Even Soaring Wages Got Crushed by Inflation in Hot Labor Market: Fed Gets More Rate-Hike Ammo (as if it Needed More)

Production and nonsupervisory employees had biggest year-over-year wage gains since 1982, but they too were outrun by inflation.

By Wolf Richter for WOLF STREET.

The tight labor market and soaring inflation have been cited by various Fed officials as the top reasons for rate hikes starting on March 16. Even the lowest lowball measure that the Fed uses for its inflation target has already totally nailed the inflation requirement. Today’s jobs report nailed the other part.

Both employers and households reported large gains in people who were working in February. The two measures differ: The reports from employers includes only their payrolls. The reports from households include not only W-2 workers but also the self-employed and people starting their own businesses, and there has been a huge wave of entrepreneurs trying to start their own thing.

In addition, the labor force grew in February, indicating that more people have rejoined the rat race, for whatever reason, but still not enough, and the labor force remains below where it was before the pandemic, and massively below trend, and so the “labor shortages” persist – what Powell has called the tightest labor market in history.

Employers added 678,000 people to their payrolls in February, according to the Bureau of Labor Statistics today, bringing the total number of employees to 150.4 million. Over the past three months, employers added 1.75 million employees (purple line).

The big constraint to more hiring still is the “labor shortage” – meaning that people are reluctant to rejoin the workforce, and if they do, they’re demanding higher pay and better working conditions.

Households reported that the number of working people, including the self-employed and entrepreneurs, jumped by 548,000 in February, and by 2.4 million over the past three months, bringing the total to 157.7 million workers, including the self-employed (red line).

The labor force and “labor shortages.”

The number of people who were either already working or who were actively looking for a job in the four weeks prior to the survey – that’s the “labor force” – jumped by 304,000 in February and by 1.86 million over the past three months to 164.0 million.

This left the labor force down by only 457,000 from February 2020. But it remains far below trend:

The “labor shortages” show up in the job openings, which are in the astronomical zone, with nearly 11 million job openings, up by 62% from two years ago, and have been in that range since mid-2021, according to the separate JOLTS data from the Bureau of Labor Statistics. These job openings are not based on online job postings, but on what companies and government entities said their hiring needs were:

The average hourly earnings, after a massive jump in January, just edged up in February to $31.58. Compared to a year ago, average hourly earnings jumped by 5.1%. This is a large increase beyond of the distortions during the pandemic when millions of low-wage workers were laid off while office workers switched to working from home, thereby inflating the average hourly earnings.

The gains in earnings were larger in production and nonsupervisory jobs, where average hourly earnings rose by 8 cents in February to $26.94 per hour, up by 6.7% from a year ago. Beyond the distortions early in the pandemic, the gains in January and February (both 6.7%) were the highest since 1982:

But neither that large overall average gain of 5.1% in hourly earnings, nor the even larger 6.7% gain for production and nonsupervisory employees was enough to overcome 7.5% CPI inflation, showing once again how inflation demolishes the purchasing power of labor.

If hot inflation outruns earnings increases to this large extent for long enough, consumer spending will take a hit and economic growth will take a hit. This doesn’t play out over the next month or two, but over years. The mood of consumers has already soured due to this rampant inflation.

But for now, consumers are still making heroic efforts to spend, and they outspent inflation, even as their income increases got eaten up, plus some, by this rampant inflation, and worse, as “real” (inflation adjusted) per-capita disposable income dropped for the sixth month in a row.

For an economy that relies so much on consumers to spend, that kind of decline in real incomes will derail the economy. So bringing down inflation has moved to the top of the Fed’s priority. Powell has confirmed that. The Fed is light years behind the curve, but the data in this report gives it a lot of ammo for rate hikes going forward.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.




  105 comments for “Even Soaring Wages Got Crushed by Inflation in Hot Labor Market: Fed Gets More Rate-Hike Ammo (as if it Needed More)

  1. phleep says:

    Time to step up. A .5% hike keeps me barely in the realm of hope. Stocks are still in la-la land and could use a bracing rollback. Otherwise people are clinging to fantasies.

