Powell: Everything’s Moving Much Faster, incl. End of QE, Balance Sheet Reduction, Rate Hikes

Inflation now a “big threat.” After downplaying inflation all year, the Fed is starting to get serious.

By Wolf Richter for WOLF STREET.

“There is a real risk now that inflation may be more persistent,” Fed Chair Jerome Powell said today at the press conference, after downplaying it all year. “The risk of higher inflation becoming entrenched has certainly increased,” he said. “Part of the reason behind our move today is to put ourselves into the position to be able to deal with that risk. And I think we are in a position to deal with that risk.”

The most important thing to come out of the Fed meeting and Powell’s press conference afterwards is that everything is moving much faster than last time, that it’s moving much faster than the Fed said it would move just a few months ago: Inflation, wage increases, ending QE, hiking rates, and shrinking the balance sheet.

Balance sheet reduction now on the table.

“We had our first discussion about the balance sheet,” Powell said. He mentioned this several times in the press conference to make sure everyone got it: The balance sheet run-off is now actively being discussed.

No decision has been made yet whether to start the run-off before the initial rate hike or sometime after “liftoff” – as last time. “But those are exactly the decisions we’ll be turning to in coming meetings,” he said.

Last time, the Fed began tapering its asset purchases in early 2014 and ended QE in December that year. Then the balance sheet remained flat, and interest rates remained near 0% till December 2015, when the Fed hiked its rate by 25 basis points. In December 2016, the Fed hiked for the second time. In 2017, it hiked three times. At the end of 2017, it started its balance sheet runoff in baby steps that didn’t reach full speed ($50 billion a month) until the end of 2018. From the beginning of the taper to full-speed balance-sheet runoff took five years.

Powell said the recovery back then was much weaker, inflation was low, and unemployment was much higher than today, and they could afford to move slowly in removing accommodation and then tightening.

Given how fast the economy has been moving in this recovery, with “growth above potential,” the unemployment rate falling rapidly, and “inflation well above target” – “and this is something we have to take into account,” he said – “there wouldn’t be the need for that kind of long delay” with rate hikes and balance sheet reduction.

End of QE moved to mid-March, from June. Door opened for even quicker end.

The decision to double the speed of the taper, from a $15-billion-a-month reduction of QE to a $30-billion-a-month reduction, was made informally weeks ago, before he’d been re-nominated, Powell said. And that’s why Fed governors had been giving speeches about speeding up the end of QE.

This was driven by the spike of inflation readings after Labor Day as price increases were suddenly spreading “to a broader range of goods and services,” Powell said.

Last time the taper took a year. At the November meeting, the Fed said it would cut its monthly QE by $15 billion a month, and end QE entirely in June – so eight months.

Today the Fed announced that it would double the speed of the taper to $30 billion a month going forward, and would end QE entirely in mid-March– so five months total.

But the Fed also said that “it is prepared to adjust the pace of purchases if warranted by the economic outlook,” which is precisely what it had said at its November meeting. There are only two meetings left before the end of the taper. And the Fed opened the door for ending QE even sooner than mid-March.

“A quicker conclusion of our asset purchases will better position policy to address the full range of plausible economic outcomes,” Powell said in the press conference.

The Fed will end QE entirely before raising short-term rates, Powell reiterated today. But this time around, the process is going to happen much faster.

Rate hikes moved forward, now three in 2022.

In its post-meeting projection materials, the median projection amounted to three rate hikes in 2022, bringing the upper end of the target range to 1.0% by the end of 2022. At the meeting a year ago, the FOMC members projected no rate hikes in 2022. At this pace, the number of rate hikes in 2022 might well increase further.

Inflation is now a “big threat.”

High inflation “is one of the two big threats, the other being the pandemic itself, to getting back to maximum employment,” Powell said.

“With inflation as high as it is, we’ve got to make policy in real time, and cannot wait till labor participation might rise,” he said.

“One of the big threats to getting back to maximum employment is actually high inflation,” Powell said. “To get back to where we were is going to take some time, and what we need is another long expansion,” he said, such as the last expansion “which was the longest in our recorded history,” he said. “That’s what it would take to get back to the kind of labor market we’d like to see, and to make that happen we need to make sure we maintain price stability.”

Isn’t the Fed “behind the curve?” he was asked.

“I wouldn’t look at it that we’re behind the curve, but I would look at it that we’re actually in a position now to take the steps we’ll need to take in a thoughtful manner to address all of the issues, including that of too high inflation,” Powell said.

And amid heavy political pressure, he admitted to some of the horrible costs of inflation that many people have to deal with: “We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation,” Powell said.

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  297 comments for “Powell: Everything’s Moving Much Faster, incl. End of QE, Balance Sheet Reduction, Rate Hikes

  1. zr says:

    Dam Wolf, slow down. I’m like 3 articles behind.

    • roddy6667 says:

      The guy is prolific. He can churn out articles faster than the FED can print money.

      (That’s supposed to be a compliment).

  2. Finster says:

    It sounds like Powell has had his long overdue road to Damascus moment. He’s finally coming to realize what we’ve known for months. Who knows … inflation may turn out to be “transitory” after all … not because it was just in the cards, but because the policy that’s been causing it was itself “transitory”.

    • historicus says:

      Yep.
      We are driving to the abyss, and instead of 60 MPH we are going to go 55 MPH.
      The Fed is slow playing this…..maybe its all about the confirmation, then Powell…..just might act more boldly.
      It was only 3 years ago inflation was 2% and Fed Funds were 2%….and things were in a kind of equilibrium. I applauded Powell.
      Is there a chance he still has an idea of the “right thing to do”?

      • Mark says:

        Is there a chance he still has an idea of the “right thing to do”

        He always has the same idea – It’s to protect the rich and their private banks. Nothing else seems to come to his mind. It’s his job.

        • DR DOOM says:

          It will be interesting to see if the increased tapering forces fundamentals back into the market. Also the “measly” .25% rate hikes are not in stone. He could decide to increase them . He said in the past he would give a heads up to the market. He did just that. 3 rate hikes have now been accepted and is now in the talking heads daily blather on cable. I think Powell believes he can pull off a “soft landing”. I think that history will call him recklessly delusional for thinking a soft landing is possible after being in denial about inflation for so long.

        • Catxman says:

          @Mark

          If I had to peer into his mind, I believe Powell’s first priority is protecting the middle class closely followed by the rich. He probably has a soft spot for the truly wealthy, but the votes lie in a pile with the middle class, so they’re going to get the TLC pampering in any tapering action.

          It’s the poor who can get f**ked.

        • Jeff says:

          Catx – what evidence is there that JPow cares about the middle class? The run-up in housing prices argues to the contrary, especially since people in the middle class can’t just sell their home and live large on the proceeds – they’ll need to buy elsewhere. I’m generalizing and there are exceptions, but you get my point.

      • Bobber says:

        Powell and friends kept rates too low for too long and caused a massive generational wealth transfer.
        There was never anything to admire. It’s a massive failure, stemming from ignorance and false choices.

      • roddy6667 says:

        I picture millions of lemmings slowing down a bit before plunging en masse off a cliff.

      • Jay says:

        They’re slow playing this because they know if treasury yields rise significantly, our annual interest expense will double from $540B in about three years.

        • Bobber says:

          They haven’t done much of anything. Still printing $90B per month and buying mortgages with 3.5% down payment. The Fed has been boxed in by its short term focus. The Long term consequences are now at its doorstep.

        • BP says:

          Why is the interest expense a big deal? We keep adding to the principal and raising debt ceilings. Why should we care if we are also paying higher interest? Fiscal responsibility has never mattered.

        • historicus says:

          548?
          They do 120 billion QE a month
          multiply by 12
          They could shift to interest payments

        • Yort says:

          As Jay inflates away the debt via inflation, he deflates the living standards for the bottom 99%, and at some point the bottom 99% are going to force a lot of very drastic changes into the political system, to the detriment of the top 1%…so what is the point Jay of pissing off the bottom 99%, it won’t work long term…an in what world does the top 1% want to live among the bottom 99% attempting to survive at any cost? Remember, luxury properties don’t exist on the moon or mars yet, and Elon needs another decade and a few hundred billion more from the Fed-Put Stock Market scheme…HA

          Let’s go Jay-Don…

      • Old school says:

        Yardeni updated the total central banks balance sheet yesterday. We are very close to top dead center at just under $31 trillion. Looks like it will top out just over $31 trillion in Jan or Feb. Balance sheets used to be about 10% of current size. I doubt if they ever get ran down.

        Basically means central banks monetized $25 trillion plus of government debt. All central banks say they will never do that, but they lie to buy a few more years of status quo.

      • DawnsEarlyLight says:

        There will be no slowing down. We are accelerating beyond the Fed’s control.

        • Rebel says:

          Bamm you got it. There will be no slowing down. The dollar is hanging on for dear life. With Russia, China, Belarus, Latin America pulling away from SWIFT tons of those dollars are coming back here.
          To much money chasing to few goods. The whole economy has changed it’s spending habits. There is more to this inflation then FED policy. And tapering and raising rates a pathetic quarter point will not reign in inflation. The FED will not let the Stock market drop. Listen to Powell’s words nothing is positive.
          Just look at Dollar Tree the store rose all prices 25% not including the 1.5 to 2 points more your gonna pay in sales tax. So that’s a 26.5% rate of inflation minimum.

    • Fred says:

      This move confirms the policy error, and that a) the Fed is a political institution, b) groupthink is entrenched, and c) they don’t know what they are doing. The Fed should be reformed or abolished.

      • Confused says:

        Fred,

        The Fed’s mandate should be trimmed to maintaining the value of the dollar, and the Fed should be prohibited from engaging in QE activities.

        • historicus says:

          The Treasury mission statement used to have the value of the dollar language
          since removed

        • Depth Charge says:

          Exactly. QE should be abolished forever. It is illegal and immoral.

    • Old school says:

      Market voted. Gold miners up about 5% today. Don’t believe market thinks Fed is in a hurry to kill inflation.

      • endeavor says:

        Market voted. Gold miners up about 5% today. Don’t believe market thinks Fed is in a hurry to kill inflation.

        Gold miners don’t move much if at all on inflation. They smell a deflationary collapse. The wealth transfer is almost complete. Now is the time to buy up the remaining assets soon to be going on sale. Like the GFC. Our owners will never let runaway inflation dent their wealth, I surmise. Wolfe knows this and the reason for his short position.

        • Old school says:

          Miners in the short term is levered bet on gold and gold going up is a vote the Fed isn’t doing its job well

    • gametv says:

      The Fed is just politicized. The reason Powell is now finally admitting there is a problem is that Biden’s poll numbers have plunged and it is partly due to inflation.

      This is not the way an economy should be run. We need to find the modern Volker and put him in charge. A no nonsense leader who will do what is best, not what is popular.

    • Depth Charge says:

      ““I wouldn’t look at it that we’re behind the curve, but I would look at it that we’re actually in a position now to take the steps we’ll need to take in a thoughtful manner to address all of the issues, including that of too high inflation,” Powell said.”

      This guy is still lying through his teeth. His “Damascus moment” would be him saying “yep, we were way behind the curve and need to get in front of it.” This guy is still printing!

  3. 2banana says:

    Market went from -150 to +350 on the news.

    No one believes the Fed.

    If the Fed ever got serious about inflation, the market would be -2000 on the day.

    • Wolf Richter says:

      The market went south from Sep 2018 through Dec 2018 because it finally took seriously that the Fed was actually raising rates and unwinding QE. Markets are delusional much of the time. That’s the fuel they run on. But eventually, they get it.

      • Jack says:

        And then what happened on Dec 2018? The fed reversed course entirely. 2banana is correct. No one actually believes the fed. They know as soon as things go south a little the fed will step in and dismantle it all. It really has no credibility left. 3 hikes (maybe)next year to fight 10% inflation. Bond market hardly reacted and stocks have no choice but to rise. Bitcoin actually rose on rate hike news implying that it’s still better to leave your money in a pet rock than have it in cash

        • Nick Kelly says:

          Then there was a President who lashed out at the Chairman in an unprecedented violation of the oath to respect the Fed’s independence. Just for taking tentative baby steps to normalize things. Now there is a President who has said inflation needs to be addressed.

        • Chris P says:

          100% Agree!!! They lied in the past and will continue too. The fed speak has lost all power they know it all runs on free money. Free money can’t be removed or the house of cards falls.

        • perpetual perp says:

          Pet rock? I like that.

