

        • Red says:

          Only need to raise taxes on the 10 richest people in the US to see a difference.

        • Depth Charge says:

          BuildBackBrokeBoy wants to add over 75,000 new IRS employees. Do you think that’s to look into the wealthy? HAH! That’s to start putting everyday Joes under the microscope.

      • Nacho Bigly Libre says:

        I love that unbridled optimism even in the face of a track record that points to opposite direction.

        May we all have a better day!

      • Lol says:

        I find it laughable that anyone believes the Fed didn’t see inflation coming for a million and one reasons. However, the main reason it was glaringly obvious to the Fed is because they study the past and have referenced the past most similar to now – post WW2 and what fiscal/monetary policy led to.

        Lo and behold, they didn’t raise rates then either in the face of a 90% usd devaluation over a decade. We had formal YCC then, now we have an informal YCC.

        So, inflation is beyond where they expected because some inputs have changed a lot. For example, it’s not obvious housing was going to boom and go gang busters. If they were trusting data from CoreLogic, CoreLogic was predicting a decrease in home prices mid 2020. Now, the upward push on rents is relentless. The difference between 1945-1955 and now is the sheer bubble in assets. QE was huge then, too, yet the bubble just was nothing like this.

        So, how do you keep a lid on CPI? Lots and lots and lots and lots of jawboning – it works well as you’ve documented. Taper anything to change sentiment a bit. Tapering is mostly psychological at this point given RRPs, which will support issuances once debt ceiling “crisis” is over (lol). Raise rates because it’s taking more, just 2-4 hikes will dramatically change speculation imo.

        But damn – a fine balance. They can’t pop this bubble without bringing down the house of cards. They need to do so gently, anything less than gentle will lead to a market crash and restart a path with even more massive QE and rate cuts (if they manage any hikes by then). The main focus should be taking some steam out of the housing market, to keep a tighter lid on 2023 CPIs at this point lol. Some of the real transitory components I imagine will calm down by mid 2022.

        10 years from now, I think the Fed will be quite happy with a massive USD devaluation. Lots of real wealth will be lost by speculators, including those speculating with massive hoards of cash. Fiscal policy will support wage growth and a capitalistic redistribution of wealth (e.g. higher wages may eventually erode into corporate profits in a way that can’t be passed on, more of a reversion to mean, reducing stock prices and leaving a round trip to nowhere by 2030 – just a real probability).

        I’m in my early 30s. My ideal retirement plan is serving as Fed Chair. Crazy, I realize, but I have always reached for the craziest dreams and executed upon them. The economic model is in dire need of a reboot that simply isn’t going to happen under current leadership anywhere in the government. I’d love the opportunity to innovate and contribute fixes to this country economically one day, if we haven’t ruined it already by then.

        • Crazy Chester says:

          You, child, are going to make some real money someday. I suspect you handle yourself well at the poker table now. But it’s hard to walk away from the table while the vacationers are still laughingly tossing in chips , isn’t it? Even though, if you look closely, the serious money is already doing so.

          But jawboning won’t be enough. We’ve seen this already and know the game. No, we will need a bit more slight of hand this time. And heaven forbid we just might have to start building stuff again and investing accordingly – products we’ll need in a society coming unglued.

        • Lol says:

          @Crazy Chester – not sure what you mean.

          First off, I don’t gamble. I hate gambling, in fact.

          I assume my age is where the condescending comments are derived from. I went through the GFC cycle which pretty much killed my first company at a time where my family needed me to earn us out of our situation most. Out of that, I quickly pivoted to become a millionaire in mid 2010. 20 years old. Not by asset value, but by value creation.

          I also went through 2 extremely tough market cycles in my own industry since the GFC ended, which was terrifying really. A lot more terrifying than anything I’m looking at today.

          For the record, yeah, it’s a huge nasty bubble. Just like I stated. I haven’t had any huge gains, namely because I stayed out of the froth and invested where it made sense, like buying REITs for pennies on the dollars (most were 1/2 to 2/3 less than NAV) or buying deeply discounted blue chips after combining my own fundamental analysis with analyst I respect on the bear/bull side.

          If the market crashes > 50%, that’s perfectly acceptable to me. At least then, all these fake millionaires would stop tooting their own horns thinking they understand real wealth. And, I have plenty of cash (along with new cash on the way every quarter, thanks to a seven figure income of distributions) with 5.5% personal debt relative to net worth (mostly at 2.25%), and my company has 0 debt since inception. I don’t “lever TF” up.

          More slight of hand? Sounds great to me, as well. You just aren’t going to see a 5% Fed Funds rate anytime soon, and that’s still below inflation. If 2-4 rate hikes is enough to take some froth out along with more tapering, that only slows down rent contribution to CPI, while the Fed hopes supply chain issues also calm down.

          So, anyways, maybe I’ll make some real money someday. I wouldn’t be surprised given how early I am in my career. For now, I’m just a lowly decamillionaire. A decamillionaire before the pandemic began, and one that has steadily grown his net worth since 2007, namely through distributions of liquid assets.

        • LK says:

          @LOL So how do I get on the ground floor of your enterprise? Only prospects I have are latching onto someone else’s rocket. XD

          Good luck man. I’m 40, followed different pursuits. Not interested in being rich, just secure and independent and with a stable society around me. A lot of that is pinned on multiple myths and propaganda from my Midwestern upbringing.

        • Crazy Chester says:

          I meant no disrespect and I try to never be condescending. Quite the opposite. I thought your analysis good and I wanted to compliment you. It’s taken me almost 70 years to understand what you clearly understand at your young age. You obviously take pride in your abilities. You should. Good fortune and good health to you.

      • Good Times says:

        …and a question of “how long” before they are back to $120bn after the stock market declines 5-10%

      • MyLadyHumps says:

        And you expect the government to magically fund it’s enormous and parabolic growing budget with taxes?

        If the Fed withdraws their funding of the government and stops monetizing the debt the government is insolvent.

        Seems to me they are planning to spend more, not less, they don’t seem to be behaving as though the Fed will stop paying the tab.

      • Gilbert says:

        I find it difficult that you believe the FED. My money goes on an abrupt about face in their fake “tapering.”

        • Wolf Richter says:

          You don’t seem to understand how the Fed operates. It’s all about credit market manipulation. Credit market manipulation is what the Fed does. That’s its job. It cannot manipulate the credit markets if it does it secretly. It manipulates it by messaging what it’s going to do and then doing what it said it would do.

          It’s the same all the time. That’s why the Fed discloses the details of its balance sheet and its asset purchases and the asset run offs during the QE unwind (2017-2019), the repo market intervention and bailout (Sep 2019 – Jan 2020) and all the other stuff, and that’s why it promotes this stuff and announces it, and it goes in both directions.

      • Phoenix_Ikki says:

        As fast as the market start to crash….then hold on to your hat, this roller coaster is going go backward and back on the gas pedal all over again.

      • Chris says:

        I think the biggest question is for how long. They will not allow housing to crash

        • Augustus Frost says:

          It’s the government that is in a position to stop or slow down a housing market crash, not the FRB. The FRB does QE but it doesn’t actually underwrite mortgages or define underwriting standards.

          Now that the moratorium has been viewed as a success, don’t be surprised if the government does it again under “emergency” conditions.

          What will be an “emergency”? Whatever they arbitrarily define.

          @3%, it’s only $2.5B per month to keep $1T in debt from defaulting. That’s $30B per year or about $150B for about 50% of all outstanding mortgage debt.

          The reason for it will be it’s a lot cheaper than another financial crisis (which I expect to happen regardless at some point).

      • sunny129 says:

        But they can also GO BACK just like Dec of 2018, when Mkt started tantrum! Do I trust Fed? Soory NO WAY!

      • Randy says:

        What are you talking about QE has been going on for 14 years. Your freaking delusional. So they back off for a while. Then they hit the gas and flood the system with 10 times the money. Do you really believe they will end it? They cant Wolf you have to have the common sense to know what will happen if they do. Assets will crash, governments will default. Your dreaming man wake up.

      • Wes says:

        Yes, the Fed got more than it wanted or was expecting. Powell and Brainard were in a holding pattern until they were reappointed. Now they can be “independent” until their term end.

        Fifty yards to the outhouse by Willy Make It and Betty Won’t.

    • Goomee says:

      Shopping for new pillows I found that even the price of DOWN is UP.

  5. TrBond says:

    Interesting.
    Not what I expected but by end of day market action indicates Wolf is right

  6. MiTurn says:

    You’re johnny-on-the-spot Wolf. Great reporting.

  7. Petunia says:

    Some of the highest components of inflation, for the average person, are rents and transportation. I can see price controls on rents coming from the left. A good way to kind of continue the rent moratorium.

    • makruger says:

      The newly elected Mayor of Boston is already talking about rent controls. However, there is a state law which prevents it and a governor opposed to signing a bill to overturn it. So, good luck with that.

      The solution in my view is to change the zoning laws (nationwide) to allow for the building of more multifamily housing. Good luck with that as well.

      • VintageVNvet says:

        Berzerkeley and other cities already changing zoning to allow 4 ”units” per formerly SFR lots…
        Others changing zoning to encourage ADUs in every yard with enough SF of land, etc..
        Going to increase density many places, and already happening.
        Meanwhile various ”squatters” are actually being given title to places they have been living in, sometimes for decades; happening in SF bay area as well as Berlin that has been in the news the last year or so.
        We living in the ”interesting times” some folks wish upon us all, eh?

    • Nick Kelly says:

      Wasn’t NY city under rent control from way back?
      I’m not a fan of RC but under some circs like the weird ones now…

      BTW: I’m amazed the Feds are releasing oil from strategic reserve. That is supposed to be for emergencies, like a ME war for example, which happened once and left Suez blocked for years. Oil is under eighty a barrel. How is that an emergency?

      • Nacho Bigly Libre says:

        Emergency depends on the eye of the beholder.

        From historical levels or current world affairs perspectives it’s not an emergency.

        But if you think from DC cabal perspective, it is the “we’re gonna lose the elections” sort of emergency.