    • Swamp Creature says:

      You’re never going to see .5% hike. If anything, the Fed will use the crisis in Ukraine to stand down on any rate increase at all or surprise everyone with a .125 (1/8%) rate increase just to look like they are doing something.

    • andy says:

      Central planners had 1000 good chances to raise rates since 2011. They didn”t. They would do an emergency rate cut right now if they could.

      • Masked Ghost says:

        Central Planners ? Oh, you mean the oligarchs on Wall Street. Everything is going great………from their point of view. Why would they want to change anything ?

      • Mike T. says:

        That’s the sad truth. They’ve left it to late to raise rates and now inflation is going to tip the economy into recession.

      • Old School says:

        Pretty interesting chart by Hussman showing that Fed had been running policy about 2.2% below where Taylor says it should be since 2011. His contention is that Fed mistake was made 10 years ago to deviate to an experimental policy.

        He has goods after plots. Did Zirp help GDP? No. Did Zirp help employment? No. Did Zirp help stock market valuation? You betcha.

        • Old School says:

          Darn spell check. Good scatter plots.

        • Old School says:

          Thought I would check. Hussman strategic growth fund is up 11.5% YTD. He is a smart guy. Maybe he will recover his lost reputation as a money manager if market tanks this year.

    • Wisdom Seeker says:

      Powell’s not going to make any move until he gets a mandate and a few years’ job security. But his job is being held hostage by Congress right now – the confirmation hearings stalled out.

      As things stand, if he makes a move and pisses off the wrong Senator or few, he could be out on his ear with only the Greatest Bubble In History as his legacy. Doubt he wants that.

      Be very interesting to be a fly on the wall in the conversations about the re-confirmation! Lots of “quid” on the table for potential “pro-quo”s…

    • historicus says:

      Two Congressmen asked Powell why the Fed’s “Federal Funds Rates Based on Seven Simple Monetary Policy Rules” was omitted from the last Federal Reserve Report and publication.

      Powell seemed dumbstruck, unknowing. Said he was only recently made aware of the omission. (difficult to believe)
      So let’s look at what the “Federal Funds Rates Based on Seven Simple Monetary Policy Rules” suggests..
      (It can be read at the Cleveland Federal Reserve web site)
      The Fed’s own “Rules” say the Fed Funds should be, for the 1st and 2nd quarters of this year…the following 7 different calculations…

      Taylor (1993) 8.02
      Core inflation in Taylor (1999) 6.78
      Inertial rule 1.42
      Alternative r * rule 1.39
      Forward-looking rule 4.20
      First-difference rule 3.23
      Low weight on output gap rule 0.46

      For the second quarter …
      Taylor (1993) 6.89
      Core inflation in Taylor (1999) 5.92
      Inertial rule 2.32
      Alternative r * rule 2.37
      Forward-looking rule 3.47
      First-difference rule 4.65
      Low weight on output gap rule 0.73

      The Fed disregards their own rules, apparently. They are way way off the mark, and intentionally so.
      And Powell also gave us the “new” definition of “stable”…..stable now is a stable 2% inflation rate…a rate that rips 22% off the dollar in ten years…again, intentionally by the Fed. A race to the bottom.

      • historicus says:

        and inflation is a tax, then we have an UNELECTED BODY laying a 2% (or more) tax on the People of this Nation…People who have no representation on the Federal Reserve Board.
        That sounds just like Taxation without Representation….
        for would a 2% tax on the holders of dollars pass a Congressional vote by politicians that have to answer to voters? No.
        How about some REAL QUESTIONS for the Chairman?

      • Old school says:

        Yes this is Hussman’s beef. Fed went to an experimental policy a decade ago and made a huge mistake.

        My guess is it will end in a big disaster and Congress will blame Fed and constrain them for a while with conventional policy statute after things burn to the ground. Just a guess.

    • RemoteWorks says:

      Shop at Trader Joe’s where prices haven’t changed, remote work, leave NIMBY areas: the magic formula for enjoying deflation as I do.

      Full disclosure: I don’t spend on US healthcare. If you do, you might experience inflation there. The rest is fixable through resourcefulness.