        • Shawn says:

          If the fed has proven anything it is that their policies are reactive, not proactive. In 2018 they were attempting to take a precautionary moves to normalize policy, but caved to the political pressures of that time. We have a real problem now that needs to be addressed. Anyone who is expecting this to play out like 2018 is going to be in for a surprise.

        • Jack says:

          Nick is right. The worst fed president ever appointed by the worst president ever. Then reappointed because they know he can be told what to do. No point to the fed’s existence anymore if they can be manipulated by govt
          If a president can get away at a blatant attempt at a coup then where is the accountability for anyone? USA is lucky it has the world’s reserve currency otherwise it would be another Turkey in the making. Look what happens when you let the president become a dictator and try to run the central bank. It’s a true insult to the forefathers of America.

        • Wolf Richter says:

          Jack,

          “And then what happened on Dec 2018? The fed reversed course entirely. 2banana is correct. No one actually believes the fed.”

          It was in Aug 2019 when the Fed did its first rate cut and ended of the balance sheet run-off. And it happened after Trump had kicked and trampled on Powell on a daily basis for over a year, and yes, Powell buckled and caved in order to hang to his job. But this might not be repeated in 2022/2023 for several reasons, including:

          1. Biden has no inclination to trample on Powell publicly like this.

          2. Biden is feeling the heat from this inflation that has turned into a political bitch, and he needs to get it down, and he needs the Fed to get it down.

          3. Now there is big inflation, and it’s spiraling higher, and for the backers of the Fed, that’s a huge issue. That hadn’t been the case in over 40 years. So comparing 2019 to 2022/23 may be leading folks down the wrong path.

          Everything comes in cycles and nothing is permanent. Just because rates are going up for a few years doesn’t mean that there won’t be rate cuts after that. So we look at the individual phases of the whole cycle – the rate-hike phase right now.

          But in the long run, we’re all dead and nothing matters. So you don’t have to pay attention to anything because you’re going to be dead anyway. And that’s one way of looking at it, because you know the Fed is going to cut rates again sometime in the future, and it doesn’t matter what it does today or in the future, because we’re all going to be dead someday, but that’s not my way of looking at it.

        • Dan Romig says:

          Jack,

          The insult to the Founders of the USA took place before you & I were born.

          Central Bank #1 had a 20 year charter. It was not renewed. When it expired in 1811, the City of London was pissed off. The War of 1812 was the result.

          Of course, this war cost money, and the USA then created Central Bank #2 in 1816 — with a 20 year charter. In 1836, it was not renewed. This pissed off the City of London again. President Jackson had two assassination attempts made on him as a result, but he survived.

          When Central Bank #Federal Reserve was created in 1913, it had a 20 year charter. But then Congress changed the rule of having the Central Bank examined and renewed by themselves on a 20 year basis with the McFadden Act of 1927. As a bonus, Congress got a double-header on 25 February by insulting not only the Founders of our nation, but also insulting citizens who were not yet born (you and me + our kids who are on the way)!

          Nothing but Congress can ever, by US Law, stop or control the Fed from now until we are all dead (yeah, I saw Wolf’s take on Jack’s comment). Hamilton, who was a banker in league with the City of London is laughing at our state of affairs. Jefferson is shaking his head, “I fuc#ing warned you!”

          Wolf Richter is, to me anyway, a modern-day Founding Father of Economic Truth and Justice. Listening to him speak, I hear, “I fuc#ing warned you!”

        • Nick Kelly says:

          ‘the City of London was pissed off. The War of 1812 was the result.’

          London directed the US to invade Canada?

        • Dan Romig says:

          Nick,

          When Congress did not renew the charter for the First Bank of the United States in 1811, Nathan Mayer Rothschild, who was the second generation of the Rothschild banking dynasty, had a few things to say.

          “Either the application for renewal of the charter is granted, or the United States will find itself in a disastrous war.” Congress did not back down and renew the charter. So Nathan declared, “Teach those impudent Americans a lesson. Bring them back to colonial status.” Hence, the War of 1812.

          And with respect to Wolf’s guidelines on comments: history and politics shape today’s “business, finance and money.” Where we are now, is not much different in many respects as to where we were two decades ago. Now, the Fed controls the issuance of the dollar. And power stems from the control of the currency.

          Nathan’s dad, Mayer Amshcel Rothschild, had a few things to say about that subject.

          Wolf has articulated, in no uncertain terms, his view on the subject too!

        • Dan Romig says:

          Centuries — not decades ….

        • Depth Charge says:

          Why is Nick allowed to talk about politics, Wolf? Seems like there is some favoritism going on around here.

        • Nick Kelly says:

          Dan: most wars have complicated causes and assigning blame is complex. In the case of WWI all the powers have been blamed, including Britain! It has blamed for not making its intention to back France early enough. It did in fact dither until the other powers were at war.

          No doubt the US / Britain clash also has complex roots. But one fact is part of the historical record: the war officially began with a US declaration of war.

        • VintageVNvet says:

          This for NK:
          The English/British Royal Navy was clearly preying on all the USA ships they could find on any ocean for several years before any declaration of war,” official ”or not…
          Suggest reading the wonderful Aubrey/Maturin ”saga” mostly trans literations of the actual logbooks of the Royal Navy,,, that makes this very clear.
          And also makes clear the very humbling experience of the Royal Navy ships getting their butts kicked by the new frigates of the USA…

      • historicus says:

        Disagree.
        The market is never wrong. It is the exact reality for the moment.

        • LK says:

          That your way of saying It Is What It Is, Invest Accordingly? Sorry, don’t want to toss what meager savings I have into a fool’s paradise.

        • Old school says:

          Everyone in the market should have a planned holding period. If you are a hedge fund it might be microseconds. If you are Warren Buffett it’s theoretically forever. If you don’t know yours, you will panic when the market price goes against you.

        • Wolf Richter says:

          A market is made up of people who strongly disagree with each other. One side is buying, the other side is dumping the same thing. You cannot have a buy without someone wanting to sell it. That’s what makes a market. Slight changes in who is where show up as big differences in prices.

      • Gilbert says:

        It’s BS, Wolf. I don’t believe the Fed will do much of anything. What they will do is create more inflation.

        • Depth Charge says:

          They are still printing, so yes, they are full of shit. A concerned FED would have halted all printing immediately, and raised rates.

      • Danno says:

        They will “get it” IF it actually happens as he mapped out.

        Charlie Brown eventually got wise to Lucy.

        It’s all just further hot air until Powell actually does something like

        TAKE ACTION.

        Starting tapering IMMEDIATELY, yesterday would have shown some truth. But with it being the holiday season and all the farce continues.

        • Old school says:

          All central bankers in charge when fiat fails goes in the history book in disgrace. Yellen was lucky to get replaced before the catastrophe hits. We will see if Powell stays out of the history books.

        • Wolf Richter says:

          “Starting tapering IMMEDIATELY, yesterday would have shown some truth.”

          They started tapering on Nov 15.

      • DanS86 says:

        Maybe one rate increase then back to QE unless markets force a reversal first! Gov can’t afford higher rates. USSA done!

      • DawnsEarlyLight says:

        Unfortunately, the ‘market’ should not be the focus. It is a production of immense egos and cattle car charisma. The greatest show on earth!

    • historicus says:

      2banana

      “No one believes the Fed.”

      No one believes the Fed will stand to their post and do their duties.
      1/4pt raises? Didnt inflation just go from 1% to 7%?

      • Depth Charge says:

        Right. And they’re forecasting a FED funds rate of less than 1% to end 2022. These guys are so full of shit their eyes are brown. They’re causing inflation while pretending they’re concerned about it, and we have a disingenuous bought and paid for media, and a crooked as hell CONgress giving them free reign.

  4. 2banana says:

    Inflation is NOW running 6%-15% per year depending on how truthfully you measure it. And going higher.

    And, maybe, in a year, interest rates might be bumped at 1.0%.

    This is bizarro out the wazoo world.

    “In its post-meeting projection materials, the median projection amounted to three rate hikes in 2022, bringing the midpoint of the target range to 1.0% by the end of 2022.”

    • Wolf Richter says:

      Yes, it’s pretty crazy. But the process has started.

      • Taanstafl says:

        And it’s not necessary to have 10% interest to fight 10% inflation.

        • Vince says:

          The Fed who cried Wolfstreet

        • Prairies says:

          True, you need 19.5% interest like in 1980. Hold on to your popcorn!

        • LK says:

          If that means I start to get a decent return on savings, then give me a neon-colored jacket and hairspray, let’s relive the 1980s!

          Better than reliving the 1920s.

        • It is necessary to balance interest rates and the rate of inflation, this is what Volcker did. Once you restore that ratio the financial economy and the system normalizes. I don’t think Volcker beat inflation with high interest rates, he restored equilibrium with the only tool for the job. The Fed was the cause then, just like now. FFR had more effect than it has now. In the current context raising FFR will not do anything to yields. It will likely not even slow down the flow of funds to the trading desks. At 20% YOY what’s a quarter point on margin? One analyst did note that raising rates is going to hit Main St, (hard). When the cost of borrowing money goes up, inflation goes up? Powell says this is not wage inflation. He was concerned that it might be, [this is asset inflation]. Yes we pump the markets thats what we do. Isn’t it wonderful we can blow the asset bubble without the real economy taking a hit? The Q&A was pretty disengenous, but he did sound like a concerned citizen anyway.

        • DawnsEarlyLight says:

          Depends on who is paying the difference.

      • Gilbert says:

        “It’s pretty crazy. But the process has started”

        Wolf will go down in the history books as a true believer in the Fed’s forward guidance and will more than likely be red faced when their balance sheet doesn’t shrink appreciably. The fed can taper all day long but until their balance sheet decreases it’s just more BS from an organization that stopped caring about the middle and lower classes long ago. Not that they ever did care since their bosses reside on Wall Street.

        • Auldyin says:

          @G
          In the West, absolutely everything about everything is PR BS for the MSM Soap Opera that we all live in.
          It is all literally ludicrous at any kind of rational level.
          They pontificate about tapering as if it’s a big deal to keep your eye on, without a word about the huge growth of reverse repos which nullified QE long ago and tightened the money in the market, which will put a big hammer on inflation in a few months.
          Again, talk of reducing the balance sheet takes place without any talk of the raised debt ceiling which would mean that the Fed and the Treasury would be IN COMPETITION to sell treasuries into a market that might not want them at miniscule interest rates. Can’t happen it’s a soap opera even if they run down reverse repos which would be equivalent to doing QE again.
          UK voted 8to1 to hike 15bp today in our soap opera because all credibility would be shot if they didn’t. At close £+0.5% FTSE+ 1.25%, Interesting to speculate how much they would have fallen if BOE had continued the BS any longer.
          22 is going to be a whopper of a year W better take his vitamin pills to keep up.

      • Yort says:

        If inflation does get out of hand, the Fed will be forced to drive interest rates way higher than 1% in short order. That said, I’m 50/50 confident that the Fed will not only buy bond ETFs to stop market volatility, but will also buy stock ETFs to keep the stock markets from collapsing into chaos. The question is how low does the market need to drop first before the Fed panics, and buys stock ETFs, like Janet proposed a few years ago when she ran the Fed.

        Is if moral…of course not, but the Fed is a puppet to the big money elites, and there are not enough real, physical income producing assets to hold all the trillions they have accumulated, therefore if the Fed does not buy stock ETFs, then that “paper wealth” gets destroyed, and the elites will retaliate in ways that would put the Fed’s future at risk. Lets be honest, we do not live in a real democracy, we live in “monopoly”, and those who own all the spots on the board are way, way more powerful than even the Federal Reserve. Plus the Fed can always say they are saving mom and pops $20,000 retirement portfolios…just like they said they are printing money to create minimum wage jobs (that can’t keep up with inflation, but that is too complex for most to understand), so yes, perception is the Fed’s main game, and they are the best at deceiving most of society to the benefit of about 100,000 super wealthy humans spread across the globe living god level lifestyles inside their “Elysium bubbles”…

        So the question remains, when does the Fed step in to save the elites? Timing is anyone’s guess…and a lot of money will be made during the next super-wealthy bailout. That said, I suspect this could be the last end-game event as I think society will finally understand the elites are cheating our current “monopoly” era…

        • Depth Charge says:

          “If inflation gets out of hand…”

          If? It’s ALREADY out of hand. Waiting for hyperinflation is too late. This is an emergency and they’re not treating it as such.