        Sell the nation to benefit own @ss.

        • Anthony A. says:

          Edit above, the SPR release was about 50 MM BBL, of which 32 MM BBL were loaned out and 18 MM BBL were sold.

          The trouble is that December oil at refineries is already purchased and this oil won’t find it’s way into refineries until early next year. Reports today say that the impact from this release won’t change the prices at the pump much more than a few cents.

      • Anthony A. says:

        Biden is panicking over high gasoline prices. He got laughed at by the Saudis and OPEC when he asked them to increase production to lower crude prices so our citizens will have lower pump prices.

        He next went to U.S. producers and asked (told?) them to up production to do the same, but got ignored. He doesn’t seem to understand that it takes months for a new well to be drilled, completed, proved, and the hydrocarbons put into the system. Plus, there is a labor shortage in the oilfield right now.

        Of course, U.S. producers are not especially thrilled that he is stopping a pipeline construction project in midstream and also threatening to shut an existing, operating pipeline to satisfy the environmental wackos. Also, he is stopping drilling for crude oil on Federal lands.

        So the only thing he has left is to pull oil from the SPR and try to get it refined. There is really not that much in there (30 MM barrels, I believe) and that won’t make a difference in today’s gasoline pricing. Plus, I think that the SPR release is on loan to oil producers and must be replenished. The SPR is really kind of a joke.

        • Wolf Richter says:

          The thing is, oil prices are NOT high. What’s high are gasoline prices. Someone (integrated oil companies, refiners et al.) is making a ton of money in between.

      • LK says:

        Thanks for pointing that out, wow. The news cycle is dense, that one slipped past. I had a moment where I wondered what happened to those Iranian ships going to Venezula — and then realized that was back in *June*. I’m wondering if the outcome wasn’t as heavily promoted once the drama and mystery was over.

      • Jake W says:

        bush jr. released oil from the reserve under similarly inappropriate circumstances. it’s pathetic.

        • Nacho Bigly Libre says:

          Bush Jr at least had a plausible explanation – hurricane Katrina and it disrupting and shutting down refineries in the south.

          What’s the excuse now?

  8. Djreef says:

    Tapering will accelerate from here.

    Shorting Treasurys + ETF TBT from here until further notice.

  9. Crush the Peasants! says:

    And to achieve these goals, the CPI will be re-tooled with exciting new hedonic quality adjustments.

    • Depth Charge says:

      It doesn’t work. They can lie all they want. People know what their monthly expenses are.

      • Truckman says:

        As far as can calculate, CPI, inflation, etc have under-recorded the real effect on Joe Average by about 3% for the last 10 years. This would seem to be the limit which is either unnoticeable, or tolerable, and is applicable internationally, not just USA. Of course, since it’s been going on for 10 years, there are now cumulative effects which even Joe Average notices, like how often s/he can afford to eat out or where they can afford to holiday. Covid effects mean 3% ‘lying’ now can’t be kept to, and curtain has been pulled back.

  10. Augusto says:

    Well, if Big Brother and all his little brothers and sisters say inflation is coming, well it must be so. I remember now, we were always at war with Oceanania and Inflation. However, there are still a few Transitory followers out there though….Perhaps the Great Ones should send any remaining Deflationist Revisionists to the Gulag (they’re coming for you David Rosenberg and Bob Hoye) as a warning to the Trans-Crowd to start singing the new Inter-nationale Inflation Song as proclaimed by our Glorious Leaders.

  11. Depth Charge says:

    What a bunch of bullshizz. These people are reckless phonies.

    • COWG says:

      DC,

      I’m sure you meant “horsesh$t”….

      You know… what you step in when you get off that high horse…

      • Depth Charge says:

        Was that supposed to be a clever insult? How sad. Ever thought of commenting on the article rather than attacking commenters? Didn’t think so…

        • COWG says:

          Um…yeah…

          From article…

          “ Did he say that it was time for Powell and Brainard to get off their high horse and do something about these crazy price increases?”

          Thought you read it, too…

          Sorry, brother,… My mistake, didn’t realize you didn’t…

          So in context of the article I read, and your comment on the article you didn’t read, yeah, pretty clever…

        • Depth Charge says:

          My apologies to you. I seem to attract a lot of haters and misunderstood you. I have at least a couple others whose screen names start with C. Again, my apologies.

        • Depth Charge says:

          By the way, I did read the article but apparently my reading comprehension wasn’t the best.

        • COWG says:

          Not a problem, my friend…

          I have a warped sense of humor that sometimes flows over my own head…

    • polecat says:

      Yeah, ‘U-turn’ my @$$ … !!

      Moarrr likely is you get to turn your meager assets in .. to those anointed BANKSTER SCUM from on high .. because ” WHAT INFLATION??” .. I, WE, THE ALMIGHTY FED .. DON’T $EE NO INFLATION … from OUR (ad)vantage point …….”

      Fuck these CONjurers all to Hell

      • polecat says:

        U know what I’d like to see?? … a bit O interest inflation in my meager saving …. after the FED Brainiacs punched down to negative rates for those former savers .. now as become chattel to the Bankster SLAVERS.

  12. M’s. A. Smith says:

    All true!
    What to make of criticism of Bush/Obama response to an even bigger crisis that they didn’t stimulate enough, velocity of money lagged for years, etc.? Treas Sec. Paulson’s memoir quite interesting.

    Many who lived through that argued for more effort next crisis. Here we are!

    • Wolf Richter says:

      Mixing up fiscal stimulus and monetary stimulus. The first stimulates the economy, the second stimulates asset prices.

      • M’s A. Smith says:

        Ok, but didn’t trying to unclog the economy’s gears by stoking Wall Street Banksters’ coffers then light the at-first slow/burning money fire that’s now burning fast through assets?

        Maybe not, then.
        I appreciate your work and informed citizen outrage.

        • Nacho Bigly Libre says:

          Fed thought Obama’s fiscal policy wasn’t effective. So it didn’t taper and raised rates only once – a quarter percent bump.

          Of course there was no hissyfit from Obama/Biden.

          Trump hit home runs with his fiscal policy. So the Fed tapered QE, stopped QE, reversed QE and raised rates 7 times (or was it 8 times?) from 0.5 to 2.5 all within 2 years.

          Trump threw a hissyfit and that broke Powell. He was never the same man ever again.

      • Nacho Bigly Libre says:

        Fed thought Obama’s fiscal policy wasn’t effective. So it didn’t taper or raise rates (but for one quarter percent bump).

        Trump hit home runs with his fiscal policy. So Fed tapered QE, stopped QE, reversed QE and raised rates from 0.5 to 2.5 all within 2 years.

  13. DanR says:

    Is it possible for the Fed to stick to its current pace of ending QE while more quickly using other tools to tighten money? Could rates be raised to 0.25 pc within a couple months anyway? Could the Fed do more with its repo operations? Just trying to think through possibilities.

  14. Anthony A. says:

    Are we going to see a rerun of December 2018 again?

    • Jake W says:

      people always say “the stock market couldn’t handle even a modest rise.” but that starts from the assumption that the pre-taper november 2018 prices were the “right” prices. maybe they weren’t what they were “supposed” to be.

      • Augustus Frost says:

        The stock market was in a mania in December 2018 and it’s even more inflated now.

        There has never been a bigger mania than the one we have been in since late 90’s. US stock prices were somewhat “reasonable” in 2003 and 2009 after 50%+ declines but never actually got “cheap”.

        Yes, I know it’s easy to believe that a 20 year mania isn’t possible but there you have it. It’s ultimately based upon manic psychology which makes all the WTF charts illustrated on this site possible. That’s why there is no required limit on how long it lasts, as it certainly isn’t based on the actually mediocre to awful fundamentals which are disguised by the fake economy and fake wealth.

        Monetary policy is one component. It “works” not because the FRB has some mystical power that most other central banks lack (like Turkey right now) but because of accommodating psychology.

        When psychology turns against the FRB, their policy will be viewed as a failure and the markets will turn against them, exposing them as naked so to speak.

        I sense they know it and were looking for a way out to “save face” using their re-nomination as an opportunity. The FRB doesn’t exist outside of the financial bubble they have facilitated like some people seem to think. They aren’t immune to “blowback”.

        • Old School says:

          Warren Buffett and Charlie Munger have a pretty good track record of being good stewards of investor money. They know risk is very high or they wouldn’t be sitting with $150 billion cash equivalents on their balance sheet.

        • Jake W says:

          you could argue that in 2009 it was cheap, based on the buffet indicator. but i agree with your larger point. the fed can’t save the economy. all it can do is print and jawbone. it has no other “tools” no matter what it says. it can print and transfer wealth from holders of dollars to others or it can jawbone and hope people buy crap because they told them to.

    • There are comparisons. We were deep in the rate hikes before the markets reacted. We should assume rates are already higher, and if CPI or GDP slows at all, then effectively, rates or the pressure to raise rates will abate. That would feel like a rate cut to much of the market. The Fed caved in late 2019, which set up technically anyway, the pandemic crash. The danger here is slow growth, the inflation blip was a blessing, but the Fed isn’t actually raising rates, which is problem enough, but if they suddenly became a lot more dovish, look out, they haven’t much room to lower rates, or add to their balance sheet without causing problems. A market pullback on a rate hike is a short term problem, which implies rising inflation and growth. Accept that the 20′ crash wasn’t just about Covid.

  15. The Bob who cried Wolf says:

    I’ll believe it when I see it.

    • Depth Charge says:

      Exactly. These clowns will figure out a way to tell us they’re fighting inflation while they continue to cause it.

    • Happy1 says:

      Here here. And how will they not totally capitulate if the market drops 50%. Everyone knows the Fed is boxed in.

  16. RanD says:

    Too little to late. End the fake FED!

  17. Michael Engel says:

    The house induce inflation, JP will fight the house.
    Elizabeth fangs will sting JP.