      • Wolf Richter says:

        “Shop at Trader Joe’s where prices haven’t changed,….”

        Hahahahaha, when was the last time you shopped at Trader Joe’s? SOME prices haven’t changed, but a LOT OF prices went up a bunch, and packages got smaller.

        • RemoteWork says:

          They haven’t changed in the one I shop at. Isn’t it great?

          Move out of NIMBY areas, you clearly have to pay your stores other bloated costs due to artificially inflated real estate costs.

        • Wolf Richter says:

          RemoteWork,

          I used to live in the city where you live, graduated from HS there (Booker T), went to grad school there, and worked and lived there until 2000, with some time in between when I moved back and forth between your city and various cities in Texas. I went back there last November to see off an old friend. Stayed at the Aloft downtown, the saddest downtown I’ve seen in years (there are also lots of homeless people, but OK, they’re everywhere once you start walking around). The whole place is sad. Housing is dirt cheap… and there’s a reason why it’s dirt cheap, and I will never ever live there again, even if they pay me $10,000 to move there which they would because I would bring my job with me. But for some people, it works.

  2. FromKS says:

    Worth noting that the 2020-21 spikes up and down on the “average weekly earnings” are due to the large number of low-wage people (food and hospitality) exiting the labor force, and then reentering (also known as the “composition effect”).

  3. 2banana says:

    And 7.5 CPI Inflation is about half of real actual inflation.

    “But neither that large overall average gain of 5.1% in hourly earnings, nor the even larger 6.7% gain for production and nonsupervisory employees was enough to overcome 7.5% CPI inflation…”

    • Swamp Creature says:

      Yep, the real inflation is closer to 15%. I do my own calculations. The government figure are pure bull s$it.

    • Harrold says:

      Last night I spent $116 at the grocery store. The same cart would have been $85 a year ago. The prices at large corps like kroger would be 30% above that. The store where I shop looked like decades ago prices… until this last year. Also, my rent goes up 10% in a few weeks.

      I can afford all this, but tent cities are popping up everywhere. Thanks Fed. Thanks red/blue team. Keep representing the big corps and ignore the actual voters. At some point there will be another “no taxation without representation” moment.

  4. 2banana says:

    Not a sarcastic question.

    With the “cough thing” and the mandated “sharpy thing” all but evaporated in a nearly 180 degree pivot, at all levels, in just the last week…

    Shouldn’t that should actual help hiring, productivity and supply chains?

  5. Zark Muckerberg says:

    “what Powell has called the tightest labor market in history” as he make a peep hole with his thumb and index finger, and looking through it 👌

    • Mark says:

      “as he make a peep hole with his thumb and index finger, and looking through it 👌”

      And if there’s a mirror on the other side of the peep hole – Powell gets to see who the next Irving Fisher is …..

    • historicus says:

      7 months ago Powell was worried about employment.

      “It is idiotic to place critical decisions in the hands of those who pay no consequence for being incorrect”…..Thomas Sowell

      Like Yellen who admitted the “theories we chose were incorrect”…notice it was HER for picking them.

  6. Swamp Creature says:

    My local supermarket stopped posting prices on their fish today. Halibet just came in but was $29/lb. Rockfish was $24/lb. I had to ask the price on each item. People were buying it in droves. I joined in as well. When I got home I cut the portions into 3 ounces for each person. The fish was fresh and unfrozen. Tasted great.

    Inflation is completely out of control. We’re moving into Weimer Germany territory.

    Luckily, I’m not affected as most people. Our appraisal services were just given a 20% fee increase by VA. My Fed annuity is adjusted somewhat for inflation. Some people on fixed incomes and low wage jobs with long commutes are going to really get hit hard. I feel their pain.

    • Hal says:

      So, you’re talking about halibut while I’m thawing some ground beef to grill hamburger steaks tonight.

      That’s Latin, darlin’. Evidently Mr. Ringo is an educated man. Now I really hate him.

      • Wisdom Seeker says:

        Digging deep into the memory hole:

        Do they still sell Hamburger Helper?