          Ever notice that at the first hint of a stock market wipeout, here comes the FED with “shock and awe” money-printing to rescue the rich in a matter of a few days, but when massive inflation starts wiping out the poor and middle class they do absolutely nothing, then only when it gets so bad they can’t hide it they ‘start having a conversation about having a conversation about a policy shift in the future to address this “transitory” inflation that is getting a little persistent?’ These guys are f**king scammers.

        • Depth Charge says:

          “That said, I’m 50/50 confident that the Fed will not only buy bond ETFs to stop market volatility, but will also buy stock ETFs to keep the stock markets from collapsing into chaos.”

          They just said they’re going to speed up the taper, yet you’re saying they are going to not do that and instead will start increasing their balance sheet? Sorry, I’m not buying it. Even the FED isn’t that stupid. Their balance sheet is public info.

      • DawnsEarlyLight says:

        Sounds like the old game ‘Mouse Trap’.

    • Jack says:

      So S&P 5000 by year end and will be at 6000 next year. 1% over the course of a year to fight 10% inflation. What a joke. No choice but to buy stocks.

    • Old school says:

      Real world example in Raleigh is residential electrician can get $165 / hr for work as money is freely flowing. During the housing bust there was no work for anyone in residential housing.

      • Nick Kelly says:

        That’s ridiculous. Short of upgrading the service , residential wiring can be done by an apprentice or a handy home owner. There are DIY manuals on this. It’s perfectly legal and safe as long as you follow guide and NEVER do anything without main breaker off.

        Around here electrician is easiest trade to hire. Plumber tougher.

      • rick m says:

        1989 Manhattan $200/hour in some buildings. $165 Total per hour charge for a service electrician and helper on a call out is true in some places, but not around here.many jurisdictions don’t allow homeowners permits on electric or plumbing. It’s something insurance companies fine-print you out of your house coverage with, if they can document substandard wiring by unlicensed, not conforming to code, etc. Many local inspectors are partial to their pet contractors, and anybody else can’t work profitably there. And that’s leaving the historical authorities undiscussed, such as in the French Quarter or Munger Place in East Dallas, or Tuxedo Park NY(the worst) $165 may end up being a bargain.

    • Yossi says:

      In Israel, the reported housing inflation is 10%/year ..

    • Swamp Creature says:

      David Stockman posted that inflation is running at 13.6% right now. I say that’s about right. For most people it’s running closer to 20%. For me and the minority of people who live this lifestyle its running about 3%. That brings the average down, I believe Wolf’s data comes from government sources. The government wants to keep the rate as low as possible in order to screw SSA and other pension receipients with respect to their COLAs.

    • Mike says:

      Ya maybe 3 one percent raises would of been okay..

  5. PNWGUY says:

    At about 37 minutes in, Powell shared why labor participation is dropping:

    1) workers are staying home due to fear of getting covid

    2) “people tell him” workers are dropping out because their stock portfolios and houses have increased in value, and they also received government transfers.

    For me, #2 was a big reveal. The Fed is acknowledging the possibility their wealth effect strategy is actually causing labor shortages, which will drive wage inflation.

    I think that’s as close as Powell will get to saying: “Mission accomplished, we achieved moderate wage inflation, now we can bring down stock prices and real estate prices to cool the labor market and prevent runaway wage inflation.”

    • Djreef says:

      Unfortunately, the stockbro rubes will never get this – until it’s too late.

    • historicus says:

      In previous testimony Powell referred to these impacts on unemployment

      generous federal payouts
      Covid fears
      Child care issues
      Looking for better jobs.

      Now, the follow up question I would hoped to be asked..

      “Why do you think zero interest rates improve or have any effect on these factors?”
      then
      “The inflation you have promoted with those rates now PUNISH the working/earning/saving members of this society that turn the lights on and fill the shelves of this nation. Thus you attempt to help the idle, but punish the workers.”

    • doug says:

      ‘people tell him’ is the functional equivalent to ‘people say’. This is a method to put an opinion before the public which has no data. It is a tell alright, and the tell is: He is BSing with zero data to back it up.

    • Harry Houndstooth says:

      PNYGUY-

      Thank you !

      HH

  6. ivanislav says:

    Dot plot is 0.9% interest rates for 2022 IIRC. “Fed getting serious”, what a joke. You’re the finance guy, not me, but from my limited vantage point that interpretation is totally baffling.

    To me it looks like they’re intentionally going to remain behind the curve to reduce the debt burden and reset society at higher nominal price levels.

    • Red says:

      Same for a second I thought I had read a MSM article.

    • historicus says:

      1/4 pt raises are nothing in this environment.
      Rolling off the balance sheet, that could be a big factor.
      But, I expect nothing but deliberate SLOW PLAY from this inflation promoting Fed.

    • Franz Beckenbauer says:

      People don’t understand what “The FED” is. As the author of ” The creature from Jekyll island” said, neither is it “federal”, not are there any real “reserves” (since the gold is held by the treasury) and it definitely is not a “system”

      The Fed is owned by the banks. Once you understand that, the rest becomes clear.

      • Wolf Richter says:

        Franz Beckenbauer,

        Common misconception here. The Fed is a hybrid organization.

        The Federal Reserve Board of Governors is a government agency, and all its employees are federal government employees with a government salary and a government pension, including the seven members of the Board, including Powell and Brainard. The seven members of the Board are appointed by the Prez and confirmed by the Senate.

        The 12 regional Federal Reserve Banks, such as the New York Fed or the San Francisco Fed, are private organizations that are owned by the largest financial institutions in their districts. All their employees are private-sector employees.

        The FOMC – the policy-setting committee – consists of the 7 members of the Board of Governors (federal employees) and the 12 governors of the 12 regional FRBs. The governor of the NY Fed is in a permanent voting slot. The other 11 governors rotate through voting slots; they vote one year but cannot vote the next.

        • Tony (one of them) says:

          @Wolf
          so you are saying that the banks get to run the fed and they have kindly arranged that the public pay the wages….

          In all this debating (fascinating comments) almost nobody seems to worry about where government spending will come from if the fed stops printing. I wonder what proportion of their output juices the bubbles and how much is to cover the govt.

          I guess if they wound down their public printing (I’m not sure that will happen) then more buyers for bonds will emerge in belgium and the cayman islands.

      • Ron says:

        Sounds to me like England runs fed

        • VintageVNvet says:

          ”City of London” Ron, as just one of the very very ”duplicitous” ”entities” that are now, and have been for many centuries the ”factors” or ”factotums” of the various and sundry families that actually own most of the wealth in our current world…
          Absolutely NOT to disparage any ”ethnic” group, etc., etc., as THE CITY does not discriminate, AT ALL,,,,
          Only ”money” counts, and even though some ”ignoranti” would apparently prefer to have and do have some sort of ethnic focus,,, those some ones need to get over it and understand the works of various various anti-ethnic type folks trying to focus hostility away from our owners,,, most just do NOT understand how prevalent are ALL ethnic groups at all levels of the families that own our world…
          SO FAR.

        • Auldyin says:

          @VV
          ”City of London”
          They’re a little State within a State with their own ‘special’ privledges.
          They won’t like you discussing their dealings in public. Watch your back.

        • Nick Kelly says:

          At the end of WWII the UK was bled white but still on the hook to help feed Germany. It would also play a huge role in the Berlin airlift. Lend lease ships were turned around in mid Atlantic as soon as surrender signed. The UK had to beseech the US for a grudging loan of 300 million. Bread, which had not been rationed during the war was rationed. At the wedding of Princess Elizabeth many of the gifts were of food, most later distributed. Rationing of basics would not end until 54.

          Fast forward 30 years and it was the US that forced the UK to accept conditions for the IMF bailout.

          If the UK is the puppet master controlling the US they weren’t doing a good job.

        • Nick Kelly says:

          Fast forward 20 years from 54 to 70s

    • J Vermeer says:

      “They’re intentionally going to remain behind the curve to reduce the debt burden and reset society at higher nominal price levels.”

      I think so too Ivan, and this includes the price of stocks, once they jiggle and bounce back. This means that if we sell-off now we’ll become locked
      out of the markets. It’s happened before in my lifetime. Along with 18% mortgage rates.

    • Bathelix says:

      Exactly … I could tell you back in 2010 how this would go. We are just now at the perfectly predictable end where they are trapped but we always knew they wouldn’t do anything. They might slowly raise a few .25 points every six months to pretend they are doing something if inflation really keeps going … but when it crashes things then they will have their excuse and say “well we want to raise but we can’t now so you’ll have to deal with the inflation or everyone loses their jobs”

      I just hate it so much because it was all so perfectly predictable and if we had just taken a sliver of the pain that was justified after the 2008 debacle we could have been past in in a few years and back to a real market we could all have confidence in and savers could have their 5%.

      • Fat Chewer says:

        I doubt that a 5% interest rate on my savings would have been a great consolation after extreme austerity took my savings to zero.

    • Harvey Mushman says:

      1% rate hike for 2022?
      Makes me think that the Fed still thinks the inflation is transitory. However, for political reasons they need to show that they are taking inflation seriously.

      2022 should be an interesting year!

    • Lawefa says:

      They lost me on “fed getting serious”. Fed is a clown show which continues to prove out every time they push Jerome forward to spew his nonsense.

  7. David Hall says:

    During the 1920’s the Weimar Republic printed money to pay its bills. It destabilized Germany.

    Venezuela increased taxes and seized multinational oil company investments in the Orinoco Basin heavy oil trend. They subsidized the price of gasoline below the cost to produce it. People had plenty of paper money. Food was in short supply. Venezuelans went to neighboring countries to find work until the pandemic put them out of work.

    • TimTim says:

      Venezuela was a prosperous nation, or as far as I was aware in the 1990’s, was thought to be.

      Nuts, just nuts.

      • Xavier Caveat says:

        Venezuela went to shit on Black Friday on February 18, 1983.

        Used to be a rock solid 4 bolivars to the $, but things have gotten a little out of hand since.

    • Franz Beckenbauer says:

      “destabilize” is putting it nicely.

      Actually, very nicely.

      Coming to your country now. Good luck.

    • perpetual perp says:

      You’ve got the sequence wrong David. The German hyperinflation episode was caused by what always causes hyperinflation: A total collapse of essential supplies. The Versailles treaty caused the hyperinflation. “You cannot buy that which is not for sale,” is always the cause of money printing. It’s a waste of good paper. Austerity policies, including capital controls that would allow raising real taxes on wealth (aka Iceland example)k would be the correct methodology.

      • Xavier Caveat says:

        Venezuela didn’t run out of oil in 1983, their essential supply of wealth.

        It’s been almost 40 years of hyperinflation since, how come?

      • Fat Chewer says:

        You have left out an important detail. Germany was forced to pay the war reparations in gold. As soon as everybody realised that, everyone became a gold bug and the price rose accordingly. Germany had no other option but to print money to buy the gold and they could care less if that deflated the currency. The situation was resolved when the Allies realised they were getting trillions of worthless marks for their gold.

        • Gramarly says:

          *devalued not deflated

        • Xavier Caveat says:

          Not true, there was no provision that Germany pay war reparations in gold.

        • Nick Kelly says:

          I doubt that the French, always suspicious of paper money took
          anything other than gold marks. It was French redemptions of US$ that made Nixon close the gold window.

          A lot of reparations were paid in kind, eg coal and timber.
          One crisis was provoked by German failure to deliver 100K logs.

          Trivia: Germany had their own calculations and wanted credit for their fleet, interned, some would say seized, at Scapa Flow until scuttling itself after about a year. There is a good photo of the battleship Bayern just slipping under which looks sad even now and no doubt stoked passions for Round Two.

    • Yort says:

      Food insecurity is a concern across the entire globe at the moment, as Bloomberg reported recently that global food prices are up 27% over the past 12 months.

      I’m involved in Agribusiness, and can tell you that right now in America, farmers can only lock in 50% of the needed inputs to plant crops in 2022, as there is a shortage of the inputs needed right now, and for some reason that information have not hit MSM, perhaps in order to not create panic. And the 50% of inputs that are locked in are 25-30% higher than 2021…so hard to predict how much higher prices could be next year…

      It could be a rough few years for the entire world if we do hit regional food shortages, as “Egyptian Summer Uprisings” can occur anywhere when people get too hungry, as lets face it, food is one of the few things we actually need to survive (plus some energy, shelter, basic healthcare). And human tend to get “Hungry/Angry =Hangry” when hunger becomes an issue, and desperate when starvation hits as most people will do anything to survive dying of starvation.