    • Cobalt Programmer says:

      You can change the nominee or grill him to be appealing for the educated public. Behind closed doors, she is happy about the growth in her (and donors) portfolio. As long as the fundamental principles remain the same, outcomes are also the same. Insanity is repeating the same experiment and expecting different results…

    • COWG says:

      The Republicans will defang Elizabeth…

      Dems playing checkers while Republicans playing chess…

      Dems can’t tame inflation without financing increases affecting the payment crowd…

      Companies will not reduce price increases due to pure profit… this round of inflation ( plus future increases) will not decline…

      Republicans will sell inflation as belonging to the Dems and then will blame the increases in financing, which will also affect the same people , to the Dems…

      The sorry Dems have made your life miserable… vote Republican…

      Powell took off the noose and given a medal…

      Republicans paying for the DC Christmas party…

      • Depth Charge says:

        Nice fantasy, bud. In reality, everybody remembers the previous administration dressing down Weimar Boy, forcing him to cut rates. That doesn’t even get into the money-printing during the pandemic. Not everybody is as stupid as you to believe this could actually be pinned on Dems.

        • makruger says:

          Yeah, the educated may remember, but the mainstream populace (unfortunately) only hears the trumpeting narrative from the conservative media and will vote accordingly.

        • COWG says:

          Acidity aside, do you really think a lot of the Dem crowd are going to remember from a couple of years ago and relate it today or the run up to the next elections…

          Two years ago means nothing to a lot of these folks…

          I personally think most are going to be looking for what are going to DO for ME today… and that’s how they will vote…

          The Republicans will point to the grocery and gas prices, and look at how much more you will have to pay in interest for a car or house.. case closed…

        • Depth Charge says:

          I apologize again for my harshness.

        • MyLadyHumps says:

          Excellent point regarding the reckless spending and growth of government by the previous administration. But I think you underestimate the stupidity/ignorance of the average voter.

          Both parties are equally to blame so partisans feel vindicated to continue to vote for their own party. It’s easy to blame each other.

          Hurray for our side

        • COWG says:

          Wouldn’t surprise me if another stimmie was coming from the Dems…

          As a “we’re sorry we screwed you over so badly, here’s some money to make up for it“ kind of thing…

        • Depth Charge says:

          I wouldn’t be surprised either. These people are so stupid they keep doing the very thing that’s causing the pain. You can go back in my comments on this site BEFORE this massive inflation started and see where I was warning of the inflation it was going to cause, and I’m just a lowly contractor. Welp, here we are!

  18. 2banana says:

    America will be lucky to get a quarter point rise in the Fed rate….but 6%?

    Not a chance in he77.

    Plus, this is now a political high stakes game as any rise in rates and consequences will be blamed on those in power with a mid term election coming up.

    “A crackdown on inflation would mean raising short-term rates closer to the level of inflation, and if inflation doesn’t slow down, to raise them above the rate of inflation. So we can do the math on that.:

    • Depth Charge says:

      There are far more poor than rich. Inflation will cause much more pain and anger than some stock market correction. More than half of the US population has ZERO exposure to stocks.

      • Ron says:

        Not true at least50% of people are broke

      • Swamp Creature says:

        When the stock markets and housing markets crash the pain will be spread far and wide and the current administration will have nowhere to run and nowhere to hide. They will be relegated to the scrap heap of American History.

        • josap says:

          But you want inflation stopped.

          Lower rates have been occurring for years: to fuel growth, to get healthy pension funds, to bring up the price of RE and stocks. And to try to underpin a mess of the pandemic.

          Ending what has been the growth plan for years and years isn’t going to be pretty. There are no soft landings.

      • Augustus Frost says:

        The other aspect which I see consistently overlooked in comments here is that most of the billionaires and other rich don’t have the influence many seem to believe. Monetary policy won’t be positioned to bail them out forever. Most of them can and will be sacrificed when it’s “necessary”.

        12 billionaires in 1982 versus 724 now, according to Forbes. There are nowhere near 724 actually super powerful or influential people in the country. This also means they all don’t have the political influence to save their own skin, even assuming they are aware of the actual current state of the economy and financial system which most of them are almost certainly not.

        When the mania ends for real, most of the billionaire class and (supposedly) rich are also going to end up poorer or a lot poorer. Many will be mostly if not entirely wiped out, since they don’t actually own much if anything of substance anyway.

    • Happy1 says:

      Agree. So the Fed stops asset purchases and maybe short rates get up to 2% in 12 months while real inflation is 8%? They’ll have to do a Volker if they really care about inflation before it makes a difference. Does anyone really believe this Fed has the stones to raise rates above real inflation?

  19. Jackson Y says:

    Words are a lot cheaper than actions. It was politically necessary for both of them to acknowledge that inflation was a problem. It’s much harder to follow through with policy action. Both of them have decade-long track records on setting monetary policy. As others have said, I’ll believe it when I see it.

    • WES says:

      You won’t see it but will hear tough talk.
      You will remain in a constant state of confusion.
      Because what you hear and see won’t match!

  20. Paulo says:

    Gee, how much of current and future rises in inflation are a result of increased energy costs imbedded in all facets of the economy from manufacturing through the transportation of goods? Then I just saw this article lead-in:

    Nearly a dozen Congressional Democrats are urging President Joe Biden to combat high gas prices by not only releasing barrels from the US Strategic Petroleum Reserve but by banning US oil exports, according to a letter viewed by CNN.

    Aren’t these the same people who canceled Keystone XL after the Canadian section was already built, as well as the southern US portion?

    The Strategic Reserve has less than a month of extra supply, but if you use it up there isn’t any cushion for a sudden increase in cost or interruption of supply. And banning exports in a supposedly free market economy? And then ban LNG exports to Europe while also sanctioning Nord Stream 2 as a threat to Russia troop buildups on the Ukraine border? Good luck with it all. These guys are winging it and the left hand doesn’t know what the right hand is doing let alone have a coherent vision beyond political reaction and spending borrowed money for votes.

    • cb says:

      Paulo said: “And banning exports in a supposedly free market economy? ”
      —————————–

      What free market? Markets have been manipulated and bastardized by the FED for years now. When you suppress interest rates and create dollars, you distort the value and price of dollars. When you distort the price of dollars, it rolls into general prices and asset prices and distorts prices and actions therein.

  21. So the Fed is in the catbird seat. Allow yields to rise, inflation subdued, and money reallocates from stocks to bonds, monetizing the governments spending programs. They printed enough, now just direct it to the right investments. All this being done while the dollar catches a bid, Europe and Japan have financial sclerosis, chasing the climate change bogey. China is going to lose some important markets while they try to wind down their housing bubble. No US recession in sight. The only real problem is political intransigence. The more one group or party sees themselves as the losers the more they dig in.

  22. Old school says:

    1. Until they run down the balance sheet to roughly 2 Trillion or less, the Fed has monitored the debt.

    2. Until Fed rate is higher than inflation they are still goosing the economy.

    I am still sticking with barbell strategy of short term treasuries and precious metals plus a gold miner til I figure out what Fed is going to do.

    Don’t really think real rates are going positive.

    • ivanislav says:

      If they pull off the taper and stocks fall, I expect gold to fall too and at that time I’ll back up the truck buying gold and LEAPs. Eventually the Fed will restart QE and in so doing destroy all remaining credibility.

      You can only play with the financial system so much before people look for exits. Fed interventions get more and more preposterous with each cycle.

      • Anthony A. says:

        Recall Wolf’s recent chart on margin debt (out the Wazoo). A run for the exits with an interest rate increase will cause all Hell to break loose.

      • Old School says:

        I expect gold and especially gold miners to crater if we get market crash, but that is why I am only about 20% of assets in that. It’s really to try to protect myself if Fed keeps real rates negative for a long time.

    • historicus says:

      Higher rates could destroy the CRYPTOS….
      for IMO , much of that froth was due to no fair return on money…
      IF a fair return …returns…..CRYPTOS will get slammed….and many are hard invested in that nebulous game. Could spill to other markets if there is a severe blood letting.
      Things are very fragile…..and the Fed has blown it. Too much , way too much is difficult to undo.

  23. Old School says:

    Monitor = monetized

  24. Willy2 says:

    – Perhaps Powell is seeing something in the data that indicates that demand for T-bonds is “weakening” ?
    – Still don’t believe that the FED is going to raise interest rates anytime soon. The 3 month T-bill is still much closer to zero than closer to 0.25%.

    • Wolf Richter says:

      The 3-month T-bill projects what might be happening over the next 0-8 weeks. The closer you get to 12 weeks, the more irrelevant it gets because when it matures in 12 weeks, holders get face value no matter what. So right now, the 3-month yield projects into early January at the most. And that’s it.

  25. Trucker guy says:

    Loose monetary policy has allowed ordinary Americans to leverage themselves to the hilt on assets. Nobody took their gains and did anything with them than throw them away on bubbles. Let’s not even get into corporate America.

    I don’t think the fed or any political party is going to try and deflate the bubble, slowing it down is the best we can hope for. If the bubble shrinks any, millions end up underwater.

    It’s going to be them doing little piddly things hoping everything else can catch up to the inflation while the middle class and lower class get eaten alive. Partly their fault nonetheless. Or the bubble pops like usual and everyone is left with a bruised ass after they bounce off the floor.

    • Old School says:

      I guess the silver lining is there are going to be a lot of distressed selling going on when the panic hits.

      If stock, bond and housing markets are all in largest bubbles ever then most likely we are going to go all the way to other side where we get into a no bid market for all three eventually.

      Either that or we wonder around in the wilderness for 40 years because we are afraid to face the consequences.

      • historicus says:

        Meanwhile, do they try and push the markets to the highs of the year for the year end? That is the sport of Wall St….
        Every day in December up…..
        yippee! The “Santa Claus” rally…. the cable talking heads call it…

      • Augustus Frost says:

        If the aftermath to this unprecedented mania is a sideways 40 year correction, it will be the first time anything close to it has ever happened, anywhere. That’s one thing about a mania, it doesn’t deflate gently or stagnate. It crashes and the bigger the mania, the bigger the crash.