        Is a pound of Beyond Meat cheaper than a pound of actual ground beef?

        Speaking of BYND – it’s taken another 30% plunge over the past month and is now 80% off from its peak… $43.18/share today, priced at about 10 pounds of ground beef or 0.4 barrels of oil… time will tell which of these more valuable…

        • Anthony A. says:

          Yes, I remember eating Hamburger Helper without the hamburger when I was paying my own way through college.

        • historicus says:

          The Fed follows the PCE, which allows for the substitution OUT of products that rise “too much” in price.
          So, just as Randy Quaid said in “Vacation”….”Hamburger Helper is good all by itself”
          Question for Powell
          “Have you had to stop the consumption of any product use of service because of cost?” Then why is PCE a good metric for the unwashed masses?

        • Old School says:

          There are probably a lot of depression era recipes and WWII recipes that will come back. Mixing the hamburger with 50/50 ratio of hash brown potatoes and adding in diced onions tastes ok and you can still form it into a patty.

      • Harrold says:

        Hallibut is full of mercury. He’s paying all that to sicken his family.

        Better off with the hamburger, seasoned right is just as good. No, I’ve never had hamburger helper. But ketchup, onions and garlic mixed into the raw meat is better than anything you’ll get at a restaurant.

    • El Katz says:

      On Wednesday, I paid $9.99 per pound for Rockfish here in Broiler Land. Fresh… not frozen…. line caught Pacific fish. Ahi was $7.99 ($5 off). I wonder if you’re not being held hostage to the Freedom convoy?

    • SlomoTrainwreck says:

      “People we’re buying it in droves”.

      This is the problem, right? Too much disposable cash in peoples’ hands, and they can’t wait to spend it, even at those prices.

      Sure, inflation squeezes those on a fixed income. But plenty of folks have got money to blow, and they’re bidding up prices for everyone. Overheated economy needs to be reigned in or the bubble will no doubt burst. It might be too late already.

      • Old school says:

        This shows the major problem is too much money printing. Without the free money people start rejecting the high price lowering demand.

  7. Jackson Y says:

    2 year vs 10 year treasury yields are down to a 0.23% difference before even the first rate increase. Crazy!

    I wonder if the Fraud Reserve will be backing off of tightening by summer.

    • Wolf Richter says:

      The Fed will be shedding long-term Treasuries and thereby push up long-term yields, problem solved.

      • JeffD says:

        … should be. Whether they will or not is another question, in spite of what they have been saying.

      • historicus says:

        Wolf….
        I heard $100 billion a month,….accurate?

        • Wolf Richter says:

          historicus,

          Yes, that number has been kicked around a lot. But I don’t think the Fed (FOMC) has decided yet. It would make sense: it’s twice the size of the last one (capped at $50B a month), and it’s close to but below the monthly QE ($120B).

          The last one was phased in very slowly. I don’t think they’re going to phase it in that slowly. They sound like they’re ready to move much faster than last time.

    • Old school says:

      I can hear J. Powell now making excuses for missing his inflation target because of supply chain issues because of the war. People are going to freak out if we get a 10% inflation print in a couple of months.

      The Pandemic and Russian invasion was one two punch to J. Powell trying to fix everything with easy money.

  8. Jackson Y says:

    Any idea why the 10 year yield plummeted today despite the solid employment report?

    • Wolf Richter says:

      Investors are scared and ran to safety. European stocks down ca 4%. Rattled a lot of nerves.

      • historicus says:

        Big money Sold Europe…and bought the US into the close.
        Seems the right thing to do.
        Likely see that for a while.

  9. unamused says:

    Remember when air was free at the gas station, and now it’s $1.50? You know why?
    Inflation.

    Just putting in my three cents worth.

    • NBay says:

      $1.50 if you take off all the caps first, check the pressures with your own accurate gauge for a heads up, put coins in, and then move fast, gauge in hand. Although I do have a 2012 Frontier, more distance and longer hose work….and a bad back.

  10. Brant Lee says:

    Inflation ran over 7% last year. Crude oil ran up over 7% just today. It’s all under control and looking better (for someone).