      I grew up poor, food insecure to the point where we hunted for meat and not sport, and so I really, really feel for those who have trouble affording high food inflation, which I consider a crime against humanity as this could have all been easily preventable, IMHO…

      It is surreal for me that so many across the globe will physically suffer from the ignorance of such a small handful of individuals…

      • Auldyin says:

        @Y
        Russia came from nothing to world no2 grain exporter last year thanks to earlier US sanctions which pushed them into home production. They’re not going back now. Jim Rodger spotted it at the time and said get into Russian agri.
        What are they sanctioning this year? Oh yeah Huawei and China tech, I wonder..

        • Nick Kelly says:

          Went from nothing post Soviet. Pre WWI Russia was a major wheat exporter. Within a few years the Bolsheviks produced Russia’s first true Asiatic-type famine.

        • Auldyin says:

          @NK
          And it’s all non-GMO, that’s the real winner for them in the post- Frankenstein age.

  8. Bob Jaynes says:

    I run a small construction business and don’t even try to bid anything anymore. We gave retention raises mid summer and will likely give more raises in January. Customers ask me what it’s going to cost and all I can say is less than it will three months from now. Materials are unbiddable. We run from supplier to supplier just to keep a job going. The inefficiencies in all construction is adding massive amounts to the cost to build anything. I also own rentals and will be giving warning notices this January that in a few months expect steep increases in rents up to the CA max of 10%. Everything we pay for, every service, every light bulb, every man hour costs more, a lot more.
    On a side note, despite cnbc’s wacko Cramer saying things are never better and even having the audacity to say it’s like the roaring 20’s, we’re doomed. Does this man not realize what also happened in the 20’s? This is not a healthy market and won’t end well.

    • LK says:

      Cramer is a hack, a carnival barker who found his calling in yelling at a camera about markets & finance.

      • Xavier Caveat says:

        Cramer greatly reminds me of Soupy Sales, except Soupy was only in it for the laughs.

      • Yort says:

        Cramer reminds me of someone with a split personally, as sometimes he says things well thought out and logical, and then sometimes he channels his insane “Tommy Lee”…yet I suspect it is for eyeballs and entertainment, which is high odds of what Tommy Lee is selling when he cheerleads SP500 to 3 million.

        Maybe I’m not quite “right”, but I do real a lot of the crazy stuff for amusement, and sometimes I force myself to read the opposite of what I think at the moment as over the years I have learned that most biggest mistakes was over-confidence, and not listening to things that may trigger my emotions. Socrates once said “I know nothing but the fact of my own ignorance”…so true as one ages, wisdom is acknowledging our own ignorance and being open to all input and data, while attempting to control our human illogical emotions like a Vulcan Spock…

        • joe2 says:

          Sometimes I try to read the opinions of my philosophical opposites to keep a balanced perspective. But I find it too much work to sift through the poor propaganda and lies. Really good propaganda on the other hand is hard to spot.

          For example, I place a lot of weight on comments like yours and that of Bob Jaynes – ground truth – rather than the opinion of someone selling something. Please don’t tell me you are a skillful propagandist.

    • Mi Ego Amigo says:

      Thanks for this. My husband and I are in again, one of the most inflated price markets in the country and are just desperate to buy a home. We are willing to live in an apartment another year juts because any decision that we make will cost us a lot. Do you have any advice on moving forward in the housing market?

      • Seen it all before, Bob says:

        My beliefs:

        Interest rates are still very low. Locking in at 2.5%-3% for 15 or 30 years is an abnormally low anomaly IMHO. (Especially since inflation protected, government insured I Bonds are paying 7.1%)

        1) Find a home that you qualify for in an area that you can live for at least 10 years. Historically, even after a crash, home prices recover after 10 years. If after 10 years you want a different area or a smaller/bigger house, ladder up with any gains and paid-off equity you have.

        2) Put aside 1-3 years of mortgage payments in cash or safe insured Treasuries. Never lose the house to foreclosure or sell the home at a loss without buying another home. With a foreclosure, you will lose any equity or down payment and likely not qualify for a mortgage again for 7 years. Almost 10M people foreclosed from 2009-2012. Some are now homeless and some are more innovative and live in vans down by the river. Most have been renting because they could not get a loan to get back in the market at the best time ever to buy a home.

        3) Enjoy your new home and only read RE news or Housing blogs once a month at most. You can’t enjoy your new home if you are stressing about it.

        A primary home is not an investment. It is a place to live and a hedge against inflationary rent. Eventually, it is owned by you. Your kids should the primary beneficiaries from any gains in home value after you have left this earth. It shouldn’t matter if the home gains or loses value as long as you can make the payments and not lose it.

        If you can afford it and have enough cash not to lose it, Go For It and buy and hold for at least 10 years at these incredibly low rates. Otherwise, keep saving and wait. Every month you wait, the more savings you will have and at this point, in my opinion, home prices will likely level off or drop (maybe a lot, maybe not so much) .

        Good luck!

        • joe2 says:

          Don’t forget taxes. With everyone focused on “2.5-3%” mortgage rates they forget that taxes can add 2.27% (Illinois) and 2.49% (New Jersey) of the appraised total price of the house annually.

        • Mi Ego Amigo says:

          Great advice. Thanks Bob!

      • Old school says:

        Step 1. Are you certain you will be living in the same location for five years. If not just rent.

        Step 2. Determine your monthly budget for shelter. How much house can you afford including tax, insurance and 1% of house price annually for maintenance.

        Step 3. Compare rent payment vs mortgage payment without the tax, insurance and maintenance. Which is cheaper?

        Note:. Over the long term house appreciation should cover you tax, insurance and maintenance. If you rent, save the money you didn’t use for down payment.

        • Seen it all before, Bob says:

          Old School,

          I like your points. Very concise.

          I like Step 2. Figuring out the entire payments (mortgage, insurance, taxes, 1% maintenance) as a monthly payment.

          Step 3 was difficult for us on the first home. It was not clear cut. Our monthly payments increased steeply because:

          We were saving by renting a 1 bedroom apartment. We purchased a 3 bedroom house to plan for future kids. Rent was $800/month for the apartment while the house payments were close to $2000/month. Rent for the same house was about $1500/month when we purchased. By the time we had kids, 3 years later, the rent would have been the same as our mortgage. We gambled and won.

          We did earn enough and had enough savings (with 1 year of payments in the bank) to afford the house but for the first 3 years, we would have paid less renting. For the next 8 years, owning was cheaper than renting. Then we laddered up with very little in gains but 11 years of equity and never left the housing market.

        • Seen it all before, Bob says:

          One more point.

          Our house was underwater from 2010-2013.

          I stopped reading Housing Blogs and RE reports during this time and everything was good. 3 years went by quickly.

        • Wisdom Seeker says:

          Remember to include utility payments in the “monthly nut” calculation.

          Water/sewer and gas/electric can be squeezed somewhat in a pinch, but only to a certain point.

          The cash reserve is a big deal. There will be times when your house “owns you”, but once you “own” the house it’s a tremendous boon. And the financial discipline that you learn along the way is one of the greatest skills you’ll ever acquire.

      • Augustus Frost says:

        Sounds like you need to move. I’d never turn myself into a debt slave to buy a house.

        • Seen it all before, Bob says:

          2021 Update.

          The current house is paid off using 28 years of equity and laddering.

          Total housing expenses per month (including the 1% maintenance) is less than $1000/month.

          I can live with no rent worries for the rest of my life (Though I suspect taxes, insurance, and maintenance expenses will increase this number). Similar house in the neighborhood are renting for $4000/month and rising.

          Being a debt slave wasn’t too bad for 28 years.

        • Mi Ego Amigo says:

          With these home prices, we’d be paying top penny anywhere we move to. My job is depended on location. Plus, its taken me almost 20 years to move back home, so I am not leaving.

      • Depth Charge says:

        This is THE WORST TIME IN HISTORY to buy a house. That is all you need to know.

        • Mi Ego Amigo says:

          I keep telling myself that, it’s just gets hard sometimes living back in an apartment with a dog and a 2.5 year old running around causing mayhem.

          I’m just trying to keep things in perspective. This blog really helps, I’ve seen this buying onslaught before with the last recession.

    • Swamp Creature says:

      Cramer was on Mad Money this evening saying that investors had to re-evaluate their investment strategy in light of the fact that the Fed had decided to tighten prematurely.

  9. Red says:

    Cramer is a shill.

    • Ron says:

      Part of crooked system ,smart enough to take advantage,bought shitcoin sold rolled into a farm purchase ,very smart been on Wall Street to long games system

  10. Red says:

    This lack of meaningful interest rate hikes has me in a morbid state. We skipped a recession so what has gone up twice as hard will fall twice as hard.

    • Trucker guy says:

      That’s my main sentiment on the economy right now. We should have let the pullback happen in March 2020. Maybe then we wouldn’t have the supply chains issues and sweet bubble we have now. I don’t think most people in the US faced much financial hardship as a result of covid. But the financial stimulus was substantially greater that what was warranted. Now the JIT logistics mindset has to play catch up with insanely high demand along with scaled back production. But that’s the kicker JIT doesn’t align itself with catching up or falling behind.

      My brother had his student loans forgiven a few days ago. A day later, literally, he has a brand new 60k dollar car sitting in the driveway. American consumerism is an unstoppable god.

      • COWG says:

        Did he tell you that the way he looks at it, he got a “ free” car ?

        Reminds me when I tried to tell my daughter to decrease her tax withholding to have more disposable cash per month…

        She said, “ no way, if I do that the IRS won’t send me as much money at tax time”.

        I just looked at her and said, “ you’re so pretty”.

        • Anthony A. says:

          Your daughter must be my daughter’s long lost twin sister.

        • Pea Sea says:

          She probably understands that it’s her money either way, but prefers the forced savings. Perfectly rational, especially when the conventional way of saving doesn’t pay any interest either.

        • Wisdom Seeker says:

          That approach is okay when inflation is low but with inflation at 7-10% it’s a return-free loan to the IRS.

          Was just realizing this myself when contemplating my tax situation for 2021…

      • Ron says:

        Total socialism this country is f…….. up

    • Old school says:

      There are a few things that can be valued fairly closely like DUK our big local regulated local utility. It as a PE of 27 and pays out all virtually all earnings with a 3.8% dividend.

      It has a lot of debt and very little growth. So this is where the Fed has taken us that any new money put into this retirees go to stock is most likely going to give you a negative real return til you kick the bucket.

      • Augustus Frost says:

        A P/E of 27 for a utility is a nose bleed price, “justified by TINA due to artificially cheap money.

  11. Wisoot says:

    Mid March for QE – what is actually meant is Jan. There is no wriggle room.

    In UK banks announced hubs would open to allow people access to withdraw cash where branch shut downs have occurred over last 10 yrs and restricted access. Post office will run the hubs. Safe to assume UK is one controlled entity.

    Blackstone Vanguard is in control – dictating Gov policy. Bending the hand of govs. This is how the Roman civilisation collapsed. Too much control in too few hands leaves blind spots ripe for the picking. The rollarcoaster begins. See you on the other side.

  12. SpencerG says:

    “Welcome to the party, Pal!”

  13. Am I correct to suggest that; if interest rates return to where they were 30 years ago ~ 15%, then the United States, as well as all European governments will be very effectively; bankrupt?

    • Winston says:

      Raising the prime rate should crash the massively overpriced equity markets which, to illustrate the farce, maintained record highs during a national shutdown.

      From treasurydirect:

      Interest Expense on the Debt Outstanding

      The Interest Expense on the Debt Outstanding includes the monthly interest for:

      U.S. Treasury notes and bonds
      Foreign and domestic series certificates of indebtedness, notes and bonds
      Savings bonds
      Government Account Series (GAS)
      State and Local Government series (SLGs) and other special purpose securities.

      FY2021 $562,388,232,682.17

      ———-

      From Forbes:

      What would happen if interest rates rose by, say, three percentage points for both short-term and long-term interest rates?

      The maturity of federal debt ranges from next week to 2051. Thirty percent is due within the next 12 months, with another 13% in the following 12 months… our hypothetical increase in interest rates will boost net interest expense on 43% of the debt in the next two years

      ———-

      Calculating five times that (15%/3% = 5), interest payments could rise by 215% to 1.208 TRILLION.

      • historicus says:

        Winston
        and this is why irresponsible debt creation, subsidized by fake interest rates is damaging and dangerous.