        For this mania since the FRB and US government will certainly attempt to “do something”, I’m going with a chain of severe or very severe recessions over an extended time frame. Intermittent rallies and recoveries of varying extent and duration but a trend of most people consistently becoming poorer or a lot poorer.

    • historicus says:

      Trucker
      “millions end up underwater.”

      millions will give back some easy money.
      Others, the ones very late to the game, the FOMO buyers will get stung…
      but the markets eventual hurt bad decision making….and the Fed isnt there to SAVE everyone’s bad decision making…..(though sometimes it seems that way)

  26. Michael Engel says:

    1) Last week, on Fri, the US 6M was < US1M, inverted. US 1M was down today, a day when JP declared a war on inflation.
    2) JP war chest is growing to provide collateral to the shadow banks, in the o/n trade.
    The 30Y & 20Y are still inverted, no change.
    3) The 2Y jumped, but the 10Y didn't care.
    4) DX, US dollar, jumped to 96.53 above it's Jan/ Feb 2015 backbone !

    • Noelck says:

      There are some days I wish I could understand Michael Engel more easily :)

    • Everyone is buying dollar assets. The rest of the world is in a far worse mess. We have a Central bank with comparative limits to money creation. The global monetary base defies programmed disinvestment, selloffs where buyers boycott for lower prices, and sellers wait for higher prices. Easy peasy. There are alternate disinvestments; farm land, Crypto, gold, digital phantoms, all in their own bubble. The stock market is now a ‘futures’ market. This defies the intent of the Fed to raise asset prices on a gradient, through inflation, to make it appear that there is economic growth and prosperity. This is the great lie. Done on the debasement of the currency, with the dollar being less debased. America is the richest nation because that’s the way the script is written. They want to have faith in (US) but we are not living up to our part of the bargain. Americas social fabric is tattered, corrupt financial system, and hypocrisy. From this vantage China is more socially responsible, we just have to see if they respect the limits of power.Now it may be one or both Fed nominees will get a challenge, but no one will challenge what they are doing, loyalty is faith, tethered to nothing. ROW is laughing but they know the hot money kiosk will continue to provide them with a hedge against their deeply entrenched problems and vulnerabilities. In a futures market there is one buyer for every seller. Valuations adjust instantly, you need nothing more than consensus, or information (the money flows and gambits the Fed works have no effect, so the Fed bureaucrats are forced to play the game themselves, ie trade futures…) Imagine an expiration where there is no storage, no demand for this paper at futures expiration (see crude oil goes negative). Stocks go negative. Then a reinflation of assets concurrent with a policy to obsolesce this monetary fuel (filhty lucre) for no other reason than it’s long corrupt history of being manipulated for national, tribal, and speculative purposes. All money is blood money. Then we will have something better.

  27. LifeSupportSystem4aVote says:

    So, the serial arsonists are now going to become heroic firefighters? Oh yeah, I believe that. Ummhmm

  28. Ron says:

    This is great politics at work leave j Powell in office then he’s the fall guy Democrats will blame him for it all ,while he is a puppet getting his strings pulled ,in a can’t win situation

    • Michael Engel says:

      They will blame Trump

    • Old School says:

      Word is Brainard couldn’t get confirmed in Senate, so superman J. Powell it is.

      Doesn’t matter as economy is addicted to Fed crack and at sometime we are going to have to go cold turkey.

    • Augustus Frost says:

      The voters aren’t going to blame Powell or the FRB. To do that, they would first have to know who he is and understand what the FRB does which they do not.

      Most people have no clue.

  29. Willy2 says:

    – Perhaps the Biden administration is getting more & more worried about rising prices ? And told the FED they should start to care as well ?
    – I continue to think that all the words the FED is speaking is “a dog and pony show”. The REAL power is in the hands of a force called “Mr. Market”.

  30. Michael Engel says:

    Taper QE now, get a booster six months later.

  31. Macro29 says:

    They’ll eventually raise rates a tiny amount. However, near-zero rates are the new normal.

    QE is also the new normal otherwise govts/nations can’t pay their bills. Remember that ECB,BOJ,Fed already started QE before in Sept 2019 because the global economy was starting to sputter from the effects of lukewarm growth, looming recessions, and deflation. Covid simply supercharged and accelerated an existing global QE policy. If Covid never happened, in 5-6 years we’d inevitably experience what we’re currently experiencing.

    USD will continue to debase at an accelerated basis.

    • Wolf Richter says:

      QE will be over in a few months, guaranteed. Already being wound down. Just a question of how fast.

      • historicus says:

        What is the blueprint for reinvestment on maturing securities?

      • Gilbert says:

        “ QE will be over in a few months, guaranteed. ”
        You could very well eat those words, Woff. Never let your ego get in the way of a good decision.

        • Wolf Richter says:

          We’ve been through this before. This is not new. It’s part of what the Fed does. People who have watched this over the years know how the Fed does this.

          Last time, people said the same thing: the Fed will never taper, and then it tapered, and they said the Fed will never raise rates, and then the Fed raised rates (Yellen, Powell), and they said the Fed will never let the balance sheet decline, and then the Fed let the balance sheet decline. It’s just funny how people refuse to see it.

        • DawnsEarlyLight says:

          Wolf, you think the fractional raising of rates by the Fed Team qualifies as what was necessary?

        • Biloxi says:

          The Fed can taper until a point but this is not the year 2000. The Fed will nibble at the edges by limiting QE and raising rates a tad but ultimately the Federal deficits must be funded. Social security must go up as well as every other government program.
          Could short term rates hit 5%? No, because it would destroy the US government.

          Inflation will surge because the Fed has already said it will run the economy hot. There is no normalization and there is no going back- ever. Energy and commodity prices must surge if global warming is to be confronted. The ever growing pyramid of wealth must be toppled if the world is to be saved. That means less profits and less of everything.

          There is no going back.

        • Augustus Frost says:

          “There is no going back.”

          No, there is not, but this doesn’t mean that the public won’t be thrown under the bus anyway and “printing to infinity” will be used to make good on social programs.

      • BSams says:

        Can’t taper a Ponzi. They’ll wind down then wind it back up in some shape or form when things eventually start breaking and wetting the proverbial bed.

      • Auldyin says:

        But will the end of QE just be ‘TRANSITORY’?
        That becomes the new question of the moment.

    • historicus says:

      Macro….
      “However, near-zero rates are the new normal.”

      Completely illogical.
      The Cause of situation, too much debt and inflation, are the low near zero rates which serve to subsidize debt and inflation.

      Therefore, the Solution can NOT be more of the same. That is insanity.

      The Solution can NOT be the same as the Cause.
      Inflation is just beginning….

      • Augustus Frost says:

        I agree with you. There is no “new normal”. The claim is absurd.

        This so-called “new normal” is the result of an asset mania from manic psychology. To believe it implies one of two things:

        One: There really is something for nothing, contrary to common sense and physics.

        Two: Creditors will be cheated forever. Believing this is the concurrent belief in humans as robots where they will sit around and do nothing in perpetuity even as their wealth and living standards are destroyed.

  32. Dean Stockwell says:

    Now that the rich have unloaded stocks on retail and the democrats know their reign is in jeopardy, you can be sure they’ll pop this bubble to appeal to the voter base. “See we got those rotten rich people, now vote democrat!”.

    • Fat Chewer says:

      In truth, both parties are responsible, and neither party wants to be held responsible for it. And while everyone screams about how bad government free money is, you hear of very few returning it to sender.

      Many voters are just as keen as the pollies to keep the charade going. What else is a political party going to do? Light a match inside the shed clearly marked “TNT” like a Warner Bros cartoon?

      • COWG says:

        FC,

        Depends on the narrative either party is going to try to sell to that middle 10% of voters…

        They are the important ones…

        If they swing a little left, Dems win…

        If they swing a little right, Repubs win…

        That’s the group that matters when they say “it’s the economy, stupid “….

    • Augustus Frost says:

      Which rich are you talking about?

      It isn’t most of the billionaire class. They don’t sit in cash equivalents and their collective psychology isn’t necessarily that different from the public either.

      I haven’t looked at the Forbes 400 in a while, but I am going to make the wild guess than the vast majority are mostly fully invested in this bubble too. It’s certainly not possible for all 724 billionaires to mostly or entirely “cash out” without crashing the markets or at least the value of their core holdings.

      Besides, who exactly is going to buy or has bought from them?

  33. KGC says:

    To bring interest rates above the rate of inflation means they’d have to go somewhere above 7%. There’s 3 generations of born in America consumers who’ve never seen rates like that. I don’t see that as an option for anyone who wants to be re-elected.

    • josap says:

      As interest rates go up, inflation comes down. They will do it in steps. Unless we get insane inflation of the 80s at some point. Then the Fed will hit the interest rate machine really hard. Just like last time.

      I remember last time. No fun.

      • Old School says:

        I think they are going to make a lot of excuses that they believe inflation will pass, but their goose is cooked for a while as higher housing costs start feeding into their Stupid method of determining cpi. Wouldn’t surprise me if we are at 6% next year at this time.

        Someone needs to come up with an empirical correction factor for the CPI. Most agree it is not real life.

  34. Swamp Creature says:

    Main components of Inflation is Housing, clothing, food, & transportation.

    I’m one of the lucky ones that is not affected materially by this Bidenflation which is running rampant throughout the nation.

    Housing – We have no mortgage payment. No Inflation. Neglegable property tax increases.

    Home maintenance – do most if not all of it myself.

    Clothing – Got everything we need, donating most of the stuff we have. Wear jeans and shorts every day.

    Food – We’re on a fish and vegetarian diet. No red meat anymore. Very little price increases for these items in the last year.

    Transportation – two old cars paid off, gas price has no affect as we travel very little except for business, and write that off. We took one trip out of the DC Metro area in the last 2 years and that was to get vaccinated.

    Consumer discretionary items – We buy nothing unless it is a necessity. We’re on a buyer’s strike.

    So while I have sympathy is with those who are affected by this 20% inflation, instead of complaining about it there are things you can do to minimize the impact. This ain’t the 1930’s. At least not yet.