    • David Hall says:

      Gold, platinum, silver and copper are not selling off.

      Corn, wheat and fertilizer prices are rising.

      Maersk shipping is refusing to handle Russian containers.

      Russia is blocking Facebook. Some Russians fled westward fearing martial law.

      • Old school says:

        Didn’t Japanese bomb Pearl Harbor because US was running economic war trying to contain Japan?

  11. IStever says:

    At this point, even a .5% hike is just pissing in the wind.

    • historicus says:

      1/4pt? I say “Why bother?”

      Inflation rose TWENTY 1/4pts in the last 8 months……and the response is what? 1/4, 1/2…..the Feds own guidance Rules (ha, rules) has a median Fed Funds rate over 3% for the second quarter.
      What the old saying about “rules”?

  12. Jackson says:

    Just shopped at my Co-Op. Since it’s Friday and my birthday, I wanted to buy scallops as a first course for eight people coming over for dinner. In a matter of a week, the price increased from $30 to $46 a pound. A 56% increase. I am supposed to be surprised, however, one of my gifts are two tickets in the Orchestra Pit for a Boz Scaggs concert in May. I bit the bullet and bought the scallops. I’m grateful for Wolf’s insights.

  13. The Colorado Kid says:

    I better buy that tent while I can still afford it. (Not kidding.)

    • Marcus Aurelius says:

      Don’t forget the sleeping bag.

      The shopping cart is free, unless you intend to sleep in an ALDI parking lot. The cart will cost you 25 cents.

      • historicus says:

        “Don’t forget the sleeping bag.”
        A good Sunday Newspaper can work in a pinch.

        • NBay says:

          Why is it I don’t think you or most anyone here has ever had ANY real first hand experience with that? Or gives a damn about those who do?
          Maybe I’m envious (coveting), for which I will rightfully be tossed into the Lake of Fire when the time comes.

  14. phleep says:

    This is all so screwed up, I am trying to model what the other shoe dropping will be like (and hopefully trade on it). It has a ‘Big Short” magnitude, at least in its sheer vastness and depth (of idiocy, of these variables still in WTF-land), and this must translate into another trade-of-a-lifetime. There are too many lemmings rushing at 100 mph for this not to be true!

    I need to get my dry powder ready and reach my absolute Taoist stillpoint for the inspiration to come.

  15. Clete says:

    Back when I was ambitious, I used to commute upwards of 40 miles each way to build a career; gas was a buck and a quarter and my commute cost me about $5. Today, that commute would be closer to $25.

    What’s the point? Just this: I suspect at least some of the great resignation is because long commutes aren’t worth the money and the time. You could get a lower-paying job around the corner and still come out ahead–and that closer job probably isn’t lower-paying any more.

    • Harrold says:

      I suspect a lot of those 11 million job openings are apirational. Meaning the company will hire them if they accept a low wage, terrible (or no) benefits, and they have enough experience to do the work of 2-3 people.

      This is very typical at big tech companies. I worked at several and applied to many dozen. Their job descriptions are a grab bag of every technology they have in house. Nobody out there has all those skills. Tech people are typically pretty specialized. Yet HR is looking for a jack of all trades unicorn that can do everything.

    • Goomee says:

      Not just gas, but maintenance. I just got 2 quotes for struts on my Subaru-$1,400 from 2 shops and that’s if they can get the parts. We are living in interesting times.

      • MiTurn says:

        Rip off! Check out Rockauto.com

        The solution to all repair problems…assuming you know how to ‘turn a wrench.’

        • JoeC100 says:

          Wow – thanks again for great practical info in WS comments! My regular auto shop guy told me that my 2004 Tacoma needs a heater fan resistor and I have been wondering how to get this part. Five minutes on the Rockauto site and I will get what I need next Tuesday!

      • Mendocino Coast says:

        Not hard to change ? Rock Auto . Com
        don’t know your year and model but as example a 2005 forester
        struts are $38 to about $50
        with well over 20 different types to chose from .
        Its a 2Hour Job the same Labor as changing the springs in the same area ? What are they charging you ? $700 per Hour lol

        Any good (” Honest Hard to find “) front end shop can do the Job or any descent independent shop

        Many people feel they have been ripped of by the Fed
        the inflation on and on and this is the answer ?