        Now we have people saying “You cant raise rates, it will be too expensive to service the debt.”
        But, how can the CAUSE of the predicament be allowed to continue?
        The COST OF DEBT creation must be real, not subsidized to absurdity, followed then with fake surprise at the magnitude.

        The CAUSE can not also be the SOLUTION.

        • Winston says:

          Yep, an analogy describing the “cure” for the GFC v1.0: One doesn’t actually cure alcoholics suffering DTs by giving them more alcohol. You’ve addressed the symptom, but not its cause.

          GFC 2.0 will be “glorious” to quote a Klingon commander from the original Star Trek series.

        • LK says:

          Geez, you make it sound like our economy is being run by Marvel Comics. Like we have a world-changing event every few years.

          “GFC II — This Time, You Better Hold Onto Yo’ Ass-ets.”

          Followed by GFC III, kicked off in 2029 when Jr. tries to be like Daddy — stomps his feet and holds his breath into a government shutdown lasting months.

      • Winston says:

        OOPS, that calculation is incorrect. Also from Forbes:

        An “average interest expense of about 1.5%” on the debt last year. Raise that 10 times to 15% on 43% of the $29 trillion national debt ($12.5 trillion) would raise interest payments by $1.875 trillion.

        • Winston says:

          To be clear, only “average interest expense of about 1.5%” was from Forbes. The rest was mine.

        • COWG says:

          Winston,

          I believe Wolf covered this before…

          Whereas only NEW debt instruments would have to be sold at higher interest rates…

          The OLD debt would retain the low interest and current debt service for those instruments previously sold…

          Those interest rates wouldn’t jump to a higher rate if the Fed raised rates…

    • Ron says:

      GREAT RESET!!

    • Bathelix says:

      Yes … but there is no way it would go up to even half that unless the Fed actually lost control of rates somehow. The market would fall 50% if rates were raised to say 2-3%ish maybe. More would completely crash it so it would never get close.

      • Ron says:

        Bond market correction will control interest rates ,I believe it’s already in the cards ,can’t blame fed reserve they don’t control bond market,just manipulate it

    • Old school says:

      We might be bankrupt now as I am not sure that country can deal with a market interest rate with a hard currency. Fed has the magic of elastic money, not that different than Venezuela if they abuse the currency and destroy investment.

    • Augustus Frost says:

      Effectively bankrupt now and have been for years.

      Yes, I know these governments borrow in their own currency and can “print” to pay it back, with interest. If that were the proper definition of solvency, any country borrowing in its own currency will be “AAA” forever.

      When someone has to borrow to pay interest, they are effectively bankrupt.

  14. LordSunbeamTheThird says:

    I think movements to address inflation will be in 2023 for the simple reason that raising rates next year crashes everything!! People can’t pay more for one.

    However, the other option, raising rates after an inflationary hot year (2023) lets you land hard with a smokey burnt face in 2024, debt as a share of GDP is way down, debt loads are bearable and the long 50 year cycle can begin again and maybe retirees got wiped out but most are broke and anyway houses are up.

    People aren’t panicking yet, we’re the ones reading economy websites, the normal punter just thinks wow I’m doing great this year. You take a look at wage growth in the US at around 4%~ every year disguised by emerging market production, and tell somebody hey if you are earning twice what you did 20 years before, you didn’t get a raise. Nobody wants to hear that and they reject it. Tacobell workers don’t think oh no its a loss in real terms wtf? of course they just see how immediately great it is and thats always been the case whether its a Malay getting ripped off with a futures contract for rubber or some couple getting stuck in credit card debt at 20%.

    My point is that inflation has a sweet spot for the general population before they twig its a ripoff and the US in that sweet spot now (as the Fed has given cover to the other central banks).

    • phleep says:

      Good point, soft-pedal the brakes awhile longer, then in 2024 party like it is (Greenspan rate hikes in) 1994. Investor mania then was so amped, despite the ensuing fall of Orange County, Mexican peso crisis, (thence Asian crisis,) etc., it didn’t get dampened until 2000-2001. People like to feel amped, and keep feeling that way.

      COVID’s screeching halt to sentiment (and operations) necessitated a fast goose on the gas pedal (however sub-optimal the time to do so). Now, Powell seemingly needs this fast touch on the brakes but not too fast, smoothed with lots of jawboning, as the overstimulated investor must be handled with kid gloves, lest the polarity of the bipolarity switch down hard. Meanwhile the hoped-for normalcy builds up.

      But of course there will an exogenous shock, behold a dark swan ….

    • perpetual perp says:

      I’m pretty sure taco bell employee spending is not a significant driver of anything. You want villains? Look to the billionaire class and the shareholder class which stopped investing in anything real since the first round of Reagan tax giveaways.

      • Ron says:

        It worked trickled down ,to china

      • Augustus Frost says:

        The country has been experiencing social decay my entire life, years before the Reagan presidency.

        This decay somehow led people to believe they could consume indefinitely above their means which is ridiculous. The 5X increase in the federal debt since 2000 is also an indication of decaying society. It’s not just the rich taking everything.

        • hillcountry says:

          No kidding. Half the middle-class (just a swag) is supporting the other half – medical morons, gov’t minions, useless professionals et.al. – non-productive drags. Plus supporting billionaires and welfares and the pestilence of usury. Let it all fall, sooner the better.

    • COWG says:

      LSTT,

      There is no sweet spot for inflation, period…

      Inflation is the loss of purchasing power…

      Meaning as you go forward, you lose… unless you have an equal and balancing deflation…

      You cannot predict forward inflation… you will always be chasing it… for instance, if you received a pay raise for last years inflation, you have to suffer through next years inflation loss of purchasing power before you can try to get a pay raise to cover it… and so on going forward…

      • Old school says:

        You might be right, but there is a sweet spot of long term stock returns. It’s a bell curve with highest returns in the 1% to 3% range. You get much out of that range on real return for stocks is pretty lousy.

        • Augustus Frost says:

          The “historical” return on stocks of 10%+ includes two decades of a mania, since at least 1999. This mania has substantially inflated the
          “historical” average.

      • Mr. House says:

        “unless you have an equal and balancing deflation…”

        Kinda like lockdowns all over the world to save a bankrupt (literally_ and ethically) financial system?

        Everything that has gone on since 2008 is because those who benefit most from the current status quo would have lost control over the system.

  15. Thunder says:

    Everyone gets robbed invisibly to Inflation. I went to the accountant smiling as I had a great year, walked out angry. He showed me that The house I live in did go up 35% but so did the Neighbours so a loss because it rots in the sun and cost be $18,000 to run and repair essential broken/ worn out items. He reminded me the the 35% rise will be reflected in taxes next year and if I sell the cost to do so move and rebuy will eat the lot plus some. Retirement 401k amount was up but real living expenses rose 14% so a really small gain. Energy, personal expenses, food and clothing rose 14% for me + a vehicle purchase cost me more than budget by 10%.
    He estimated that although I increased my income by 8% I lost all up …… Tear in eyes, over $80,000 in real disposable income due to the loss in purchasing power. He then billed me 15% more than last year just to twist the Knife.
    Current Inflation makes everyone poor at an increasing rate according to Rule 72

    • joe2 says:

      Correct. What I have been trying to tell people and what no one wants to hear. Frankly i think inflation is just a scam to raise all kinds of taxes. All these things “appreciating” are being taxed one way or another.

  16. Michael Engel says:

    1) JP most important massage to wall street was that in Mar/ Apr 2022 the Fed no longer will buy UST + MBS. The Fed net assets will cont to decay, at least for a while.
    2) RRP reached an all time high, sucking liquidity, providing good collateral
    in the o/n market.
    3) The Fed might face collateral shortages in Q2/ Q3 next year.
    4) JP consumption cannot be transitory when US gov debt is $31T on the
    way to $36T.
    5) JP Xmas rally is transitory.

  17. Max Power says:

    The stock market’s strong rally shows just how detached from reality it is.

    The truth is that this bad, if not grave news for the markets.

    J-Pow stopping the presses just as the debt ceiling being raised means an immense amount liquidity is about to be drained out of the system. The ocean of liquidity is precisely what’s been allowing all the market boats to sail freely as they have.

    So, this leaves just one tiny bit problem for the market… boats don’t move very well on dry land. Oops!

    • fajensen says:

      I think that “Markets” are already well-positioned for whatever the FED is allegedly doing, so of course “Markets” will rally on the FED’s confirmation of their positions :).

    • Confused says:

      Powell has promised negative real interest rates through 2022, which is great for stock buybacks, etc. Why shouldn’t the markets rally?

      • perpetual perp says:

        Cool scam. Stock buybacks (many funded by borrowing) artificially boost prices, which allows C Suite and others to unload their shares before the ‘dip’ comes along.

  18. Michael Engel says:

    1) NASA Parker Solar probe reached the sun corona.
    2) NASA scientists discovered that Trump corona is the hottest, higher than the sun crust and the core, according to thermo laws.
    3) For decades, scientist assumed that the core is the hottest. Scientists didn’t know what we know and got it wrong.

  19. Franz Beckenbauer says:

    The really amazing thing is that anybody still listens to these people.

    • Bobber says:

      If a drunk fool is tipping everybody with $1000 bills, it pays off to follow the fool, until he runs out of money. Following the Fed is no different.

  20. polistra says:

    Inflation is real when it might take votes from a Democrat.

  21. Brant Lee says:

    Some CEOs and board members have already been selling stock. It would be nice to know where they are placing the money.

    Some people winning in a poker game slide bills into their pocket to keep the attention off them. Other’s having good luck like everyone to see and are ripe for plunder. The smart money is slowly moving out of the markets now.

    • LK says:

      For all the news on billionaires like Musk and Besoz and Gates, I wonder how many smart money people are out there that we never hear about. People who are smart enough to keep out of the public spotlight, take as much as they can get, and that’s it.

      It seemed to work out mostly well for the Koch Brothers? Until their Failson wanted to personally market and sell the loudest, ugliest shirts imaginable.

      I guess that’s one way to get your parent’s attention.

  22. drifterprof says:

    This current news on “tapering” again reminds me of my father, who even after a great early retirement deal in his early 50s (NASA researcher, and Nixon wanted to reduce government employment stats on paper), was still sipping down well over a fifth of gin a day in his 60s and 70s.

    When I would visit, it wasn’t unusual for him to show some graph paper tables of data he had constructed, with charts showing his plan for tapering — weeks/months on the x-axis, and ounces of gin on the y-axis. Unfortunately, the curve was not as scientifically predictable as he would have people believe. Even continuing the fifth+ a day habit, he did last into his 80s, a lot longer than one would have imagined. But that was probably because of nice retirement benefits was well as his psycho-optimistic mind. So who knows, maybe positive optimistic attitude works to some extent.

    I’m genuinely confused about who exactly the leviathan QE is helping at this point, other than the (x)illionaires. Seems like what historicus pounds on is true: Fed juicing QE out the wazoo is clearly, obviously not fulfilling its mandates. Unless, that is, they have assumed a fuzzy third mandate of stabilizing the financial system — which can mean anything. And that “anything” they are doing, may be headed toward seriously damaging or killing a lot of people, businesses, and institutions.

    Maybe take up a collection and send historicus to be a DC lobbyist?

    • LK says:

      Fourth Mandate:

    • fajensen says:

      I think the pandemic has revealed that most, maybe all, of our ever so great institutions are not actually doing what they say they are doing (and especially not doing what they were originally created for).

      This is interesting.

    • Xavier Caveat says:

      Ginning up endless amounts of money could lead to cirrhosis for the giver.

      • Anthony A. says:

        My father tried the same experiment with Vodka and never made it past 62. Maybe if he drank gin he would have lived longer?

    • Seen it all before, Bob says:

      The Fed is certainly helping the xillionnaires and zillionaires.

      However, it is also helping the retiree Boomers who vote.

      What would happen if all of the Boomer 401K’s dropped by 50%?
      What would have if pensions went broke and paid pennies on the dollar?
      These are just normal everyday old people who are mostly not wealthy.

      Too many Boomers would revolt at the ballot box.

      • Alku says:

        Are there 401Ks that have no other choices as to only invest in stocks?

      • Wolf Richter says:

        The Boomers that had $7 trillion combined in savings and got wiped out slowly year-after-year for 12 years, and now are getting wiped out rapidly, didn’t revolt at the ballot box either.

        Only the top 10% of the population has significant holdings in stocks. The bottom 50% have near zero. So stock prices rarely influence elections.

