Mortgage Rates Breach 5%, Two-Year & 10-Year Treasury Yields Spike after Fed Dove Brainard Explains How Inflation is Much Worse for Lower Income Households than CPI Shows

“It is of paramount importance to get inflation down,” she said to get markets to prepare for what’s coming. And they’re preparing.

By Wolf Richter for WOLF STREET.

Fed Governor Lael Brainard, one of the biggest doves on the Fed’s monetary policy committee, explained this morning in detail that inflation is hitting lower-income households much worse than higher-income households, and that it is hitting disadvantaged households, such as those with limited access to online shopping, even harder, and their inflation rates are far higher than the national average inflation rates because the basket of goods they’re buying is systematically different, and that they’re spending nearly all their money on necessities, and that they often cannot substitute items whose prices have jumped with lower-cost items, because they’re already buying the lowest-cost items to begin with, and there is no way to go lower on the ladder. They can only buy less, such as buying less of the cheapest store-brand cereal, which is the example she used.

It was an indictment of Consumer Price Inflation, depicting it as the scourge that it is for the people at the lower half of the income scale. And then she said that the Fed would have to, and will, crack down on inflation to get this under control.

Upon the speech, whose text was released in advance earlier this morning, the average 30-year fixed mortgage rate spiked by 18 basis points to 5.02% today, the highest since November 2018.

But back in November 2018, this measure of mortgage rates by Mortgage News Daily, had peaked at 5.05% briefly, before the Fed buckled under Trump’s withering attacks. But back then, inflation was below the Fed’s target, and now inflation is spiking and out of control, and it’s the White House that is now under withering fire from voters over the spike of consumer prices. There isn’t anything in recent years that compares to this. The comparison has to be to the 1970s.

And instead of fretting about the spiking mortgage rates, Brainard agreed that the market was beginning to price in the coming “expeditious increase in the policy rate” and “a more rapid reduction in the balance sheet” compared to last time:

“Consistent with these expectations, we have already seen significant tightening in market financing conditions at longer maturities, which tend to be most relevant for household and business decision-making. For instance, 30-year mortgage rates have increased more than 100 basis points in just a few months and are now at levels last seen in late 2018,” she said.

Brainard’s comments today added a new political reality to the Fed’s policies: Inflation is a horror show at the lower end of the income spectrum, with much higher inflation rates among these households than the national average inflation rates that are more reflective of inflation rates experienced by higher-income groups.

The two-year Treasury yield spiked by 9 basis points to 2.53% by noon, the highest since March 2019, having exploded in six months from 0.2% last October, which is a huge move. Another 30 basis points will take the two-year yield to 2.83%, which would be the highest since 2007. And the Fed hasn’t even seriously begun to raise rates. It is just telling the markets to get ready for it:

The 10-year Treasury yield spiked by 16 basis points to 2.56% by mid-day, the highest since April 2019:

The yield curve re-un-inverted between the two-year yield (2.53%) and the 10-year yield (2.56%), after the 10-year yield outspiked the two-year yield.

But the yield curve retains its kangaroo-shape: very steep from the one-month yield (0.17%) to the three-year yield (2.73%) and then essentially flat, with a small dip at the 10-year yield, a rise at the 20-year yield, and a dip at the 20-year yield:

The longer maturities – the five-year yield to the 30-year yield – will feel the Quantitative Tightening when the Fed will shrink its balance sheet by several trillion dollars. And this will levitate the yield curve at that end, even as the short-term yields are coming up with the Fed’s rate hikes. The green line is the yield curve at its historic lows in August 2020:

This is what the market reacted to:

“It is of paramount importance to get inflation down,” Brainard said in her speech today.

“Currently, inflation is much too high and is subject to upside risks. The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted,” she said.

“We are committed to bringing inflation back down to its 2 percent target, recognizing that stable low inflation is vital to maintaining a strong economy and a labor market that works for everyone,” she said.

The FOMC would “continue tightening monetary policy methodically through a series of interest rate increases and by starting to reduce the balance sheet at a rapid pace as soon as our May meeting,” she said.

“I expect the balance sheet to shrink considerably more rapidly than in the previous recovery, with significantly larger caps and a much shorter period to phase in the maximum caps compared with 2017–19,” she said.

As reminder: Last time, the caps after the slow phase-in, were set at $50 billion per month in balance sheet reduction. This time, the caps would be “significantly larger” that $50 billion a month.

“I expect the combined effect of rate increases and balance sheet reduction to bring the stance of policy to a more neutral position later this year, with the full extent of additional tightening over time dependent on how the outlook for inflation and employment evolves,” she said.

And so far, the “outlook” of the Fed has evolved drastically, to now seeing much higher inflation for far longer than a year ago.