    • Augustus Frost says:

      What you are describing is only possible if the person doesn’t have to work. It’s a secondary reason.

      This means they are either living off savings, a pension, or someone else is supporting them,

      Otherwise, everyone else has to work regardless of their preference.

      It’s been this way since the beginning of time.

      • Clete says:

        @Augustus: Agreed, but that’s my point. Not that people aren’t working, but that they’re trying to work closer to home to save money and get time back.

    • The Real Tony says:

      In the Toronto, Canada area 40 miles is about the average one-way drive to work. I almost laughed when I read your comment.

  16. Mike T. says:

    Look guys and girls the only growth industry left in the US that I see in my state that has both state support and weekly TV freebee marketing spots are breweries.

    I kid you not that it seems every home brewer has decided to turn their hobby into a business over the last 2 years. Every old vacant brick mill building now has magically become a brewery with seating tables and so on. Never mind that there are only 5 months of the year where you’d want to go out and have cold beer outside here.

    I’m waiting for the great brewery crash of 2022 or 2023 to add to the unemployment numbers.

    • OutWest says:

      And a church on many corners…take your pick.

      • Clete says:

        @OutWest: I read recently about a brewery that’s hosting church services (can’t recall where). I would think Oregon or somewhere out west, but those are heathen lands upon which faith can find no purchase.

  17. Kunal says:

    10 yr yield plummeted today even after record low jobless rate ever was reported. This means insiders do not believe Fed will ever raise rates or end QE. Fed will keep playing games and find one excuse after another to justify QE, mark my words. Its their only mandate – prop asset and stock bubbles. Any meaningful rate increase is a pipedream and it shows that sheeps never learn.

  18. Marcus Aurelius says:

    I have been doing some math. Comparing gasoline prices.

    I got a list of pricing, average for America, during the years 1929 till 2018.

    In 1929 gas was $0.21.
    In 1964 gas was $0.30

    To convert into 2022 actual value of money from 1929, in today’s market, $0.21 (2.1 dimes) is $2.49@dime x 2.1 = $5.22 for a gallon of gas in 1929 using todays money. (Today it will costs you $2.49 to buy that dime used in 1929, average condition)

    In my area, regular is going for around $3.50. This implies gas is cheaper today than 1929.

    Lets compare 1964, but before we do, why do I use 1964? Something very interesting happened to dimes in that year, but that is another topic.

    $.30 cents per gallon is 3 X $2.49@coin = $7.47 today’s currency.

    Therefore in 1964, in today’s money, a gallon would cost you $7.47. This means we have a way to go before we are paying more for gas than 58 years ago…..or even 93 years ago in 1929.

    Unless I have become Presidential, my math should be correct.

    • 2banana says:

      Not really.

      You need to factor in drilling, refining and transportation advances.

      • Marcus Aurelius says:

        We would, but the average person only sees $3.50 gallon, or $5.50 in California, and doesn’t want to hear, or read, anything else.

        If we used the same dimes as 1929, then your suggestion to consider all the advances of economy of scale, technology development, efficient pipelines, etc, we would be paying LESS than 20 cents a gallon.

        But, that is not the purpose of the FED.

    • Augustus Frost says:

      It’s not a legitimate comparison.

      Look at relative wages. This would be a better indication of what it took for the average person to “buy” both a gallon of gas and a silver dime in 1929.

      How many hours of labor did it take to buy a gallon of gas then versus now?

      Today, someone is buying the silver dime not as money but as an “investment” and it’s at a noticeable premium to the silver content.

      In 1929, the silver in a dime was worth less than 10c.

  19. Bobber says:

    Some of the people entering the workforce may be “investors” who figured out that Bitcoin and ARKK won’t provide annual returns of 100%.

    It would be interesting to hear what people say to hide the fact they’ve been holed up trading stocks and crypto all day for two years.

    • Cem says:

      Speaking of ARK, 51% down over the TTM. 54% from ATH.