        • Augustus Frost says:

          I think you are using the boiling the frog analogy. If it’s slow enough, no one notices until much later.

      • Harvey Mushman says:

        The majority of Boomers are in retirement now, so their 401Ks have been moved into more flexible investments.

        Only about 23% of boomers have private pension plans.

        45% of boomers have no retirement savings at all.

        Don’t blame the Boomers

      • Harvey Mushman says:

        Also, many boomers had their lives interrupted (or ended) by the Vietnam war. Stop scapegoating the boomers, they paid their due’s.

        • Anthony A. says:

          Exactly, Harvey, but that was is almost forgotten. Myself and two other Vietnam vets are good friends and hang out daily. One would be surprised as to how many people look at you with a blank stare on their face when you mention that war.

          One of us three, the helicopter pilot who was shot down but survived (and took a couple of rounds), also got called up in the Gulf war to serve again for a year. Boy that was fun losing his insurance business because of the call up.

          There are lots of us still around, but we are becoming invisible.

        • Swamp Creature says:

          Anthony A.

          No one gives a f$ck about the Vietnam Era Vets. Unless you actually served during that period, no one gives a s$it. I don’t have a single family member that ever thanked me for my military service during that period. Some actually condemned me for it. At this point I’ve cut most if not all of these people off from my life.

      • Seen it all before, Bob says:

        I respectfully disagree while observing from my little bubble.

        2008: Home prices, stocks, bonds dropped up to 50%.

        Anecdotally, I know a few die-hard Republicans who helped Democrats win the 2008 election by over 10M votes.

        I know a few die-hard Democrats who would vote Republican if they lost half their house value and half their retirement savings.

        401K’s hold mostly stocks and bonds. Wolf has convinced me both are in a bubble. The retirees I know have to invest in some risk to generate a decent monthly payout.

        What do private pensions hold during this bubble fraught time to generate a decent return?

        I’m not blaming Boomers but 55% (~40M voters) will not be happy if they lose 30% of their net worth while in retirement.

        • Seen it all before, Bob says:

          Wolf is correct.

          The Fed has to boil the frog slowly so nobody notices.

          Ie the stock market and housing has to be flat for 3-4 years while true inflation is at 7%-10%.

          Nobody will feel any sudden pain.

          2008 was a mistake that will never happen again. /sarc

      • historicus says:

        Seen it all before….

        The go to formula for boomers for stock investments usually trimmed holding in stocks the older you got.
        So most boomers move more towards fixed income as they get older to lower their risk.
        And they have been right to do so for decades and decades.
        Fed Funds for 70 years equaled or exceeded inflation….until 2009.
        Now fed funds 7% below inflation……NEVER EVER HAPPENED BEFORE…and it is by intentional policy decisions of the Fed, who seemed to be off the rails…..hijacked.

  23. Winston says:

    “There is a real risk now that inflation may be more persistent”

    And these idiots are in charge…

    • COWG says:

      You’re calling the guy, who just a few months ago said that they might even let inflation run hot for while to make up for the years when inflation was low, an idiot?

      Yeah, I can see that….

      • historicus says:

        The Fed should have something like a “stable prices” mandate or something……

  24. Poor like you says:

    These racketeers are taking it all before it completely collapses. They’re barely leaving us with crumbs.

  25. Old school says:

    Fed just can’t be this dumb. They must have created inflation on purpose and are selling that they going to catch up with it all the while real rates are going to be highly negative as far as eye can see.

    What to do in a world where most everything is in the 97% or above percentile?

    Traded some more fiat for my son’s last $3500 worth of silver and gold. Finally got physical precious metals to 1.5% of my total assets which is still pretty small. Read average gold holdings by Americans is 1/2%. That’s probably where I am at too as most of my stack is silver.

    I think to a large extent we have become like the French during 18th century when they had the Mississippi bubble and the Assignate bubble. Economy was living on tradable securities that were massively over inflated, but illusion couldn’t last. It led to the Louisiana purchase to raise much needed funds if my memory is correct.

    • Winston says:

      “Fed just can’t be this dumb.”

      Sure they can.

      They’re using a simplistic garbage economic theory to create simplistic garbage models fed with manipulated data (ex., CPI) at a horribly insufficient number of data points to centrally plan the world’s economy via the artificial manipulation of the price of money. I’d compare it to predicting the national weather using only the weather data from major cities.

      This stupidity is not challenged despite being proved to be seriously flawed over and over again because it greatly benefits those in a powerful enough position to change it.

      It allows pols to borrow (“deficits don’t matter”) to provide taxpayer-debt-based money to the cronies that fund their campaigns and to promise services to voters that can’t be financed via tax receipts and provides the upper crust with a two steps forward (bubble) one step back (bust) wealth ratcheting effect where REAL assets can be had for fire sale prices after the bust. The latter has been a factor leading to the rapidly increasing income inequality.

      • drifterprof says:

        😂️😂️😂️
        darn good summary!

      • COWG says:

        Powell is driving the fire truck at 10 mph while the stability of the economy burns down… but, hey, we eventually got to the fire, didn’t we… sorry everything burnt down, but it’s not our fault…

        Back of the envelope gazintas shows cpi-w index for Oct & Nov 1.7% above the 3rd quarter average ( for cola purposes) already….

        Meaning the index would have to be basically flat or even slightly decrease (deflate) for the next 10 months for it to be even close to his expectations…

        Yet, Fed expectations of 2.5 % for next year?

        So yeah, I agree with Winston on the garbage data the Fed is using… Powell has been wrong time after time..

        The truly sad part is that he actually believes what he says…

        • Depth Charge says:

          I don’t think he believes what he says, he’s simply peddling carefully crafted lies by a greedy cabal who want to own everything, society be damned. He’s evil, as are all of them.

      • historicus says:

        They arent that dumb……THEY are that devious.
        For 70 years, Fed Funds equaled or exceeded the inflation rate.
        Now, 7% under. NEVER EVER happened before, and the Fed doesnt lift a finger. They slow the stimulus.
        They should be bumping rates like crazy, but it seems to be too late.
        And I am not so sure it wasnt on purpose.

  26. Bet says:

    This rally was going to happen no matter what the fed says. It’s a tape painting performance chasing end of the year mark up to secure bonuses for the fundies. Come January, then the markets “ listen” to what Jpow is saying. Toonces is warming up the car

  27. georgist says:

    Lots of belly aching on the comments but not much in the way of numbers.

    Claim: The Fed does not set rates, it follows. Therefore we need real economic growth to raise rates.

    Note the word “real” in there, growth has to be higher than inflation, that is to say that credit was issued and you got (credit + interest rate + extra) value created.

    If the return is less than (credit + interest rate) then value is destroyed. For the risk you’d have been better off not creating the credit.

    Now, many in here are calling for rates to rise to 5% or even more.

    So they think the USA can have an economy with real growth > 5%.

    Powell is dragging his heels on raising rates, essentially a filibuster where he says lots but does little. So why is he doing this?

    Is he mad? Let’s assume he’s rational, like the guy in the econ 101 textbooks.

    Powell doesn’t think the USA can generate real growth. He thinks the USA is a ponzi scheme, a busted flush that is on the way down.

    People on here calling for 5% rates think the USA can still be a real country with inputs and outputs, where people do more than make-work and paper shuffling, that actually produces a real return.

    I’m with Powell. The system of every person acting in their own self-interest is massively sub-optimal and has produced a total mess that has very low levels of real growth. It has very high levels of financial fraud activity, rentier activity and theft. You guys can’t do real growth under your current ideology. When you had real growth in the 60s it wasn’t under this nutty ideology.

    • drifterprof says:

      @georgist

      Can’t argue with your main point: In many contexts, things are massively sub-optimal when everyone is out for themselves, and anything goes if you can get away with it. Reminds me of what a Syrian student said when I was teaching in an Abu Dhabi “college”: In Syria, if you are honest, everyone thinks you have gone insane, and you probably end up in some kind of asylum or prison.

      I taught a few semesters of an introductory ethics course (it’s funny that some students have no qualms about cheating in an ethics course).

      Ethical egoism: An ethical position that moral agents OUGHT to act in their own self-interest. (e.g., it’s just the normative natural thing to do – and it’s somewhat bizarre to even discuss it). This is different from:

      Psychological egoism: people brains are genetically ONLY ABLE to think in their self-interest (e.g., like animals – the brain’s prime directive is chained to self-absorbed functioning; for example, a male always ready to fight to keep the other guy from ripping his balls off).

      Rational egoism: It is rational to act in one’s self-interest. (e.g., contribute to group, and help people, because it will help you to survive and in other ways).

      I came away with the uneasy feeling that most humans in real life are default adherents to ethical egoism, no matter what religion or creed they adhered to. So may we all have the luck to live in a context where those types don’t dominate, and the rational egoists unite.

      • Bobber says:

        What you call egotism is really people taking care of themselves, so that personal burden is not placed on others…in most cases. A small portion of people are speculators and scammers, but they are a minority. Unfortunately, the Fed is enabling them at this time.

        • drifterprof says:

          @Bobber

          What you say is true on the face of it. I was quoting conceptual definitions which are generalized and abstract.

          However, taking care of oneself doesn’t exist in a vacuum. It’s always related to the context and a persons values. For example, I noticed as a young adult that many people changed rather radically after they got married. This is logical, and in accordance with what you asserted (e.g., taking care of your children reduced the burden of social need to take care of children). However, sometimes the huge changes after marriage are overkill, not related to the basic imperative to take care of oneself and one’s own. Having to be in the very top educational district; over-controlling a child’s life. Becoming unhappy in a hated or spirit-killing job because suddenly a high salary is thought to be necessary. That sort of thing.

    • Old school says:

      I agree with you that we are debt saturated and therefore real growth is going to be low. There is a theory you keep having to put bad debts on the government balance sheet at negative real rates to free up private sector to borrow.

      If people act in an ethical way in their own self-interest the magic of higher living standards happen. Nobody is going to work as hard to provide for someone else’s family as their own. The world just can’t work that way.

    • COWG says:

      g,

      Self-interest compared to what…

      Elaborate , please…

    • Bobber says:

      Strongly disagree. The economy has zero growth potential because the Fed has repressed interest rates far too long, allowing debts to strangle us and asset prices to rise to obscene levels. That problem was 100% created by Fed policy. If the Fed stepped aside asset prices would drop significantly and people would be able to make real investments in people and equipment, not the speculation that our Fed encourages. Income and wealth would be properly allocated to those who earn it via work and prudent decision-making.

      • Old school says:

        I think the playbook is you fool people by pulling forward demand with debt for 50 years or so and then you have to close the banks on Friday and then Monday everyone is 50 –
        75% with basically a devaluation and cycle starts again.

        You have to do it while market is closed so people can’t frontrun the devaluation .

        • historicus says:

          “close the banks on Friday and then Monday”

          Curious that the SEC is floating some restrictions on money market withdrawls.

          I thought this is the ACTUAL JOB of the Fed, to step in when short term liquidity issues arose, rather than restrictions being placed.

      • georgist says:

        Yes, I agree rentier activity dominates and without this growth prospects would be considerably higher.

        Getting to that is going to be hell after all the false props. But the best time to start, excluding yesterday, is today.

        The main point isn’t what I think, it is that Powell doesn’t agree with you, nor does all the American establishment.

        Will be an interesting few months. My bet: inflation, can kick and throw the boomers under the bus.

        • Anthony A. says:

          “My bet: inflation, can kick and throw the boomers under the bus.”

          A bet? Really? That’s already happening to US boomers, especially US who are living on a fixed income with no realistic chance to get back in the workforce. At my age, even with an engineering degree, no one will hire a 78+ year old.

        • VintageVNvet says:

          Actually for apparently slightly older than I AA:
          While it is true that degrees, engineering or other, have very little actual leverage these days with regard getting a job,,,
          Last time I wanted work, a recruiter who I will love for eva managed to hook me up with a company who looked at my resume, and said, ”you are well qualified, when can you start?” at age 72
          The company was, of course, in CA, so I drove out there in my 84 chevy pick up, and found they were at least in the top 3 of all the places that have employed me in the last 50 years or so.
          Time and enough for all folks of all ages who WANT to work, to update skills ”on your own time” as my grandpa said to me many times,,,
          IMHO, there is a serious lack of skilled folks out there in many fields these days,,, as indicated by recruiters continuing to ask me to go back to work….