For the consequences of the Fed’s policies, read: My “Wealth Disparity Monitor” of the Fed’s Money-Printer Era: Holy Moly. April Update of the Greatest Economic Injustice in Recent History

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  336 comments for “Mortgage Rates Breach 5%, Two-Year & 10-Year Treasury Yields Spike after Fed Dove Brainard Explains How Inflation is Much Worse for Lower Income Households than CPI Shows

  1. Gattopardo says:

    Jawbone the market into pricing in what they now wish they had done awhile ago. I get it.

    FYI, Lael, this inflation can crush anyone, regardless of income level. Consider the many people wanting to buy a home, or those in a tiny started home who did the “right” conservative thing and are now totally priced out of the next tier up.

    • Depth Charge says:

      No. Inflation is not going to crush Elon Musk. Or Jeff Bezos. Or Jerome Powell. Or Lael Brainard.

      • Old Ghost says:

        Depth Charge wrote: “No. Inflation is not going to crush Elon Musk. Or Jeff Bezos. Or Jerome Powell. Or Lael Brainard.”

        Inflation may not get them. But the upcoming Panic, err, deflationary Depression may hurt them a bit. But it is more likely to hurt the bottom 80%.

        I was reading up on events preceding the Panic of 1873. Lots of eerie similarities to what has been happening lately.

        The Republicans stole the Election of 1872. The only reason they failed in 2020 was because the former guy is a total incompetent. Then you have all the corruption in business (and government) after the Civil War.

        Even the so called “Stimmies” some people like to call “socialism” is eerily similar the stimulus given back then to the railroads. The recent stimmies also went mostly to private businesses…..even the money given to states and local government looks like it will now be used to give the 1% “tax relief”.

        The “New Green Deal” also sounds eerily similar to the subsidies to railroads in the late 19th Century.

        Then you have the similarity to the strikes, and general labor unrest. The US military was used to crush Labor then, and I suppose it could happen again.

        Hmmm…….and there was a lot of immigration after the Civil War as well. But nobody complains today about immigrants (or do they?).

        Just my 2¢…….

    • Ed says:

      Inflation does not crush people with significant assets. The assets go up. If their assets and income exceed their expenses, they gain.

      Also, those same people — investors and asset-holders — have been enriched by Fed policy already over the last 20 years. This is freely admitted by the Fed. They implemented a trickle down rescue.

      • jon says:

        If the interest rates are dependent on inflation and if the affordability assets are dependent on interest rates then assets would go down with interest rates going up.

        • Ed says:

          Yes, some assets (not all) are likely to fall temporarily.

          But people with significant assets will not be crushed by that. They won’t be forced to sell those assets at a low point. Nor will they be greatly inconvenienced by higher prices.

          People without assets or with relatively few assets are in danger of being wiped out by either or both of those possibilities.

      • sunny129 says:

        Ed

        Top 1% hold 50% or more of Wall St wealth, top 10% more 90% of wealth and the bottom 90% less 7%!

        Is it their trickle down wealth effect? Good Lord!

      • JR says:

        If those assets are leveraged they very much get crushed.

        • roddy6667 says:

          If they are leveraged, then they don’t really own them. Whoever supplied the cash to purchase the assets are the true owner.

    • gametv says:

      the housing market is a bubble, but housing market bubbles take time to burst – like 3 years. interest rates will need to rise more and home inventories need to rise for 3-5 months solid before we get a real significant oversupply of houses.

      my guess is that once prices start to drop, alot of owners will finally rush to sell their home – at the same time, so they will be competing for buyers, who will not be showing up.

      the first step is for demand to fall and inventories to slowly rise during the summer, while mortgage rates go to 6% or more.

    • Degobah Smith says:

      I suppose the word “crush” is a relative term, like most everything else. However, there is a significant difference from the human toll perspective from being “crushed” that you can no longer afford your dream home or can’t move up from your current one… and being “crushed” because you can’t afford to feed your children or get them proper medical care or pay next month’s rent.

      I have a neighbor who complains incessantly about the inflated cost of new wood flooring for his large, restored home… but never about the inflated value of the home itself. People tend to see what they wish to see, and (in my experience) most are hopelessly myopic when it comes to economic/social issues.

      • And in this financial system the homeowner can extract that inflated value from their home. Very similar to 2008, home values were rising, homeowners felt pressure to improve their homes (to stay current with rising values) and they were incentivized by the home ATM to REFI and extract those gains. While some of them were living large, many were paying (rising) medical costs, there was no ACA then and HC insurers were raising premiums. Now the social safety net is tighter and the home equity market is looser and people really really hate the Democrats? If gasoline went back to half what it is today nobody would be complaining about inflation, and that is a function of the 2020 oil market collapse, which took capacity offline. They can stop selling oil to China and send LNG to Europe and Japan and the circle will square.

  2. Not Smart says:

    The student loan payment pause is inflationary.