      Guess tech ain’t so hot.

      • Augustus Frost says:

        You’re right except that, in looking at the ARK holdings list, most of those I recognize aren’t tech.

        Many are companies masquerading as “tech” to rationalize ridiculously inflated prices.

        Tesla, Roku, Teledoc Health, Shopify, Twitter aren’t tech.

        • NBay says:

          Writing code isn’t Tech……just playing with new languages……building chips, led screens, etc, IS tech, very HI TECH.

  20. historicus says:

    “”The printing press allows the government to tap the property of its people without having obtained their consent, and in fact against their consent. What kind of government is it that arbitrarily takes the property of its citizens? Aristotle and many other political philosophers have called it tyranny. ”

    Mises.org

    The Fed ignores two of three of their mandates….and they also ignore their own Rules of Monetary Policy which has 5 calculations for Fed Funds, taking into consideration GDP, Inflation, employment etc…, and the MEDIAN CALLS FOR 3.25% Fed Funds.

    They dont follow their mandates “stable prices”,”moderate (not extreme ) long term interest rates” (record lows are extreme) and they dont follow their own Rules of Monetary Policy.
    In a system of checks and balances, who CHECKS the Fed?
    Not Congress, based on their lame questionings of Powell.

  21. Is inflation homogenous?

    Is it the same everywhere?

    Do prices go up at the same rate on the west coast, in Texas and Appalachia?

    • John H. says:

      AJD-

      You’ve hit it! Yours are key questions.

      Command economies — especially monetary manipulation — don’t work because aggregate econ numbers hide the often conflicting non-aggregated facts.

      One example among thousands: how should the Fed manipulate money supply when housing is hot at the same time that airlines are swooning? Raising rates to protect employees in one industry disrupts employment in the other.

      • Augustus Frost says:

        The reason command economies do not work is because it is contrary to human nature. That’s why socialism will always fail, every single time no matter how many times it is tried or the flavor.

        A second reason is because reality is far more complicated than any ability to micromanage it by modeling. It appears to work during good times by distorting the economy but since there is never something for nothing, the cost has to be paid eventually.

      • Thank you John H!

  22. TK says:

    If you still wonder about “transient” inflation, go look at the futures markets. We had a big up during covid, then some down and we all thought back to normal. But they are all up in lockstep. The 6 month contracts are high. We need to stop insanely buying for the sake of buying. My nespresso wants me to sync to my phone – insanity not progress.

  23. KPL says:

    “The Fed is light years behind the curve, but the data in this report gives it a lot of ammo for rate hikes going forward.”

    Of what us is the ammo when you do not want to fire?
    I hope the inflation keeps landing punches – if the war does not abate, it will !!

  24. Mike Trout says:

    What about this idea that the Fed welcomes inflation as it eats away at the debt? They have dragged their feet for so long with this transitory bullshido to allow it to take hold and now they have finally said they will raise but clearly the small raise will have a minimal effect. Could it be that they actually want inflation? Everyone could see that transitory was crap, and now everyone can see that .25 will be ineffective – everyone except the people who make the decisions. Maybe its all an act….

    • drifterprof says:

      Why would Powell use the word “transitory” instead of “temporary”?

      Seems like a continuation of the neo-Fed Greenspeak strategy.

      • historicus says:

        I first heard LeGarde use the term….prior to Powell
        I suspect coordination.
        So the teamwork, the mantra, is developed and the narrative is attempted to be controlled despite reality.

    • historicus says:

      “the Fed welcomes inflation as it eats away at the debt.”
      For sure

      But for every action, there is an equal and opposite reaction, and the reaction is the decimation of the middle class of this country.
      So who is this really for?

      • historicus says:

        What we have here is promoted inflation, a taxation layed upon the people of this nation, by a body on which the People have no representation.
        Taxation without Representation….what say you J Powell?

        • KPL says:

          “Taxation without Representation….what say you J Powell?”