    • VintageVNvet says:

      with you and your concepts, A LOT, SC:
      Older than any ”boomer” and while I do sympathize with them and the various and sundry younger than boomer cohorts,,, it certainly seems to me at this point that every single person/family has the same ”choices” that my parents, both ”children of the depression FKA greatest had.
      Choose to work hard and save every extra dime or dollar after meeting cost of ”needs.” Or just party down dude and dudettes…
      My ancestors chose both paths, and the results are very damn clear based only on those folks…
      “Party on”,,, or dive deep into each and every method of saving as much as possible,,, formerly by burying the gold and silver out in the yard until the crash,,, then digging it out and buying for pennies on the pound…
      Has nothing to do with any age group, etc., as some of the whiners on here would appear to think; has absolutely to do with personal ”preferences” ad infinitum…
      AS ALWAYS HAS BEEN THE CASE

  35. Bet says:

    Small caps and growth stocks were hammered today. They are the canaries
    Markets are preparing for higher rates.

    • josap says:

      Well. Powel said something has to be done about inflation. It’s his job to do something.
      So rates will go up. Probably only .25 and then no change for 6 mo, then up again. Take it in stages.

      The stock market is going to try to front-run the Fed.

      • Depth Charge says:

        Chintzy .25 basis point rate hikes aren’t going to do chit to arrest this inflation. They’re going to need to hike like Volker did in the 70s to stop this. My guess is they’re just jawboning right now, but have absolutely no interest in actually stopping this inflation. Eventually they will be forced to.

        • Old School says:

          I think they have their plan. Be slow in fighting inflation. Take a few years to get it worked down to 2% while they keep real rates negative by 2-7%.

        • Depth Charge says:

          If that’s their plan, then it’s BYEBYEBIDEN 2024. That will bring ZERO relief.

    • DawnsEarlyLight says:

      The Fed for the past ten years has been pumping the market. What makes you think they can, even if they want to, raise rates where they belong? We need to stop being debt pigs!

  36. Finster says:

    Somehow Biden and Powell seem a long ways from Reagan and Volcker. It took over a decade of rising inflation before the political will rose to the occasion. And now rates are still virtually zero.

    It’s going to take more than just dialing back QE. Real short term rates are several percentage points below zero. It’s an economic emergency no one seems in a hurry to address. Only when that gap begins to close will I be convinced they’re serious.

    • Depth Charge says:

      They’re just paying it lip service right now, stalling. But their hand is going to be forced. They are so far behind the curve it is laughable.

      • historicus says:

        Yep…

        and 1/4pt raises every 6 months are drops in the “way too late” bucket

    • historicus says:

      Finster

      The Fed over did the stimulus, they are way too late in the inflation game….
      every Union in the country is about to go on strike….and those higher wages will be passed along. So, the amount of coming inflation is PLUGGED in to the scenario…..and the hurt is on the come. The lag time is way longer than Powell seems to realize.

    • Wolf Richter says:

      Finster,

      The long-term rates matter the most. They’re the ones that impact the economy because they raise borrowing costs for housing, corporations, consumers, etc.

      Long-term rates have been repressed by QE. So the first thing that needs to happen is QE needs to end, and then the balance sheet needs to start declining.

      Then they can raise short-term rates.

      If they raise short-term rates now while still repressing long-term rates with QE they’re going to forcefully invert the yield curve (with short-term yields higher than long-term yields), and that doesn’t make sense.

      • Finster says:

        I realize my view is unconventional; the Fed certainly seems to agree with you. It’s largely for historical reasons that QE is regarded as more aggressive than rate manipulation. Rate manipulation has been around a lot longer. But I submit that it is rate manipulation that has done the most damage. Rate repression went on until it hit the zero bound; massive QE only landed on the table because rate repression made such a mess of things.

        Ultimately rates are the price of credit, and prices form the neural network of the economic system. Jamming price signals is the financial equivalent of sticking a penny in the fuse box … you might get the juice flowing again, but at the risk of burning down the house.

        The conventional thinking is exactly backwards. Instead of using QE as surrogate for rate cutting at the zero bound, the Fed should use it as a way to get out of the ZIRP trap. Make rate normalization the priority, using QE to help ease the transition.

        • cb says:

          Finster said: ” Make rate normalization the priority,”
          —————————-
          Agreed. Scumball Powell and his scum cohorts at the FED have done exactly the opposite of what should have been. They have rewarded the financial engineers and scammers while suppressing prudence and savers. It’s time to stop subsidizing private equity bastards.

        • Finster says:

          CB, I think part of the confusion arises from the Fed’s assumption that QE ‘works’ via reducing long term rates. Bernanke cited this as his intention at least. But empirically it hasn’t worked this way. The correlation between long rates and QE volume is weak at best. Investors take QE as a “risk on” signal and sell bonds and buy stocks.

          The upshot of this is that contrary to Fed theory there is no inherent contradiction between having a positive Fed funds target and running QE. The former is a rate policy and the latter is a quantitative policy. The Fed could easily start hiking rates while still buying billions of Treasuries each month … indeed it should.

      • JeffD says:

        Has *anything* the Fed has done since 2008 made sense?

  37. dqhall says:

    Congress and the Executive branch may get some blame for inflation as government expense exceeds government income. This resulted in issuing more money or t-bills. People may cash in those bills to buy things. That extra money in circulation bids for scarce labor, resources, finished goods and services.

  38. Matthew F Scott says:

    This is a look at things back in March ’21.
    The Federal Reserve had assets worth $870 billion on its books toward the end of August 2007, just before the start of the financial crisis, and the same stood at $2.23 trillion at the end of 2009. Then the Fed’s balance sheet went from $4.7 trillion on March 17, 2020, to over $7.6 trillion by March 17, 2021.

    In 1981 the Effective Federal Fund Rate peaked around 19%. In 2000 it peaked around 6.5%. Then before the housing crisis it was at 5.25% in summer of 2007.

    Then for almost 6 years it sat near 0% before inching its way back up to 2.4% in July 2019. This period of increases in rates was paralleled by a period where the Fed allowed its balance sheet to slowly decrease from a peak around $4.5 to $3.8 Trillion. In the summer of 2019 the Fed had announced that it would be “unwinding” its balance sheets. They said they would let Treasury Securities “run off” at about $6 billion a month and let mortgage-backed securities run off at about $4 billion a month. “And then it’s going to increase at every three months,” “to where there’s a maximum of $30 billion a month in Treasuries running off, and $20 billion a month in mortgage-backed securities” running off.

    But then in September the financial markets suddenly froze up and the Fed had to intervene with a $53 billion injection into the markets.

    This ended talk of unwinding and ended the increase in the Federal Fund rate. Instead the Fed started buying more securities and dropping interest rates. Before the COVID pandemic hit, rates had dropped down to around 1.55% and the Balance Sheets had made it almost back to its previous high, sitting at 4.17 Trillion at the end of 2019.

    With the onset of the pandemic induced economic crisis in March 2020 the Fed dropped the interest rate back down to almost 0% again and started buying up securities in not just unprecedented amounts but also it types. It now stands at some $7.7 Trillion.

    Why should we believe that the Fed will really go through with ending QE and allowing rates to rise when the last time it started to let securities fall off the market swooned and the Fed did a 180 degree turn?

    • Augustus Frost says:

      Until recently, there hasn’t been any negative feedback from QE or ZIRP. That’s changed recently with higher headline inflation.

      Do I know exactly what is going to happen?

      No, I do not.

      What I do know is that the FRB isn’t going to “print to eternity” while everyone just sits around like a bunch of robots watching their living standards and net worth destroyed.

      FRB doesn’t exist in a vacuum and isn’t immune to outside perception or negative feedback. FOMC members aren’t robots either.

      When psychology turns against them, if the FRB insists on maintaining ultra loose monetary policy, rates will rise regardless of what they do and asset markets (bonds and stocks at minimum) will decline or crash anyway. There is nothing they can do to stop it and the belief they can is a myth.

      The ultimate restraint on any central bank’s monetary policy is the FX value of the national currency, whether it is the USD or another. That’s the basis of any central bank’s power and this is even more true of the FRB managing the world’s reserve currency.

      If the FRB insists on “printing” to suppress interest rates regardless of the external environment, the FX value of the USD will tank or crash.

      Anyone else can believe they will do it but I don’t absent desperate circumstances.

      • K-Agri says:

        Augustus – The fx value may have been a limitation in the past, but is no longer. QE is now coordinated between all advanced economy central banks, which helps ensure FX rates between these currencies stays relatively constant. The value of USD may tank or crash in relation to goods or assets, but not in relation to currencies of other advanced economies.

        • Augustus Frost says:

          If all major central banks pursue the same extreme monetary policy, the global financial system will ultimately collapse anyway.

          There is no free lunch in life and it’s not different this time.

          FX rates aren’t a mechanical outcome. Coordinating monetary policy hardly guarantees stable exchange rates.

        • K-Agri says:

          Augustus – I wholeheartedly agree that there is no such thing as a free lunch! This strategy will fail in the long term, but in the short term they will succeed in fooling a lot of people.

  39. Michael Gorback says:

    Most of the how-to-invest books and online courses have been produced in the past 40 years. Fed funds rate was 20% in 1980. 40 year bond bull run and stocks pumped up by lower rates.

    Boomers were stashing away money in retirement plans, buying stocks and bonds, pushing up prices.

    Now run those two in reverse and toss in a recession.

  40. fred flintstone says:

    I’ve stopped watching Saturday Night Live……..started watching the Fed Heads regularly.
    The meeting between Powell and Biden……I would have paid big bucks just to sit in.

  41. BenX says:

    “I am committed to putting working Americans at the center of my efforts at the Federal Reserve…”

    … now that I have transferred the wealth of generations to the non-working American oligarchy.

    • fred flintstone says:

      BenX……you got it Pal……..its all been a planned scheme.
      DC is nothing more than a planned circus put on for the entertainment of the masses.
      Whatever crumbs are left they throw our way……..and thank goodness that in my life they have seen fit to be generous and allow us a good life.