    Pause was just extended yet again. It’s looking unlikely that it ever resumes.

    Federal student debt is 1.6 trillion. This is like dropping an extra 1.6 trillion dollars of stimulus into the economy.

    • Peanut Gallery says:

      Your handle says it all: not smart

      • JayW says:

        What part of his comment is “no smart”? He’s exactly right. The Dems are going to continue to provide loan relief for continued pauses until either Biden caves or they’re voted out of control starting in 2022.

        And, he’s perfectly correct in stated these pauses are inflationary. It’s like telling 1/6 of the $10.5T in mortgage debt to permanently take a break.

      • TheRealMRDyno says:

        I’m pretty sure he meant that extending the pause forever is equivalent to just handing out the money.

        • Peanut Gallery says:

          Correct. I meant to say that the politician’s “solution” was “not smart”

    • qt says:

      Is it too late to get student loans? I’m 41 but just curious LOL.

      • Marcus Aurelius says:

        They should be retroactive, and adjusted for inflation.

        When I went to college in the 70’s, it was $4 per credit hour. A Semester, Full Time, was 12 credit hours, cost $48. This was/is a well known State University.

        I remember writing the check.

    • gametv says:

      i am SO TIRED of hearing the whining students about their student loan debt.

      first off, noone can actually run up much debt for undergraduate studies. the max you can borrow is around 30K, so it is like the debt on a car.

      second off, if you go to graduate school and cant get a job to pay off your student loan afterwards, then you are an idiot. just because some mediocre university will accept you to study some worthless graduate degree does not mean you should get the degree. go get a job in your field and get experience working. make sure you graduate from undergraduate with plenty of internship experience, so you can get a job when you graduate. my oldest daughter had 6 internship, took a gap year off and still graduated in 4 years. she took courses at community college and took 18 units every semester (because the price is the same as the normal 16 units), so we saved one full year of college ($85K). we had a plan from day one to fund it.

      the problem is that kids believe that an education is their right and should cost nothing, so they dont look at the hard numbers of the cost and benefits. unless you are rich and money means nothing, getting a degree that doesnt lead to a job is a luxury you cant afford.

      honestly, with my younger daughter, I am going to push her to start a business in her area of interest BEFORE she goes to college, or during college. i mean, does the world need another employee? no, the world needs another freakin Elon Musk. maybe we use her college funds to start the business.

      it is time for our whole society and kids to grow the heck up and stop asking for a free ride.

      EVERY industry where government gets involved in funding – higher education, healthcare, housing – is highly inefficient and prices are unaffordable. healthcare is going to be revolutionized by DTC telemedicine. higher education is unfortunately not being forced to be cost efficient or to lead to good paying jobs.

      • Gattopardo says:

        gamnetv, loved your post until this part…”the world needs another freakin Elon Musk”. No, the world definitely doesn’t need another Musk. Hell no. And he has been the ultimate free rider from EV subs.

      • Zammo says:

        You said it yourself: “we” made a plan. “I” am going to push her.

        Without you presiding over your daughter’s decisions she probably would have done the same thing you’re lambasting everyone else for doing.

        Good for you and for her that she has you, but not many students have a similar adult supporting their decisions.

      • Bobbleheadlincoln says:

        I think you are missing the more important part of post-secondary education isn’t that you get a better job (which is still true), or that you gain access to better future connections, but that a well-rounded education and development of critical thinking at a high level leads to better human beings with better outcomes for subjective happiness and fulfillment without regard to earning potential. Access to post-secondary education is a human right like access to basic healthcare. I can see why US people get salty about it because it is not provided. I am Canadian by birth, raised in US. I paid $6000 a year to go to undergrad in Canada in 2002-2006. My sister paid $40,000 a year in the US.

        • gponym says:

          Agree. Education has great worth beyond affecting earning capacity. A society which believes in educating its children – and creates sensible policies to that end – is where I’d rather live.

          And you touched on what may be the unconscious backdrop of Gametv’s remarks: The US has wandered into a higher education cul-de-sac that is both overcrowded and too costly to be practical for a great number of young people.

        • Jake W says:

          no, neither health care nor college education is a human right. the only human rights you have are to be left alone for a number of things. there’s never a “right” to have someone else forced to pay for your stuff at gunpoint.

        • Marcus Aurelius says:

          A human right?

          Your “right” demands somebody else provide it and pay for it.

          Rights are not a product. Rights are free. If a “right” has a monetary cost, then it is not a Right.

          “Critical Thinking?” Really?

        • TonyT says:

          If you most college students get “a well-rounded education and development of critical thinking at a high level” you’re smoking crack.

        • Happy1 says:

          Your sister could easily have paid similar tuition at her state school in the US. Only a chump pays 40K a year for undergraduate tuition.

        • Julian says:

          “Access to post-secondary education is a human right like access to basic healthcare.”