    • Raging Ranter says:

      There is zero reason why interest rates need to be less than real growth. Such a “rule” in economics doesn’t exist. Many healthy economies of the past had positive interest rates that were higher than the real GDP growth rate. In fact, that was the norm until 2001 or so. Also, if the old economics of the 60s worked so well, they would not have dissolved into the inflationary mess of the 1970s. People aren’t any greedier or more selfish today. They’re just enabled by limitless amounts of almost-free capital, courtesy of accommodating central bank policy. You don’t cure that with “lower for longer”.

    • Augustus Frost says:

      People out for themselves?

      Your post made a good case for splitting the country into much smaller political units. Then everyone can try to move to where government policy suits them.

      Appeals to bogus kinship don’t work in the real world, as it is contrary to human nature no matter what the collectivists wish. No one is ever going to voluntarily put people they don’t even know ahead of their family and any others most important to them. Yet that is exactly what activist government policies demand.

      No thanks, I’m not volunteering for that and neither are most others.

      • Jake W says:

        exactly. most collectivist ideals are based on false assumptions about the world and about human nature.

    • historicus says:

      georgist

      “The system of every person acting in their own self-interest is massively sub-optimal….”

      Laws should be enforced. The Fed should follow its mandates. Fed Governors who front run policy should go to jail, same for Congressmen.
      When the rules are followed, the “invisible hand ” ie people attempting to improve their lot in life by creating better services and products, works great.
      Watch the show “How It’s Made” and marvel at entreprenuership and how the profit motive works to create great products. Would you rely on the federal government?

  28. J Vermeer says:

    WOW, a 1% rate hike next year. l
    Yup, that oughta fix inflation. We’ll need more like a 15% rate hike to fix THIS baby!

    • Jay says:

      The FED can’t let treasury yields head very far north. We’ve spent, on average, $540B in interest on the debt over the last 3 years. As all of these under 5 year treasury notes come due, they’re going to be covered to new debt at higher rates. Good luck with that, Yellen & Powell!

      Also, Medicare Part B (doctors) was $500B in the red last year. Part A goes belly up in less than 5 years.

      • Old school says:

        Central bank dishonest money policy and government accounting gimmicks have fatal flaws. The main ones as I see it are messing up price discovery, destroying moral fiber of country and eventually having citizens lose confidence in financial system and dump dollars.

        No matter how good the plan is when Mike Tyson punches you in the nose plans don’t matter.

      • Michael Gorback says:

        I don’t know if last year’s Part B indictates a massive trend. Covid hit people over 50 the hardest so a skew towards high Part B expenditures wouldn’t surprise me.

        I don’t recall the Medicare Trustee projections pre-covid but I definitely don’t think there was an entry for “global pandemic”, which renders their projections for even the next 2 years laughable.

        There has also been the deferral of the 2% sequester as well as the covid funding provided to physicians. Enacting the 2% sequester and discontinuing covid relief would “cut” physicians’ fees by over 10%, although technically speaking those actions would be a return to normal.

        Part A (hospital payments) will be insolvent by 2026.

        The Part B overall premium will rise from $148/month in 2021 to $178 in 2022.

        Deductibles will go from $203 to $233.

        Medicare Advantage is a scam for people who shop price but not value. Its a gift to insurers. It should be discontinued.

        Part D is still prohibited from negotiating drug prices, unlike Aetna, Cigna, Humana and all the other private companies. The fraction of spending on Medicare A, B, and D for Medicare Advantage has grown faster than traditional Medicare.

        There will be a huge hit if Medicare approves the n
        Alzheimer’s drug Aduhelm, the new $56,000-a-year medication for Alzheimer’s disease from pharmaceutical company Biogen. Premiums will rise in 2022 by $21/month, and half of that will be to pay for Aduhelm alone if Medicare decides to cover it. Subtract that from the SS COLA increase that averages about $92.

        The above is a condensed version of the Medicare Trustees reports so give it a lot of leeway. If I included every formula, fee schedule, and analysis of benefits it would melt your eyeballs.

      • Depth Charge says:

        “The FED can’t let treasury yields head very far north.”

        This is a lie, and provides political cover for the FED.

        • historicus says:

          DC
          Exactly.

          The CAUSE (fake low rates that subsidize and prompt massive debt creation) can not also be the SOLUTION.

          Rates must go to a realistic level.

          Many dont know, the third mandate of the Fed’s mission statement is “promote MODERATE long term interest rates”.
          This has been carved out of all Fed discussions and essentially removed from their web site.
          This mandate would have, if abided by, prevented the collapsed yield curve and prevented the pulling forward, the LOOTING of future generations to fluff the present.

      • historicus says:

        Jay
        Wrong
        “The FED can’t let treasury yields head very far north.”
        There must be a real cost to debt creation. There hasnt been for nearly a decade and we now have $20 Trillion in new debt.
        This is the CAUSE of our situation.
        The CAUSE can not be the CURE.
        The CURE is to put rates in historical areas, prevent this terrible debt orgy, and halt the madness.
        That is the only way to stop it….and it just might be too late.

  29. Jay says:

    Assuming we stay on this COVID induced supply chain issue for several more years, persistently high inflation is here to stay. The question now is how many basis points will the 2022 hikes actually be? I’m hopeful they’re each 50 basis points. It will be nice to get my CDs back up to or above 3%. 5% or higher would be fantastic, and I’d love to see this cause the stock market to pop 50% along with an 85% drop in Bitcoin.

  30. Ron says:

    Do you like soup kitchens ,be careful what you wish for

    • Bobber says:

      I wish for reduced asset prices so I can invest in hiring and capital equipment with some confidence, without fear of arbitrary government intrusions in the money supply that may harm my investment. What’s wrong with that?

      • sunny129 says:

        Bobber

        ‘without fear of arbitrary government intrusions’

        LOL!

        What did you think Fed did in the March of ’09 (Free mkt capitalism DIED) and then ever since when S&P dropped even less than 2% to start a new QE program! Look at the chart of S&P and QEs starting points. They also suspended ‘Mkt to Mkt’ accounting standard. Buy back shares was illegal before 1986. But since ’09, 50% of rise in S&P came from Buy-back shars program!

        Now the return to mean has started, no matter what the Fed do or doesn’t do. They have lost the control long time ago! Secular BEAR mkt has begun with expected ‘ excited’ bounce(s) back on the way down

  31. Margaret says:

    I wonder if the “governors” of the Fed have been shopping for food and clothes in the last few months and if they’ve always had someone else who paid their rent, bought their cars, etc. Just maybe a do-it-yourself approach to actual prices would effect some reality so they’d have some idea what the rest of us are up against.

    • Anthony A. says:

      Margret, the problem is that those folks, if they ever ventured into a supermarket or, God forbid, gas station, they would think the $25/lb rib eye steak or $5/gallon gasoline were normal prices.

      Their cigars are probably $50 each!

    • Depth Charge says:

      Recall when Georgie Shrub II, exasperated, burped forth “$5 PER GALLON GAS?!!!” This clown was so lost in the bottom of a bottle and his own sheltered existence that he had no idea what was going on with gas prices during the crude oil spike.

      • VintageVNvet says:

        10-4 DC:::
        remember well filling up at the cheapest gas station in our ”flyover” area when dubby was POTUS, and hearing a bunch of whining; my answer was, ”what do you expect when you elect an oil company pawn to be ”your” Pres,,,”
        lots of silence after that, as one would expect from folks who had been brainwashed to vote ”for” the candidate with the most money for brainwashing, AKA ”advertising”…

  32. Raging Ranter says:

    At least Powell realizes he has a problem, however belatedly. The ECB has gone entirely off the rails. Christina Lagarde says that the ECB will double asset purchases for the next 6 months, purportedly to avoid a “brutal transition”. A brutal transition to what, I’m not sure. Apparently, brutal inflation is preferable to a brutal but ill-defined “transition” of some sort.

    • Wolf Richter says:

      Raging Ranter,

      “Christina Lagarde says that the ECB will double asset purchases for the next 6 months,”

      Good lordy. If you just read braindead headlines, you will be misinformed.

      Lagarde said two things about QE:

      1. the ECB will END its massive Pandemic Emergency Purchase Program (PEPP) in March. PEPP was about €72 billion a month.

      2. the ECB, after ending PEPP, will double its much smaller classic QE program (currently €20 billion a month) to €40 billion a month.

      This means that the ECB will CUT its net QE by about 55% by the end of March, from €92 billion a month now to €40 billion a month by the end of March.

      This is a fairly large and quick tapering: -55% in three months.

  33. Robert Russell says:

    We give the FED too much credit/blame. The real culprit is monopolistic capitalism and the concentration of the power to price in the hands of a few, who not coincidentally are the same ones in control of the FED. If anyone in power really cared to reverse the current (so-called) market insanity, they would engage some serious anti-monopoly policy. Credit to Robert Reich.

    • Xaver says:

      I agree that the FED is just a part of the problem. The rich are ruling since you can win elections with endless donations for election campaigns. They have no interest in participation of the ordinary people, no interest in a democracy. They want to keep that status as long as possible. Inflation and asset appreciation is helpful for that purpose. So the maximum to do is to pretend to fight inflation. That’s what we are starting to see. Because as everyone is able to see inflation now, because it is so high, the FED has to “act” (as an actor).

      • Depth Charge says:

        What’s so despicable is that it’s not enough for these megalomaniac billionaires to control all that money – then they want to control YOU. Enter BillyBoy Gates and his narcissistic gallivanting around the globe to tell people how to live, because he knows what’s best. I know what’s best for him, but I can’t say it here.

        • Jake W says:

          bloomberg is another example of this type, telling us we shouldn’t have guns while he walks around with a team of sentries protecting him, and telling us we shouldn’t drink large sodas.

          “Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.”

          ― C. S. Lewis

    • historicus says:

      Well, the Fed has some interesting and new outsiders in their “tent”…..who just happen to have very large bets on in residential real estate.
      Curious that the Fed has been buying $40 Billion a month of MBSs with record real estate prices ….and the 30 yr mortgage is 4% below inflation….and half of what it the rates were with less inflation back in 1999 and 2006.
      The Fed has been hijacked…..for it is clear they answer to another hidden power, and completely ignore their mandates/instructions/agreements that ALLOW their existence.

      It is time for a Taylor Rule, some hard fast calculation to ensure adherence to sound monetary policy.

      • Old school says:

        I think reality is system got busted in GFC and honest policy went out the window since then. I think I saw Taylor rule would mean a high single digit Fed funds rate now. They are afraid of what would happen.

  34. fred flintstone says:

    So the FOMC is getting serious.
    Until March they continue to add funds to the economy. Let us say they succeed and raise the FF rate to one percent by the end of 2022. Prime rate being 3.25 right now…..so it goes to 4.25.
    One year from today if inflation moderates……if…….and is approximately 4.25%……..a company can borrow and pay nothing for the cash. Correction….they get a tax deduction for the interest they pay so they are able to borrow and be rewarded for purchasing appreciating assets with cash. Of course monetary policy kicks in about 9 months to a year from any change so even the increase in rates will not do much for almost two years.
    So one year 9 months down the road….if inflation moderates…..the fed will be stimulating powerfully if….if…..they raise rates 3-4 times and finish with IE.
    Being serious……I guess my lemonade stand was a serious threat to McDonalds.
    If the fed was serious the taper would end today…..FF rate up one percent in the AM. Consider another one percent increase each meeting in Jan, Feb and March. Reduce the balance sheet by 300 billion per month starting in March.
    but……I’am an honest person who does not have an agenda of stealing everything the middle class has accumulated and transferring it to my rich snot kids.

    • historicus says:

      Fred…

      This is the GREATEST THEFT EVENT in history!!
      and not a word from … let’s say the Senate Banking Committee.
      Even the WSJ is up in arms about this.

      Fed Funds .05…………….inflation 6.8-9%

      NEVER EVER HAPPENED BEFORE IN THIS COUNTRY!!!
      and the Fed is “keeping an eye on it” and considering three 1/4pt raises, maybe, sometime next year?

      In a system that allegedly is based on “checks and balances”, where are the checks and balances on the Federal Reserve? Are they really there to pump the money supply 30% in 18 months?
      Are they really there to promote ANY INFLATION? For even if one incorrectly allows the idea that they can promote a 2% inflation, that is a 2% TAX on the holders of dollars. ONLY CONGRESS, who must answer to voters, can TAX.
      Thus, we have taxation without representation. Ring a bell? Wars have started over such.