    • historicus says:

      “…now that I have transferred the wealth of generations to the non-working American oligarchy.”
      and burdened future generations with an added 21 Trillion in new debt in the past 12 years……
      when until then, for 215 years of this nation and a couple of World Wars, the national debt in 2008 was 9 Trillion.

    • VintageVNvet says:

      good one far shore BX:
      some, here and other where have been saying, some for, like 20 years dudes and dudettes,,, ” they are, like totally fed up with the Fed…
      some times, it appears to be needed, necessary, and ASAP to change some of the aspects of the financial ”skullduggery” that has been going on with FRB since it’s inception in 1913.
      in spite of the obvious advantages to the owners of the USA FRB,,, it certainly seems to me that FRB has absolutely FAILED to protect any of the items,,, USD, Savings!!, or any other component of the real economy,,, perhaps especially the ability of old folks to live at least com fort ably on the interest of their life time of savings based on their work…
      THAT alone should be sufficient information for BOTH so called political parties.
      Otherwise, IMHO,,, a serious possibility of revolution or some sort of civil war grows,,,
      And, to be sure, it is NOT a race war, but a ”class” war…
      Just want to add that IF I were a current oligarch,,, I would damn sure want to do my best to at least try to ameliorate the recently very well known delta in equity…
      Habitat for Humanity knows the very clear challenges of that delta, and is doing all they are able in very very good works to help those who are willing to work.

  42. leanFIRE_Queen says:

    Aren’t those on fixed incomes the hardest hit by inflation?

    They will be sacrificed by the Fed IMHO, it works for asset owners.

  43. MonkeyBusiness says:

    Once they’ve been confirmed, they’ll do a u-turn on the u-turn. Nothing new here.

  44. Old School says:

    Word is Brainard couldn’t get confirmed in Senate, so superman J. Powell it is.

    Doesn’t matter as economy is addicted to Fed crack and at sometime we are going to have to go cold turkey.

    • historicus says:

      I suspect traders are now seeing more money to be made on the downside of the market…..

      But, this is dicey, as the powers that be like to jack up markets at the end of the year….

      Anticipating decision making by a committee, and the timing of such, is near impossible. People can read markets, but inside knowledge is where the money is made, sadly. All because of the power of managed affairs by cabals such as the Fed managing these markets.

  45. cb says:

    Brilliant writing as usual, but particularly on this topic. Powell is scum, as are most of the bank and wall street captured Fed heads.

  46. DawnsEarlyLight says:

    Gotta love these hundredths of a percent JUMPS!

  47. DR DOOM says:

    Don’t want to ruffle the feathers of the head honcho at Wolf Street but my cynical sensibilities tells me this was nothing but political theater with two of the biggest doves to ever roost at the Fed. They will be walking back their position if the markets actually take them serious, which I doubt. One thing did happen is that Biden owns inflation lock stock and barrel by keeping Powell. The only way real tightening happens is massive inflation for the electorate hits the grifters in Congress politically.

    • Wolf Richter says:

      All this stuff is really funny to read. You need to remind yourself who owns and backs the Fed – the banks own the 12 regional FRBs and the wealthy back the Fed, and the Fed takes care of the banks and the wealthy (including many members of Congress).

      And those folks don’t want lots of inflation. They fear it. They accept a little inflation. But a lot of inflation kills their dollar-denominated paper wealth. And those folks are now screaming at the Fed, right along with consumers screaming at the government.

      No one wants an Argentina-type inflation where you cannot borrow in the local currency because 30-50% annual inflation has made it useless and no one wants to lend in it. Turkey is going through this right now as well.

      When you let inflation get out of hand, that’s what you get. The wealthy in Argentina and Turkey have near-zero money in local currency denominated assets. They know better. That’s why the Fed will not allow inflation to get that far.

      • Depth Charge says:

        But the FED has already lost control of inflation, Wolf. And they continue to print, to this very day. Something’s NOT adding up. Can you imagine a paramedic showing up on the scene of a horrific head on collision, only to take a look around at the dead and dying while saying “we’ll be back in 6 months and we’re going to take good care of these folks.” That’s what they’re doing right now. So the idea that they take this seriously is not only laughable, it’s fictitious.

        • To use your analogy the Fed is doing triage, taking care of the most important cases first. We can fix inflation in 15 minutes (B.B.)

        • JeffD says:

          I agree. In spite of the banks electing some of the Fed members, the President and Congress puts the rest in place. And the Fed Chair’s vote is the only one that has ever really mattered, and that position is 100% controlled by politics. To top it all off, Powell’s first degree was in politics, and his second was in law (to bolster his political standing). An economics degree is nowhere in sight for Powell, and working at Carlyle Group doesn’t count, because it is first and foremost a political organization.

      • cb says:

        The inflation we have had has made the wealth gap greater and the relative call on goods and services sweeter for large wealth holders. Why wouldn’t even more inflation just continue that trend?

        • Augustus Frost says:

          There are other factions whose primary motivation isn’t just the paper value of their holdings, like the most influential in the foreign policy establishment. They are going to be well off enough regardless and some of them are going to be more interested in geopolitics.

      • cb says:

        Wolf said:

        a) “But a lot of inflation kills their dollar-denominated paper wealth.”

        b) “No one wants an Argentina-type inflation where you cannot borrow in the local currency because 30-50% annual inflation has made it useless and no one wants to lend in it.”
        ——————————————-

        a) Inflation helps the assets underlying that dollar-denominated wealth in the case of equity, and makes it easy to pay off debt if leverage is involved.

        b) Why can’t you borrow in the local currency when you have central banks that flood the world in cheap money? Why not continue to do so? That has been the playbook for some time, and as inflation increases, those connected enough continue to borrow via non recourse loans.

        Give high inflation and many will gladly borrow as much as you will lend, behind a corporate veil, to buy leveraged assets.

        • Alku says:

          “b) Why can’t you borrow in the local currency”

          probably, like Wolf pointed out, because “no one wants to lend in it”? :)

  48. Mak says:

    If you think the Fed is bad, down here in Aussie land our Reserve Bank (RBA) is in an even bigger la-la-land than the US Fed.

    While the largess from the RBA has likely been less than that of the Fed, the RBA made the rash ‘commitment’ not to raise rates until 2024!

    In the context of the US this seems untenable. A small economy has to follow the actions of the larger ones to some extent. Even if AUD inflation currently isn’t too bad, it would get bad the second there is an decent interest rate differential between the US and the AUD.

    I’m looking forward to the Australia Reserve Bank being force to walk back on their commitments.

    • Fat Chewer says:

      Not likely though.

      All we have got for 30 years is “Low interest rates forever! YAY!” Those are not the words of the RBA Governor, it is that of his political masters. Any interest rate increase will topple this inept government.

      “We can’t have that now, can we, old chum?”
      “No, Minister.”
      “It is the optics of it all.” “Yes, Minister.”

    • historicus says:

      Won’t be a long term problem for Australia.
      When you come to Taiwan’s defense, China will be invading Darwin.

      • Nick Kelly says:

        Then China gets its ass handed to it. The sixty US nuke powered subs could deal with this alone.

        If there is one thread that runs through all this Taiwan talk it is a complete lack of understanding of the most difficult military task: amphibious invasion. In a normal land war, it is considered a basic requirement for a 3: 1 superiority over defense. If invading from sea, this rises to 10: 1. This is a minimum.

        Take a look at a globe. Oz is 2000 miles from China. D-Day was across 30 miles with complete control of sea and air AND surprise because the distance was so short they could leave in dark and arrive at dawn.

        In the extremely unlikely event of China trying to invade Oz, no one gets there.

        • Frederick says:

          Blustery talk of 60 nuclear subs is insane. We get your point Nick

        • Nick Kelly says:

          Nuke POWERED. No need for anything but regular torpedoes. See Falklands war and Belgrano.

    • Depth Charge says:

      Central banks are your last concern in Australia right now. You have a 3rd Reich situation going on.

      • Nick Kelly says:

        They haven’t had a violent attempt to overthrow the govt.
        For disfunction in the Western democracies, let alone the English speaking ones, no one approaches the disfunction of the US.

  49. Michael Engel says:

    1) Dr. JP est net worth is : $55M. JP might liquidate his stocks and RE portfolio to please Elizabeth fangs.
    2) The share of landlords collecting 90% or more fell 30% between
    2019 and 2020.
    3) Ten percent of all landlord collected less than half of their annual
    rent. In mid 2020 landlords revenue was down 20%.
    4) Small landlords (1-5 units) are the most vulnerable.
    5) A wealthy NYC landlord with 3 units, each over $1M, might have 1 or 2 zombie ledger pages that cannot be removed or replaced, a bone in throat.
    6) Small landlords deferred mortgage payments to the shadow banks, for a while. They stall on both payments and maintenance.
    7) For sale was up above 10% in 2020.
    8) Most evictions end up in settlements, thanks to gov support. The real problem is in the non-eviction liberal zones.
    9) Will JP be on the landlords side or the tenants sides in the next down turn.

  50. historicus says:

    “committed to putting working Americans at the center of my efforts”

    Brainard said…

    This is refreshing. I wish I could believe it. For Powell has been errantly focused on low rates prompting better employment……with record job openings. A fool’s errand.

    And the resultant inflation ripped through the working class, causing so much damage.
    1/4pt raises every 6 months wont do it. That would be folly.

    • Old School says:

      That means Fed is political. If you want to help working people you run a sound monetary policy. Has Fed helped the plight if working people since Nixon severed final tie to golf. No. All gains have went asset holders and political class.

      • Old School says:

        Terrible wiring. I apologize. Golf = gold I am becoming unreadable as Michael Engel

        • Michael Gorback says:

          You’re merely unreadable due to typos (as am I) . Engel, OTOH, is often impenetrable.

  51. historicus says:

    Wolf
    They seem to reveal the drop in QE purchases…

    But is there a revealed plan for reinvestment in maturing securities?
    It seems to me that the decisions to reinvest as maturities mature, and to what degree, seems to be almost as significant as the posture on QE.