          Access to post-secondary education is MOST CERTAINLY NOT a “Human RIGHT” Bobble.

          That is a completely ridiculous statement to make.

          What percentage of adult humans alive today have ‘post-secondary education’? I can assure you it is under 10% of the global population.

          You have just invented a “Right” that doesn’t exist!

      • My community college nursing school loans were no more than $18k. 1.5% & 3.5% interest rates, fed loans.

        Deferred a few times when I was under employed: graduated nusing school in the GFC recession hiring freezes, and twice while out of work due to complicated pregnancies/childbirth, VERY briefly defaulted during the divorce (he timed it well–at 2 weeks postpartum SAHM. Don’t be a SAHM no matter what ladies, trust me, the law is not in your favor and you can end up homeless with infants before you’re legally allowed to return to work, like I did. Doing great now though).

        Paid religiously in between all that static on Income Driven Repayment. Loans which still got sold to several servicers that tacked on $10k each and jacked up the interest.

        Now owe $50k. On $18k loans that were already half paid off.

        I was no Philosopsy major but I dare say the bootstraps and avocado toast philosophy doesn’t account for notoriously bad legal contracts like student loans for medical degrees, or marriage for that matter.

        I’d gladly pay the prolincipal and interest rates I closed on the loans woth, but, well, silly spoiled Millenial doesn’t wanna quit eating to pay $30k in tacked on arbitrary servicing fees.

        • phleep says:

          Good for you for staying afloat and not dumping the problems on others! That is virtue, we need to rediscover! Those are the unsung heroes.

          I am timid and patient, and fine with that. I finished law school more than 10 years before I got married. (It turns out a divorcing spouse who contributed during school could claim a piece of my law career — yikes!). Undergrad through law school was all-in less than $20k back then. Even so, I strained early to pay off my student loan but did. After divorce, despite being the only one who ever paid a dime on our house payments, I had to buy out the departing ex. But I kept the house. A great trade.

          Contracts have risks, especially in light of future events, yes. (I teach that at community college.) I am proud of teaching community college and not gouging people on tuition. And marriage is an open-ended constantly-reshaping “relational contract” beyond my comprehension or competence. So I don’t sign on.

        • Anthony A. says:

          I went to college the old fashioned way.

          I went to fight a war in the mid 1960’s and came back home and used the G.I. Bill to get through engineering college. My $222/month covered everything, but I did work nights and weekends to pay my way through the rest of the expenses (apartment, food, junk car, etc). It was tough, but it was over in just 4 short years.

          The G.I. Bill (in its new form) is still available to veterans. Also, one can go into certain colleges like Texas A & M under the ROTC program and have tuition paid all the way.

          My granddaughter went thru college on grants and scholarships. She didn’t owe a dime when she graduated the University of Texas five years ago. The money is there, and all she had to do was apply for it. That even surprised me that it was so easy to get the funding.

    • Nathan Dumbrowski says:

      Bless your heart. I was not happy to hear that the government paused re-payment yet again on student loans. Loans were requested and granted and backed by the Federal Government. The people should pay back what they owe. My gut feel is these will all be erased by executive order.

      What a gift to give the voters

    • CommonSense says:

      Agree. It’s inflationary.

    • Lone Coyote says:

      So, what happens to people like me who have privately financed student loans, and have been paying the entire time covid has been going on?

      • Marcus Aurelius says:

        You must be “Privileged”.

        So pay up. Pay your fair share.

      • VintageVNvet says:

        i can only testify from personal similar experience LC:::
        when i paid the last $3K to my private lender, he broke out a $3K bottle of cognac, and we shared it with a TON of wonderful memories for him and me:
        He finally ”opened up” about his experiences parachuting behind the lines, twice in WW2 after TPTB found out he had spent his HS Jr year in Germany and was completely fluent,,, walking out the first time with the help of the French ”partisans” ,,, stealing a plane and then crash landing it the second time and had the scars for the rest of his life…
        Hope your pay off won’t be quite so dramatic, but encourage you to PAY OFF your loans,,,, NOT for the lender, but FOR YOU and YOUR health…
        ”some folks” think they can do a or the dirty deed, including reneging on their word, and get away with it without ANYT recriminations:::
        Most folks suffer for years until they real EYES that is NOT true,,, some go ahead and ”pay the piper” and go on to happiness of each and ever kind
        others continue to suffer — at their own hands/minds to be sure

  3. Depth Charge says:

    All I hear is talk out of these people, with no action at all. “We understand that inflation hits the lower income households the hardest,” said Jerome Powell as he continued to pour hundreds of billions into MBS purchases for another 6+ months after uttering such hollow words.