  35. Phoenix_Ikki says:

    HAHA weimar Powell put on his big boy pants and tried to tell the market I will ease off the pedal in the most gentle way as possible, market loves his message and up and up again we go…

    I will wait and bet for when the market realize the effect of tapering and start throwing that good old tantrum…those 3 interest rate hike next year along with that tramp up tapering…it will materialize just like Tesla big rig or Hyperloop. His U turn will make Ken Block’s drifting U turn looks like a child play, Powell would make an excellent vaporware salesman.

    • Depth Charge says:

      He’s informed us that instead of continuing at 100 mph in the brick wall, he’s going to slow down to 90. He’s got things handled.

  36. GSH says:

    We should try capitalism again. What we have now is full blown interventionism.

    Capitalism has lifted hundreds of millions of people out of poverty over the last two hundred years. Socialism/communism when tried have killed tens of millions of people. Interventionism, however well intentioned, simply amplifies booms and busts.

    Capital means savings, not printed money, not borrowed money. Got to rebuild our focus on savings allowing us to reinvest in production.

  37. Tom S. says:

    In ancient times people would be given tokens to mark their contribution of grain to the public storehouse. Leaders could in theory pass out any number of tokens in exchange for a future grain deposit, but an IOU does not change the amount of grain currently in storage.

    Today, we have dollars being handed out at an unprecedented rate for IOUS or simply for nothing. The Fed has a funny way of looking forward and assuming the best while ignoring the realities of the present and the challenges of the past.

    Inflation is a test of reality, a scale with a token and a promise on one side and enough grain to feed your family on the other. Using inflation and money printing as solutions to a worldwide pandemic, aging population, and inadequate health care system is fundamentally testing the confidence of Americans in their government and the dollar. I believe the Fed and Government sees the writing on the wall with the unrest of 2020 and will raise rates and not shake the confidence of the populace.

  38. Escierto says:

    Nice little move in gold today. There has been a tremendous amount of manipulation by the banks to keep the price under $1800. Eventually these efforts will fail miserably but it may take several years. In the meantime China and Russia are loading up on bullion.

    • Gilbert says:

      Exactly. And who’s the fool? The bankers are only interested in short term gain. Someday they will learn that real money is not paper.

    • ivanislav says:

      I also expect that increasingly with each downturn, the dollar stops being treated as a safe haven and gold rises instead. I think we’re already at that point, actually.

      Gold does this funny thing where it seems pegged to just under 1800. 1799 today. What a strange market! I would be save in physical gold and not dollars were it not for the opportunity costs of being illiquid and the transaction costs.

  39. Eastwind says:

    They’re penciling in 3 rate hikes next year. Before the fed meeting the first one was going to be in June, now it’s May. So assuming a quarter point per, they’re going to raise rates from 0.0 to 0.75% to address inflation running in double digits? If you believe the CPI numbers have been hedonistically minimized and the real CPI is around 15% in apples-to-apples numbers then real rates will still be -14.25%!

    Or even if you just use the recent PPI number over 9%, real rates would still be around -9%!

    Or even if you just use the lowball CPI number, we’re still talking real rates that are so under water the effect is a floored accelerator.

    So no matter how you look at it, what the fed is saying is that for the next year or so they aren’t going to do anything that adds up to really seriously fighting inflation. (They’ll be talking about it, of course).

    There’s that infamous graph that shows that over the last 20 years each time the Fed has taken on a tightening program the point at which they send the economy into recession has been getting lower. If you extend that line to today, it predicts that the “too tight” point is around 1%. So if that trend holds, the market isn’t going to crash due to too-tight rates for another year.

    So I think that’s why the market liked the announcement. There’s a year left to pick up pennies in front of the steam roller. Party on!

    Since QT will now complete by March, there’s a chance that the first rate increase could get moved into March from May. That would give them space to do 4 increases next year, and maybe crash the market next October just in time for the election. But the fed usually wants to “avoid the perception of influencing the election” so doesn’t increase rates after June or July of an election year. In which case they’ll struggle to fit in 3 increases, even starting in March. (Unless by fall the democrats are screaming for tighter policy).

    The inflation is still going to be raging next November, and the democrats are going to get slaughtered at the polls for it. Are you better off than you were two years ago? Nope, not a chance. Time for a change.

    • Escierto says:

      Yes, I am eagerly looking forward to life under a fascist dictatorship. It should be great if you are an old white man like myself.

      • BuySome says:

        Help Wanted: Old man to be kommandant over prisoners. Must have working knowledge of foreign languages and a strong stomach during air raids. Apply for further details at Schlaschthof-funf. Uniforms are tax deductible.

      • Depth Charge says:

        This all started under the king of money printing – DJT. He can never be forgiven for hammering Powell, insulting and belittling him to death until he cut rates for him.

        This is a guy who had the audacity to call Yellen’s policy results “a big, fat, ugly bubble,” then turn around and do the exact same thing and celebrate the stock market bubble as some grand accomplishment as it morphed into something we’d never even seen before. Even his supporters were saying “he needs to stop cheerleading the stock market.” Remember him saying to all the wealthy people “you can thank me now?” Gross.

        And never forget that he was gloating, chiding everybody, saying “let’s go negative!” on interest rates. Reckless and dangerous is an understatement. I voted for him the first time. I DID NOT vote for him the 2nd time. Fool me once….That being said, I certainly didn’t vote for this idiot we have now, either. There are no good choices, only vermin.

    • Bobber says:

      I’m no longer bombarded with 10 lies a day from a president. I don’t have to worry about a government agency going after me because I don’t bow to the president. Yes, I’m better off, but not by much. I have new worries about intrusive social policy that overrides common sense and fairness.

    • historicus says:

      Eastwind.

      Bingo.

  40. BuySome says:

    Never put off til tomorrow, anything you can postpone today.

  41. BuySome says:

    Is it real, or is it Mamorex (teet sucking)? Do you know me? Only Powell’s hairdresser knows for sure. In the meanwhile..plop plop, fizz fizz ’cause double the flavor is double the fun! The mall may be closing but the dot com Candyman will still deliver anything Barbie Girl desires. You just need plastic…it’s fantastik!! This economy brought to you in AquaScope.

  42. fred flintstone says:

    Everything is moving much faster except Jay
    Intel just announced that over and above normal wage increases they will boost pay next year by 2.4 billion dollars…….no error……..2.4 billion.
    Yep!…..inflation is going to moderate to a nice smooth 10% per year.
    Thanks FOMC or in my house…….The Crooked 12.
    Jay should open up a crime business selling his methods at ripping people off. The federal crime family is the best in the business……we pay them in taxes to rip us off with low rates.

  43. sunny129 says:

    Yesterday some one accused me of ‘fear mongering’ I asked that guy/gal to prove why my statements on the economy, Fed, inflation, Omicron and supply chains NOT cooperating towards Mr. Powell’s statement that recovery on it’s way!

    Today proved the point. Without Fed, there is no stock mkt! Other Cbers are pitching in to raise rates but NOT Fed! He didn’t even give the date when first 30B tapering starts! He was ‘hawkish on FOMC statement but overly DOVISH during Press Conf, after which indexes zoomed. Fed is trapped!

    • historicus says:

      “Without Fed, there is no stock mkt! ”

      $4 Trillion created in 18 months and pushed toward mortgages and stocks.

      And now we have the GREATEST DISPARITY between fed funds and inflation in the history of the United States…..and not one person questioned Powell on this point

  44. Rcohn says:

    If the Fed were serious about inflation ,then they would end Qe now and start raising short term rates now.
    If Wall st thought that he was serious about raising rates we would have seen a large sell off yesterday and not a short covering rally

    • historicus says:

      Rcohn
      Somehow, some get the nod that it is “safe”.
      Remember the movie “The Marathon Man”?

      Is it safe? Is it safe?

      Well, some apparently know the Fed will not stand to their post, will shirk their duties, will promote inflation and let er run….

      While others expect the Fed to raise rates to meet inflation, which is what occurred and was the normal and historical response to inflation prior to 2009, when apparently the Fed was hijacked.

  45. Michael Engel says:

    1) There will be no Xmas massacre #2 under JP.
    2) Those who expected $3T got AAPL @172 instead, in a shakeout day, targeting the FANG.
    3) Today low is a spring under the previous two days low.
    4) JP didn’t mention RRP.
    5) While reducing the rate of buying UST + MBS JP might lower RRP by $30B/month, whatever, from the current $1.6T+ war chest, providing, not sucking liquidity.
    6) JP draconian spin might have an anti spin, to fool the goalkeeper.

    • Nathan Dumbrowski says:

      Got me thinking about the FED “secret” war chest. Nightly pistol push/pull of $~1.5T. How could they use that to cushion the reduction in QE/monthly purchases. Hmm

  46. Franz Beckenbauer says:

    How do you call someone who says he ” doesn’t like gold at these prices” exactly before liftoff ?

    I call such people my favorite contrarian indicators. And i’m thankful they exist. The accuracy of their calls is amazing.

    • Wolf Richter says:

      The discussion was about a hedge against inflation. Your theory about “liftoff” — the first day in a month that gold actually rose a significant amount — is exactly the opposite. You’re looking for a gamble. That’s fine. I hope it works for you. But a gamble is not a hedge against inflation.

  47. Corto Maltese says:

    Let’s say that real inflation is 7%. If FED raises rate to really fight inflation (to somewhere like 7-10%) that would cause immediate asset bubble burst. Stocks/RE would correct to 60% of present value. This causes complete meltdown in investments/spending and brings US economy to a size smaller than China’s economy within months time. Dollar denominated trade plunges/US banks international lending plunges and World Reserve Currency status loss is at warp speed now. US military complex inevitably loses funding and power projections around the globe becomes close to impossible. USA loses it’s Super Power status. Europe/Japan/Korea/Israel are sitting ducks. This is why interest rates can not be raised in any meaningful way.

    Does this scenario make any sense or I am just plain wrong and depressed?

    • Wolf Richter says:

      There’s another huge aspect to this equation: If consumption of goods in the US shrinks, production in China plunges (including investment, employment, transportation services, etc.). China got a huge boost from US stimulus.

      • Depth Charge says:

        Exactly. The “Make China Great Again” plan by CONgress was disgusting.

    • Nick Kelly says:

      The stock market is not the economy. A while back I checked on Apples employees per market cap. It was very small, mostly retail. This is the main reason the computer based cos are so profitable, low employees. Exception of the top 5 is Amazon which does not pay that well.

      It would be an idea to instruct the FED to ignore the casino.

  48. historicus says:

    From WSJ Letter to the Editor

    “A smarter way for Senate Republicans to address the issue is to pass an entirely different sort of debt-limit bill, one that pays for obligations already enacted but limits the future share of that debt that could be financed by the Federal Reserve.e financed by the Federal Reserve. The Federal Reserve Banks’ stockpile of publicly held Treasury IOUs exploded from $476.3 billion in the third quarter of 2008 to $5.91 trillion in this year’s third quarter—that is, from 7.5% to 25.3% of GDP. In the same period, the federal debt grew from 67.3% of GDP to 122.6% of GDP. It seems doubtful that it would have been so easy for Congress to have let the debt grow twice as fast as the economy had it not been able to count on such an accommodating central bank. We need to restrain this incestuous relationship between the congressional impulse to add debt and the Fed’s willingness to step in as the government’s lender of first resort. Our proposed debt monetization limit would prohibit the Fed from holding more than a specified percentage of the national debt whenever that debt exceeds a specified percentage of GDP. Such a limit would ensure that the Fed’s hoard of Treasury IOUs could not grow faster than the American economy that must bankroll the required interest payments.”

    Bingo!!

    • historicus says:

      This makes perfect sense…
      But what politician would cut off the Piggy Bank of the Federal Govt?
      The Fed was once the buyer of last resort for banks in crisis…
      NOW the Fed is buyer of FIRST resort for the federal government Leviathan.

  49. Spencer Bradley Hall says:

    It is a policy mistake – as the E-$ market clearly shows.

    • Wolf Richter says:

      Spencer Bradley Hall,

      The policy mistakes — HUGE MASSIVE policy mistakes — were made in 2020 and all along in 2021 that caused these massive problems, including worst inflation in 40 years and the worst wealth disparity ever. Now they’re doing the first baby steps to unwind these huge policy mistakes they made, too little too late, but at least they’re doing those baby steps.

      • Jake W says:

        yes. calling this is a policy mistake is like a guy who lets his weight grow by 300 pounds by binge eating and then calls it a policy mistake when he feels crappy after dieting.

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