    • Wolf Richter says:

      What they’re doing with “taper” is reducing the pace at which the balance sheet increases. Until mid-November, the balance increased at a rate of $120 billion a month. From mid-November through mid-December, it’ll increase at $90 billion, etc. By mid-2020, it stops increasing (end of QE), unless the taper gets sped up, in which case the balance sheet stops increasing sooner.

      Reinvestment of maturing securities is part of this. If they didn’t reinvest, the size of the balance sheet might plunge at a rate of $100 billion to $200 billion a month.

      This is what I said elsewhere here, and I’ll repeat it:

      This will become apparent in Treasury securities over the next few weeks.

      Changes in direction of MBS take 2-3 month to register because the Fed buys them in the TBA (to be announced) market, and those trades take 2-3 months to settle, and the Fed books those trades when they settle. Meanwhile, MBS generate a lot of pass-through principal payments for the Fed (reduce its balance sheet) that it tries to replace with new purchases. So MBS form this jagged line on the chart, and it takes a while to see a change in direction.

      We’ve been through this before and we know how it works and how the Fed does it.

      • historicus says:

        So the answer to my question “is there a revealed plan for reinvestment in maturing securities?”
        is…..
        they have made no announcement to reduce reinvestments and will continue to reinvest in full as securities mature.
        Thanks
        I recall Bernanke saying when the Fed decides to normalize rates (ha ha) the Fed would NOT reinvest maturing securities, thus rolling off their holdings. This apparently is not the case, and truly a meek and feeble maneuver, to reduce the rate of increase.

  52. Bobber says:

    Imagine what life would be like if people couldn’t speak and were judged on their actions. I think we’d discover that a lot of people are really just sitting idle, cashing paychecks.

  53. Say It Aint So says:

    There are a lot of folks here making predictions and diagnoses of the Fed and what happens next…Where should you be investing to capitalize on the Fed’s next move?

    • phleep says:

      I am no seer, of course. I have temporary rebalanced from stocks to cash and am eyeing the situation. Near-term, liquidity is always nice. Bonds can suffer capital losses. I imagine LOTS of asset
      prices (especially financial assets, certainly real estate) are floating on rickety bases of bailout money and over-optimism: they are ALREADY inflated (in asset bubbles). This plus Fed comments and shifts could mean volatility, at best. I am trying to build an investment thesis going forward, meanwhile being patient. The loose money has meant possibly an “everything bubble,” so prices (and money itself) can be decimated, if enough panic spreads to that the dip isn’t, for once, bought (everywhere at once). Hence cash and patience here. The word “inflation!” doesn’t induce in me the first reflexive knee-jerk to flee into overbought assets. Those who buy in right before a drawdown get cleaned out.

  54. Fred Flintstone says:

    Say it ain’t so………symbol TBT……load up the truck.

  55. phleep says:

    I see a wide scatter now in where to place trust and value, running across assets and institutions (and in the cheap seats, individual political personalities, I believe to have laughable control over any of it). I’m not in the habit of touting particular works, but I just read an exceptional run-through of various scenarios, including inflation and hyperinflation, and various Fed responses, in a book (toward the end of the book), The Rise of Carry. It came out before this inflationary moment, but games it thoughtfully and interestingly. It posits that persistent inflation is the event that could unwind central bank (including Fed) credibility and even solvency. And that means globally too. I.e., it could constitute “the death of money” as we know it. Whatever grousing I hear here, mostly I don’t see this horizon of how weird things could get, and how this present moment is nothing like the worst possible one (for most people). The book poses as one possibility a flight to other “money,” not ruling out cryptos.

    The Fed needs to thread a needle between bailing out (preserving social stability such as it is, far down a road of moral hazard now) and price stability. The transmission mechanisms are getting weaker. The political parties dance around all this and pitch their constituencies with quite a bit of rather flimsy marketing/promises. I’m not going to get angry, I want to stay cool and mentally game this out and be robust.

  56. fred flintstone says:

    Fed Reverse Repo up to nearly 1.6 trillion……the taper started long ago and is just now getting the foot on the gas.

    • Auldyin says:

      @FF
      That’s the one to watch, it’s a big tightening in about a year from now and they’ll need to feed it back in via fiscal stimulus to keep the show on the road when normality starts to hit. If QE doesn’t reappear in the next few years we could be into an honest financing regime for the first time in more than a decade. Interest rates should naturally creep back up to reflect international demand for (scarcer non-printed) capital.
      Don’t hold your breath if you’re over 70.

  57. drifterprof says:

    Excerpt from an interview (a few months ago) of Mike Konczal, a director of macroeconomic analysis at the Roosevelt Institute, which is a progressive think tank:

    INTERVIEWER: “… But if you were to kind of say one thing that represents [Powell’s] broader look, what would that one be?
    KONCZAL: I think the Black-white unemployment gap.

    INTERVIEWER: “…And Mike breaks it into four ways Jay Powell is breaking away from the past.”

    1. Labor markets can be much tighter than previously thought (lower unemployment targets).
    2. If the Fed is undershoots recovery actions (QE etc.) unemployment might be higher than expected and persist for a longer period of time with serious negative effects.
    3. Across the board “everything-and-the-kitchen-sink approach to ensuring that the floor of the economy didn’t give in 2020 as everything went into lockdown and that we were in a good position to have big job growth this year.”
    4. “…allowing for periods of higher-than-expected inflation to ensure that we have robust economic recoveries.”

    INTERVIEWER: Got it. Are these radical ideas?
    KONCZAL: I think they’re radical ideas for a really conservative institution, which is the Federal Reserve. And I think Powell pushed it in a more dovish way and in a way that is more generous and better for everyday working people.

    This is where I felt a little shocked and almost fell off the treadmill I was doing my morning jog on. Soooo, Powell, hero of the working people.

    • historicus says:

      Does this guy not know what 6% inflation and 4$ gas does to the “working man”?
      Does this guy not know there are RECORD JOB OPENINGS?
      That low interest rates have proven completely removed from getting people back to work?

      • Michael Gorback says:

        There was a recent interview with the CEO of ZipRecruiter. He said the record job openings is in no small part due to people holding out for WFH positions.

  58. historicus says:

    Powell…..is very interested in “perceptions”
    and he tried to make this “transitory” and make that the “perception”
    BUT, that didnt work.
    next step is to feign “action”…… which will also be a bust, and likely a delaying tactic. Something tells me the Fed enjoys the disparity between fed funds and inflation. If they did indeed, it would look just like this.

  59. Pete Wagner says:

    Can Powell stop Democrat spending? Or commodity price tampering? Or supply chain sabotage? Or price gouging? Or welfare queens from spending all their “stimulus” money at Walmart, Target, etc.? Maybe he’s a magician, or …like big pharma, can just buy some good MSM press coverage? Let’s go, Jerome!

    • Wolf Richter says:

      Pete Wagner,

      He can make borrowing more expensive to where buying a house or a car at current prices becomes unaffordable, and so demand will go down and then those prices will go down to where demand is. And he can raise rates and shed assets to where the bond market and the stock market and the housing market crash, and a lot of the wealth that was made over the past 20 months disappears, and this will tamp down on demand of all kinds, and it gets those people that thought they’d get rich day trading stocks or cryptos back to work, which would end the labor shortage, and companies could then staff up, which would resolve a lot of supply bottle necks.

      If the Fed wants to do this, it can. I doubt it wants to go that far. But it can.

      You see, the Fed impacts the economy through the credit markets. On the way up and on the way down.

      • Sierra7 says:

        Bravo! Mr. Richter!
        “Simplicity, Clarice, Simplicity!”
        (From movie: Silence of the Lambs)

  60. CtKahanamoku says:

    Why is it that every time the 99% get $2.00 extra dollars in their pockets, the 1% find a way to grab $2.50 from them. In my memory, it started in the 70’s when women began to work in droves. Thousands of “extra” dollars flowed into the homes of the middle class. What happened? The price of stuff started going through the roof. Remember the gas “shortages” of the 70’s? Increased utility and insurance rates? I certainly recall my parents complaining about those and numerous other things. Then colleges got on board jacking up tuition. It’s happening now. I just moved from one apartment to another in the same complex to add a bedroom. My cable provider decided that the base service charge of $49.99/month wasn’t enough so they jacked it up to $99.00/month but sent through a note that the federal government was providing cable subsidies to those in need so it’s all OK. Pigs at the troth. It’s pathetic. Inflation? Just a nice Econ 301 way of saying “Greed”.

  61. michael says:

    Hey look the arsonists are now going to fire fight.

  62. OutsideTheBox says:

    “A year from now, as the pandemic recedes, inflation will be low enough that we won’t be talking about it,” according to Zandi. “The hair-on-fire discourse over high inflation is understandable, but it’s overdone.”

    – Mark Zandi

    I tend to agree.

    Discuss.

    • Depth Charge says:

      Mark Zandi works for Moody’s. Moody’s was one of the ratings agencies which were rating subprime MBS as AAA when they were dogsh!t, leading to the financial meltdown. Mark Zandi is a fraudster. Therefore, whatever Mark Zandi says can be laughed at insofar as truth and honesty are concerned.

      • OutsideTheBox says:

        And yet….Moody’s is still in business

        And Mark Zandi still works there….

        Fraud is illegal….

        Zandi has never been convicted of fraud so there is no proof of fraud.

        Just allegations lacking proof plus overheated opinions.

        Whatever his flaws may or may not be….His quote describes the current era to a T. It also predicts the coming year.

        Now we wait to see how the prediction plays out.

        He states a view with which I agree.

        • Depth Charge says:

          And Wells Fargo is still in business after defrauding millions upon millions of clients. Your metric by which you measure legitimacy is busted.

        • OutsideTheBox says:

          I believe Wells Fargo also paid one of the largest fines ever for financial malfeasence. So at least a small bit of justice prevailed.

          But that is a digression….

          The view expressed by Zandi is one I held prior to reading his quote.

          I quoted him because that view was well written.

          He just expressed it better than I was able.