    Shitcan the entire lot of these creeps. That Jerome Powell still has a job after such a horrific performance is very telling of the systemic rot we are currently dealing with. Not only was he 100% wrong in his “transitory” BS, his group of fraudsters were frontrunning the stock markets on their own insider information. These guys are anti-American financial terrorists destroying the standard of living of the masses for their own personal financial gain. Yet they sit back for months upon months arguing over a measly 25 basis point rate hike. What a JOKE.

    • Peanut Gallery says:

      How many different ways can you say the exact same thing in all of your comments?

      Would you please add something of value to the conversation?

      • Peanut Gallery says:

        GFY stands for good for you right?

      • Bobber says:

        How many times did the Fed say it would normalize interest rates? Surely, the harm caused from that is 1000x worse than anything Depth Charge has to say. It’s interesting what bothers you, and what doesn’t.

      • Alku says:

        +1 PG! I was dreaming many times of the option to hide “bash the FED” comments” – would save a lot of time to read just information

      • Wolf Richter says:

        Jawboning is one of the most powerful tools the Fed has. That’s how it gets markets to do what it wants them to do, in both directions.

        So now the average 30-year fixed mortgage rate is over 5%. That’s is going to start working.

        The two-year yield is over 2.5%, while banks are sill paying near 0%.

        Look, there is a two-year Treasury auction coming up on April 26. If yields stay on the right track, I’m going to put in an order to place some extra cash that is now earning near 0% at the bank.

        Jawboning works!!

        • Raj says:

          I am confused. The Fed should not be required to Jawbone if the free markets are working.

          E.g. Fed stopped buying treasuries => no one else should buy it at negative real yields (yields – inflation) => new auctions will need to raise real rates to positive territory => yields snap overnight to 8% => No Jawboning required.

          Does Fed needs to jawbone only because other entities buy treasuries because they still believe in Fed Put that they cannot lose money, and Fed would bail them out by lowering rates again?

          “The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.”

          Did we not get this indication 6 months back? Yes we did and they said “Inflation is transitory.” If dumbnuts like us could figure it out, what were the PHDs at Fed doing?

          Also this comment has an “if” that indicates that Fed “STILL doubts” whether “Strong action is warranted”.

        • Wolf Richter says:

          Raj,

          Jawboning happens in real time. Markets react instantly, as we can see.

          Actual monetary policy transmission to the markets has a long lag, many months, but it will eventually get there. That’s why jawboning is an official tool in the Fed’s toolbox, known by official names such as “communication” or “forward guidance.”

          The Fed used jawboning massively starting in March 2020. Every time it made any kind of announcement of what it is thinking about it might do, markets spiked. That’s how jawboning works in real time.

          Its whole corporate bond buying thing was one gigantic jawboning exercise that caused the biggest corporate bond bubble ever, and then the Fed ended up buying almost nothing (just $12 billion of the $750 billion it said it would buy). I covered this at the time. It was an amazing thing to see it being played out that way.

        • Harvey Mushman says:

          “Look, there is a two-year Treasury auction coming up on April 26. If yields stay on the right track, I’m going to put in an order to place some extra cash that is now earning near 0% at the bank.”

          Me too.

        • sunny129 says:

          Jawboning works! But how long?

          Global Conditions are ideal for rip-roaring inflation, unlike anytime (even in 70s) before b/c record in Public and private sectors, ZRP kept too long, stimulus more than needed, chain supply problems still lurking, Covid is still here. Current economy still neeeds fossil fuel, whose production being reduced. ESG is ‘castle’ being built in the sky! 30M barrels being released Stragic Reserve is a joke, since USA uses almost 20M barrels/day!
          We are in uncharted waters!

        • Wolf Richter says:

          “Jawboning works! But how long?”

          Until the slow-moving monetary-policy transmission catches up.

          Jawboning is effective in real time, as we can see. The transmission of monetary policies to the markets takes months, and its impact on inflation is known to take about 18 months.

        • Gattopardo says:

          You sure you want to lock in two years at 2.5%? (asks the guy who has said that many times over the last decade, and sat in too much cash because of it).

        • VintageVNvet says:

          We are holding out for when the FFR goes to at least 7%, then going to buy the TIPS with that as the ”base” rate that stays at that for the whole enchilada of time…
          Otherwise, as others on here have said, once the FRB does go back to it’s clear corrupt decreases, at the end of the 2 year, you’re back to where you started, getting nada at the bank.
          Or just ”invest” in diamonds, unicorns, perpetual motion machine, gravity mirror, etc., etc.

        • cb says:

          @ Wolf –

          If you succeed at getting two year Treasuries at 2.5% on April 26th, what do you project happening to the purchasing power of that money spent for the Treasuries?

          How much better or worse off will you be two years later?

          Why are you willing to tie up money for two years at 2.5% when inflation far exceeds 2.5%? What do you happening with inflation?