          Our arsonist (and coming soon in the guise of a firefighter) J Powell says oh so what, you can add interest rate repression, bailout, cozying upto the stock market and being the atlas under the stock market, acting like King Kong who saved the world, fostering FOMO and BTFD, making risk-taking a national and international hobby, conjuring acroynm at will to save the suited sharks and what have you AND still show the middle finger to you!
          Anyone has the balls to put me out?

        • historicus says:

          “Anyone has the balls to put me out?”

          Look who is lined up behind Powell …and whose turn it will be next.

    • Old School says:

      The thing that upsets me is the Fed undoubtedly sucked some financially unsophisticated people into risk assets at the very top by having CD’s yield negative 7% real return.

      • historicus says:

        Like I said, a cattle drive.
        And the key to getting wealthy in the past decade has been this…
        “Who knew that the Fed would not stand to their post and honor their mandates and duties?” Who knew that?
        For to know that was to be unafraid of inflation, which was clearly in the cards….and would give caution to the investor who EXPECTED the Fed to do their duties…to follow their “Rules of Monetary Policy”, to take “stable prices” to mean STABLE as in the Queen’s dictionary.
        But instead and counter to the HISTORY of the FED, we got the implementation of the greatest inflation in the nation’s history followed by NON ACTION.
        Who knew it would be DIFFERENT THIS TIME?

    • Masked Ghost says:

      Mike Trout wrote: “What about this idea that the Fed welcomes inflation as it eats away at the debt?”

      Does the Federal Reserve really benefit from inflation ? Or is it the private banks that own the Fed and can borrow there at super duper low rates?

      • Augustus Frost says:

        The primary point of this claim is that it eases the burden of US government debt and interest payments. This would be true if the government had any intent to actually demonstrate fiscal responsibility but there isn’t even a hint of it yet.

        I don’t expect it until the USD FX rate starts tanking where the key level is somewhere below 70 on the DXY. That’s the all-time low in 2008.

        At that point, contrary to what so many here believe, I expect the markets and the economy to be thrown under the bus to preserve the empire. Read some of the proposed sanctions in the last week for an event which should be irrelevant to the US and where the majority of geographically challenged Americans probably can’t even locate it on a map without a smartphone app.

        As for the banks, it depends upon their asset-liability position and operating leverage.

        Most of their assets and liabilities are financial, so inflation doesn’t have the same effect it does on households. Both are devalued by inflation.

        Inflation can also potentially increase their operating costs significantly, so it’s not necessarily good for bank profits. “It depends”.

      • historicus says:

        “Does the Federal Reserve really benefit from inflation ?”
        The fully invested benefit GREATLY from an “UNADDRESSED” inflation.
        An inflation that is being attacked by monetary policy is bad for investments……curiously we sit an wonder when the attack will occur, if ever.
        MMT calls for higher taxation to quell inflation, not rate hikes.
        Is Powell a disciple of the school of MMT?

  25. tom15 says:

    Stock market & interest rates?

    Food, energy, how deep will this recession be, is the talk out here in flyover.

    • Old School says:

      I don’t know that it is going to happen, but the last time inflation got out of control in US the PE ratio on stocks fell to 7. That would lay a whooping on a lot of people.

      • Augustus Frost says:

        This is the biggest mania in the history of human civilization. Concurrently, the actual economic and societal fundamentals are also worse or a lot worse than the 70’s (your reference point) or the 30’s on the eve of the Great Depression.

        From 1966-1982, the DJIA fell about 24% in nominal terms and about 75% adjusted for inflation to the 1979 low, both excluding dividends.

        I expect this bear market (a series of bear markets to most people) to last longer than 1966-1982 I also expect the ultimate decline to be worse than the 1930’s (89% decline) though it probably won’t in nominal l prices.

        My opinion doesn’t have anything to do with current events and whatever the US government or FRB do won’t stop it either, only make it worse. That’s what fiscal and monetary policy since at least 2008 have already done, postpone a future day reckoning.

        The majority of Americans are destined to become poorer or a lot poorer.

        • Old School says:

          Hussman had an interesting comment on valuations. Price to Sales is so high that if stock price didn’t budge, it would take 30 years of 4% nominal GDP growth to grow into the current stock market cap so that price to sales is back to trend.

Comments are closed.