        • TweedleDum says:

          That sir is the definition of confirmation bias

        • OutsideTheBox says:

          TD

          No, it’s not.

        • Swamp Creature says:

          I do all my banking at Wells Fargo. They have never done anything shady with me and their employees are the best of any bank I’ve ever delt with. Before you start bashing Wells, take a look at JPM, BOA, Citi, and Truist banks which in my opinion are criminal syndicates masquerading as financial institutions.

    • historicus says:

      So these people think that if inflation goes back to 2%, all ok?
      Let me see…..6% + 2%…..why that’s 8%. The 6% increase doesnt go away …you just tack on a smaller number.

      https://wolfstreet.com/wp-content/uploads/2021/11/US-CPI-2021-11-10-dollar-purchasing-power-since-2000.png

      Inflation is aggregated and compounded…
      So the 2% on the new number, that just added 6% is really a larger 2% number than the previous 2% amount

      • OutsideTheBox says:

        h

        Because of course prices NEVER go down ! /s

        Prices go down ALL THE TIME.

        RE: Oil, food ( ask any farmer about declining wheat prices), lumber,computers, big screen LCD TVs,
        wages for decades now…..

        • Gattopardo says:

          OTB…

          Prices, in aggregate, at the retail/consumer level NEVER go down. NEVER. Look at the CPI chart. You know, CPI, which totally lowballs the real level of inflation. Economists for some ridiculous reason think 1-2% inflation is DEFLATION. They’ve been calling the last couple decades that. Um, yeah, funny, the data don’t support that.

        • historicus says:

          “ask any farmer about declining wheat prices”

          Wheat at all time highs just under $9 a bushel. Almost double from a couple of years ago.

        • OutsideTheBox says:

          h

          Untrue.

          If you use historical data ( the 40 year graph ), one finds that wheat rises and falls in price.

          Any wheat farmer knows this.

          If one cherry picks a single data point…..that is misleading.

        • OutsideTheBox says:

          G

          Misleading argument.

          The comment was that prices fall.
          And, of course, they do.

          CPI/COL is a completely different matter.

          CPI/COL is highly related to population density for example.

      • COWG says:

        h,

        Exactly why a while back I commented on the absurdity of Powell stating they might want inflation to run a bit hot for a while to make up for the years when it was less than 2%….

        You can’t go backwards from today’s numbers and make up for it with simple math because of the points you make…

    • Swamp Creature says:

      Mark Zandi is a complete jackass

    • Happy1 says:

      As long as you haven’t been buying food, gas, health insurance, a home, college education, or a car in the last 20 years, then sure, I agree.

  63. dd says:

    Hair will be on fire when shadow banking tanks along with the alphabet derivatives and securitizations if interest rates rise. Taper will cause enough problems but the Fed seems to be dealing with that as it has done over the last decade. The goal is to avoid another implosion. Inflation is viewed as the lesser evil. The rest is just jabber.

  64. Citizen AllenM says:

    The level of denial here that tapering is possible is stunning. I think they will have to go to actually have tight money again to beat inflation, and it will take years to get it under “control”.

    But asset prices will seize up and shrink massively before that happens.

    In short, to control inflation, asset deflation must occur, or we are just maintaining the illusion of control of inflation.

    But so many say this can not happen based on the immediate past ten years. It is going to be politically difficult for the old folks to face asset deflation as interest rates rise.

    In short, money can once again earn real interest, but then assets will have to stop floating up on a wave of really cheap money.

    Boo hoo.

    Tragedy abounds.

    • Depth Charge says:

      I am a person in all cash who stands to benefit from the raising of rates. I’m not holding my breath. The people running the show from Congress to the central banks – ALL OF THEM – have proven they don’t give two chits about everyday folks.

      • historicus says:

        Never have fed funds been this far beneath inflation…ever!

        Who knew the Fed would NOT follow the course of the financial history of this nation and its federal reserve?
        For there seems to be many who are certain that measures would NOT be taken to address this inflation…..confident to be long stocks.
        Some mistakenly expected the Fed to raise rates promptly in reaction to this never before seen disparity between fed funds and inflation. But it didnt happen….and is iffy if it will happen.
        So when others feared, others were assured.
        This is why a formula must be in place…a Taylor rule of sorts….
        inflation must never be this far, if at all, over fed interest rates.
        The people who got the whisper…
        “Don’t worry, they wont raise rates. Stay in stocks, you’ll get killed in cash.” had the inside track. A flaw in the system of central banking….I think Hayek spoke of this insider knowledge.

    • Gattopardo says:

      Citizen A — While I think you’re right, the Fed is going to try to have it both ways, to get inflation down to a less politically dangerous level, while not draining down asset values too much. They know a bloodletting beyond a certain point = severe economic consequences, so that’s out. And they know letting inflation rip = same thing.

      We should, therefore, expect them to take a middle ground approach. Not as much tightening nor as fast as needed to satisfy inflation hawks (like me, most of us here), and not so much as to unwind all the asset inflation from the last year or so.

      • Depth Charge says:

        You seem to be suggesting an outcome that’s pure fantasy. Once inflation is raging, there’s only one way to stop it – raise rates RAPIDLY. If you think the FED can just tamp it down a little while maintaining asset price bubbles, you are delusional. The cat is out of the bag.

        • Gattopardo says:

          I’m not suggesting any outcomes. I’m describing what they’ll do — an attempt the thread the needle.

        • Cbop says:

          Raising rates will cause a huge crash as well as bankrupt the Federal government. They can’t substantially raise rates.

          Every 1% raise in rates will increase payments on the national debt by 225B, not including 2021 spending.

          The Fed tried to normalize rates from 2015-2018 as well as sell off the balance sheet from 2008 and failed. The problem has only become exponentially worse.

          They can’t pull a Volcker move because 1) the debt/GDP ratio now is much higher than it was in 1981 and would force the govt to default, and 2) there is too much political cowardice making such a move a moot point

          If they continue to let inflation run hot for a few years to get debt/GDP from 135% to ~75% maybe they could raise rates to 3%. Even then the reality is the Fed can never normalize rates or sell off their balance sheet. It’s an obvious fact and it is utterly amazing how few people realize it.

        • historicus says:

          Cbop
          Sure they can raise rates…and must.
          If the government can float debt to fund gender studies, etc…in Trillion dollar misnamed bills, if the Fed can buy 120,000 MILLION a month in federally backed securities…..they can find the money to pay a fair return on NEW debt issued. Previously issued debt does not get paid a higher return.
          Debt is good, says the MMTers…….so why isnt debt to pay interest also good? The interest payments this time will spent into the economy by the lender, as they should be.
          Our problem is TOO MUCH DEBT. The cause is debt creation SUBSIDIZED by fake low interest rates.
          The solution CAN NOT BE the same as the cause. The cause must be removed.

  65. GSH says:

    Finance, like weather, is a chaotic system. That is, it is not periodic but has some predictability if looked at in state space. You’ll see what are called “chaotic attractors”. The system will oscillate around the attractor but never repeat (again we are talking state space described by the system’s independent variables not time). A chaotic system can have more than one attractor. Sufficient energy jolts (+/-) can flip a chaotic system from one attractor to another.

    We are entering a regime where the fed balance sheet remains the same or drifts down slowly similar to 2019. Interest rates may drift up some until the next shock to the system. Depending on the size of the shock, we may stay with the same attractor or be catapulted to a wholly different regime (e.g. losing a major war).

    But don’t forget, stable inflation is the solution (wealth effect, making debt manageable). I’m sure the fed would like to keep it below 10% to manage the political pressure. Let’s hope the next jolt to the system is minor.

    • historicus says:

      “stable inflation is the solution”

      that is an oxymoron.

      Stable rate of inflation I assume you meant.
      But you and the Fed should rewrite the Federal Reserve Mission statement…
      “promote stable prices”…not a stable rate of increase.
      But the inflation dog is loose now….and hasnt even begun to be leashed.
      The spiral has begun, and inflation is a killer…economically and politically. And that’s why it should NEVER be promoted.

  66. DawnsEarlyLight says:

    We are entering a period of consequences.

  67. Crush the Peasants! says:

    UST yields seem to be heading up. It wasn’t all that long ago that the 10 year yield was 3% – July 1, 2018.

    • historicus says:

      Indeed.
      And the inflation hasnt even begun.
      General Mills will raise prices in some cases up to 20% in Jan of 22
      Every Union in the country contemplating striking…
      Powell has lost the narrative and the perception….
      the Fed is way behind

  68. Duane says:

    I take this inflation talk with a grain of salt. A humongous grain of salt. I didn’t read all the comments and don’t know if it was mentioned, but a report by McKinsey & Co. finds that net worth worldwide rose to $514T in 2020 from $156T in 2000. China wealth skyrocketed to $120T from a mere $7T in 2000, the year before it joined the WTO. Doubt anyone in power wants to kill the goose that laid the golden “asset price inflation” egg.

  69. Rowen says:

    Yesterday, US private equity vulture KKR made an offer to buy out Italy’s largest telecommunication company, a move which would be derided as a security concern if it had been made by Chinese or Russian. Europe will become an economic vassal of the US in the multipolar new world.

    This is why the Fed Spice must flow.

  70. cb says:

    Time stamped. Kudo’s for laying it all out there.
    __________________________

    Wolf Richter
    Nov 23, 2021 at 1:20 am
    You believe whatever you want to when it comes to the Fed. And the Fed can do anything it wants to. This is way too much inflation for the backers of the Fed, and they’re screaming. And the Fed will eventually act. Tapering has started and will be finished by mid 2022 or sooner — meaning the end of QE. Balance sheet reduction and rate hikes are coming after that.

  71. JeffD says:

    What politicians say and what politicians do are usually opposite, and the Fed is most definitely a political institution, despite its official charter.

  72. Swamp Creature says:

    With inflationary expectations rising, I believe long term rates will start going up even before the Fed stops its bond buying program. That will shock the markets and especially the Real Estate markets. Higher interest rates = lower housing prices. The housing prices here in the Swamp are already reflecting this possibility.

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