        • Wolf Richter says:

          So if I do nothing, and the cash earns nothing in the bank, the purchasing power also declines, but I don’t get the interest. And if I buy stocks, and they plunge 50% in two years, the purchasing power gets double-whammed by the plunge and by inflation. The calculus is always the same. In this environment, I’m trying to find a mix of the least worst options. Inflation is a shitty thing :-]

      • AK says:

        Do you think DC is factually incorrect ?
        If so, where in his statement is he wrong ?
        DC does have a tendency to emotionally charge his posts,
        but that is just his style.

        • Peanut Gallery says:

          Actually I think Depth Charge is completely true in everything that he says.

          But seriously, when you’ve made your point once, why make it again? Or three times? Or like, fifty times? At some point you have to add value to this conversation by talking about something else that adds to the corpus of knowledge.

          We know the Fed is late. We know the US elite repress and steal. We know it’s not fair.

          And besides it is a ton of crap to have to scroll through. The more garbage people post here the more junk you have to sift through in order to get to the good stuff.

          Seriously, posts from really intelligent helpful people like Yushan and Gametv (and Wolf?) get buried because of “powell! inflation! rabble rabble rabble” comments.

        • Raj says:

          Peanut G.

          Why not ask the Fed to stop repeating?

          “The Committee is prepared to take stronger action if indicators of inflation and inflation expectations indicate that such action is warranted.”

          This comment has an “if” that indicates that Fed “STILL doubts” whether “Strong action is warranted”.

          So how is this statement different from previous statements that essentially meant “Fed may do something stronger, sometime in future, to address inflation?”

      • OutsideTheBox says:

        Don’t be too hard on him.

        He had a terrible misadventure with a nail gun.

      • TheRealMRDyno says:

        He keeps saying the same thing.
        He keeps being right.

        • Depth Charge says:

          They don’t like the straight forward truth, and people who don’t acquiesce to their narcissistic demands.

        • VintageVNvet says:

          YES trmrd!
          And one can skip through whom so ever one wishes NOT to read again and again when so ever one chooses, eh?
          I will testify that I DO do that when I have read any of the frequent commenters on here once per article and they post over and over again.
          Please feel free to skip anytime YOU CHOOSE!!!
          ”All generalities are false, including this one.” MAY apply???>

        • TeacupDragon says:

          Coming to WolfStreet to read the article & commentary is like going to your favorite café in the morning to sit at the big table with all the regulars whose company you enjoy. It’s comforting. It’s a community. I look forward to the personalities & byplay of ideas. I appreciate thoughtful commentary & that Wolf manages the site to the rules he stipulates. I don’t want Depth Charge to shut up or VintageVNvet or phleep or any of the other regulars, but I may choose to skip Peanut Gallery for awhile.

        • Anthony A. says:

          Like TeacupDragon said, this is a place to get good information from Wolf and the community members.

          In the short time I have been reading these articles and comments, I have learned a lot, and that knowledge has been real helpful to me. Actually, I wish I had found Wolf’s site years ago.

        • Happy1 says:

          even “righter” would be to simply end the Fed

      • KPL says:

        “How many different ways can you say the exact same thing in all of your comments?”

        As many ways as possible to ensure that markets get it before the action. Markets have still not got the memo. May be the Fed’s pussyfooting around rate hikes with a 25 bps in Mar did not help.

        Jawboning is Fed’s way to make sure the action (rate hike – BTW likely to be 50bps in May and QT > $50B) that follows does not crater the market.

        There is nearly a month of jawboning left till the next meeting.

    • Poor like you says:

      It might be that they’re doing exactly as they’re being told.

      • Anthony A. says:

        Yes, I would guess these jawboning sessions are test runs to get the market’s reactions. It’s more than likely all planned.

    • Marcus Aurelius says:

      Perhaps, all this is intentional.

      If it is, then this “Plan” is brilliant, and being executed brilliantly.

      Look at it “backwards”. If this is intentional, ask “why?”. Ask, “what is the poin”t? What is the “goal”? Why would this be intentional?

      If you do that, everything becomes so clear it will shock you.

      • BaronVonPickle says:

        Connect the dots for me. Seriously. I just now reading this article gained an intuitive understanding of what a yield inversion is. That’s how new I am at this.

        So seriously, lay it out for a financial newb.

      • Jake W says:

        can you help me with this as well?

    • Kevin says:

      you are 100% correct. The Federal Reserve needs to exposed every second repeatedly for the crime they have committed and are still committing. One of the few people who knows who is the worst culprit behind all of this mess. It is a very corrupt system that will meet its own demise from the inflation monster it has created.

    • Kevin says:

      continue your good work man! The Fed needs to be exposed every day for the massive crime they are committing. We can never forget who is the biggest culprit.

    • DawnsEarlyLight says:

      Ha! We know the Fed is lying! The Fed says one thing, but contiunes to do the other. Principal is being reinvested in MBS rather than being allowed to roll off.

  4. Peanut Gallery says:

    What is the FOMC going to do when most of the inflationary drivers come from supply side economics?

    You can destroy demand all you want but monetary policy can’t create more oil and wheat…

    • Bobber says:

      It doesn’t matter whether the inflation comes from demand side or supply side. Either way, you have to raise interest rates, even if it causes a recession and temporary drop in corporate profits.

      Speculators will suffer. Everybody else gains.

      • Shells says:

        This is going to be unpleasant for a lot of people for a long time.

        Milk in my area is now north of $7 a gallon. its $10 a gallon at whole paycheck.

        • Augustus Frost says:

          I paid $3.09 last week.

        • Marcus Aurelius says:

          This is like driving a car with the “pedal to the metal”, and then realizing you need to slow down.

          So, don’t adjust the right foot, but not stomp down HARD on the brakes.

          Gee, what could go wrong?

          That is the state of our economy.

        • Bobber says:

          I paid $1.99 yesterday. Usually it is $2.99 in Seattle.

        • Hal says:

          You need to pack up and move.

        • Peanut Gallery says:

          Shells, where do you live where milk costs $7?

          Are you buying an over-marketed, over-priced organic milk from Whole Foods?

          Walmart has gallon 2% milk every day for $2.39. Yes it used to be $0.99 on sale in years past…

        • Old Ghost says:

          Milk is the perfect food for a baby cow.

          I stopped drinking it altogether about 40 years ago. Cheese or yogurt would be a better choice.

      • Augustus Frost says:

        It will still matter. There will be no “soft landing”. This recession is going to be a doozy.

        Somewhat lower inflation for everybody and unemployment for many.

        • Marcus Aurelius says:

          I can’t wait to get a 2022 C8 for $20,000

        • TheRealMRDyno says:

          Marcus, my thoughts run the same way. I’m afraid so many people are thinking that, it will become a self nullifying fantasy.

      • Sams says:

        It does not matter if the reason for a famine is no food to purchase or no purchasing power to buy food. People die anyway. That may be the end game quite a few is in for.

      • Peanut Gallery says:

        Bobber, I do think it does matter where inflation comes from? If it is supply side, then monetary policy cannot alleviate it.

        I do agree that rates must rise for a multitude of reasons. But to think that demand side impacts from rate increases solve all problems – that’s too simplistic right now in this economy.

        • phleep says:

          > where inflation comes from? If it is supply side, then monetary policy cannot alleviate it.

          So, buyers for whatever reason, interest rates or exhaustion of cash, reduce demand. Prices adjust downward, more in line with supply. I suppose the word “recession” pops up.

        • UrsaTaurus says:

          PG –

          To me there’s interesting corollary to what you said which I haven’t seen mentioned all that much – high rates actually make investing in productive capacity MORE expensive. So raising rates and promising to tamp down future inflation both dissuade investment.

          So policy is actually going to hurt supply side, the only way it works is if it hurts demand side more.

    • cb says:

      inflation comes from digitizing too much money, suppressing interest rates and extending too much credit. It is the creation of gobs of money, which in accordance with the cantillon effect first pushes asset prices and eventually pushes the cost of living. (Notice no mention of the phony CPI)

      It is all part of the creation of a debt society where servants are kept in service to the masters.

      • phleep says:

        I am adjusting my standard of living downward, even as my debt inches downward. This is to preserve my liberty. Freedom isn’t free. And it certainly doesn’t correlate necessarily with gobs of cheap and free stuff, whether that stuff is credit, cash, student loans, iPhones, avo-toast, or whatever. (Not that you said that.)

      • Lisa_Hooker says:

        So how long can we continue living on our grandchildren’s projected income?

        • cb says:

          Only as long as the grandchildren of the elite convince the grandchildren of the masses to pay a portion of their produce to support old deals. I suspect a few deals will be re-written.

  5. Swamp Creature says:

    “Fed Governor Lael Brainard, one of the biggest doves on the Fed’s monetary policy committee, explained this morning in detail that inflation is hitting lower-income households much worse than higher-income households”

    This is partially true. We are not high income but are not affected by this Bideninflation the way most people are. Home mortgage paid off, semi vegetarian diet, no debts, still in the workforce with fees going up and adj for inflation, WFH 85%, limited gas usage, most expenses deductable, 8 computers humming along doing most of our work. People need to stop whining about this inflation and do something constructive to deal with it. Its only going to get worse.

    • Troy says:

      Do people come to this website to just continuously brag about their amazing life situations?

      Also, which administration printed 4 trillion in stimulus and gave it to anyone and everyone?

      I honestly wish the previous administration was still in office just to see what kind of bs would come from their mouths to try and justify these price increases

      Instead we get short sighted idiots here who go around making completely stupid comments about “BiDeNfLaTioN”

      • Peanut Gallery says:

        Troy, it is true that this inflation doesn’t impact some like it does others. They are allowed to speak their minds.

        If you don’t like it, go somewhere else. And Swamp is not bragging. He has been posting here for a long time and is objectively telling us about his lifestyle as is so we can learn from him.

        • Troy says:

          Inflation doesn’t touch me either, but I don’t go on here talking about how people shouldn’t be purchasing anything because I myself don’t buy anything, because I know that’s not constructive to 90% of the population

          He lost his credibility after mentioning bidenflation anyway, people who blame one political party on the work of another are shortsighted goldfish

          I say this as an independent, couldn’t care less about either party

        • Peanut Gallery says:

          Troy, the problem is 90% of that population that you refer to overconsume.

          Hence Swamp’s point: don’t overconsume and you won’t be impacted by inflation as much.

          I do agree with your point that to make inflation a partisan matter is foolish. Just look at the politician voting on the profligate spending from the CARES act. Everyone voted for it. Both teams red and blue.

        • phleep says:

          OK PG, Both teams red and blue voted for this. So why defend the the inflammatory partican playground throw-down “Bideninflation”? That is worthy of Zerohedge and FOX. It cheapens and coarsens the discussion, unless it makes a meaningful point, which you conceded it does not.

          Read FOX comments to see how brain-dead and shouting they are.

      • Pea Sea says:

        The cognitive dissonance really is amazing. Damn that Joe for not going back in time and preventing QE Infinity and PPP and Stimmy 1 and Stimmy 2 and…

        • Gooberville Smack says:

          Yes, that cognitive dissonance truly is amazing. Joe wasn’t extending rent moratoriums, child credits, unemployment benefits, tuition deferment, now was he?
          No, Joe is off the hook because he didn’t ‘go back in time’ and undo Trump policies. Besides, now it’s Putting fault, not Trump. Get with the narrative.
          At this point it blows my mind that people are still taking sides looking left and right when they should be looking up and down. This is class warfare.

      • drifterprof says:

        ;-)

      • Wolf Richter says:

        Troy,

        “Also, which administration printed 4 trillion in stimulus and gave it to anyone and everyone?”

        One after the other — with the first one being the bigger overall:

        1. Trump administration: 2 stimmies, PPP loans, corporate bailouts, mortgage forbearance, eviction bans, etc.

        2. Biden administration: 1 stimmie, extension of the programs inherited; mostly expired now

        • Peanut Gallery says:

          Wolf, come now… dollars attached to those unit counts??? ;)

          Just kidding. I know total dollars probably come more from the Trump admin.

          But still.

          Trying to keep you on your toes…

        • Happy1 says:

          True but lacking context.

          1. During the height of a complete lock down of the economy the entire world for 8 weeks in a situation of almost complete economic uncertainty. At least for much of those programs.

          2. Vaccines are available, lock downs almost completely resolved, and remember he tried to pass a 4 Trillion dollar spend a palooza stopped only by a few sane people in his own party.

          I don’t think either was completely correct but the failed spend a palooza would have been the single most unnecessary and inflationary bill in US history.

    • Enlightened Libertarian says:

      Swamp, I have to agree with you. If everyone can see the reality is 10% interest rates and 10 inflation then the first step is deal with it as best you can and then fight for change.
      Just complaining about reality is a waste of your life.

      • cb says:

        What would you suggest? Buy more leveraged real estate? or what?

        • COWG says:

          Depends on what you’re trying to do…

          Circumstances and your psychology dictate how you proceed…

      • cb says:

        Enlightened Libertarian went from zero to 20 million in 15 years. I am wondering if he still thinks there is a prayer of repeating that.

    • Swamp Creature says:

      Troy,

      I think you missed my whole point. I wasn’t bragging about anything. I was trying to let you and the other lemmings which constitute 85 to 90% of the American people of things they can do to combat this Bidenflation or TrumpInflation whatever you want to call it. Staying in the workforce is one of them. It’s a guaranteed winner. Making yourself more productive is another, by using technology to leverage your skills. Having a better diet is another. I’ve posted many times before that most produce and seafood hasn’t gone up much at all in the last few years in spite of this inflation. Go look at all the junk food that people are putting in their checkout carts. And the price of red meat is out of sight. So I’m suppose to feel sorry for all these folks who don’t make good dietary choices. Sorry I don’t. Maybe they should take a dietary course. And maybe they should get rid of their gas gussling cars or use public transportation once in a while.

      • COWG says:

        Swamp,

        He didn’t miss your point…
        He couldn’t understand it…

        You were speaking French…

        He was listening in Spanish…

      • Swamp Creature says:

        I’ve also started boycotting vendors who are not comenserate with my values. Like WOKE companies just for starters. I will not buy any products from them unless I am unable to find a replacement. Examples, AT&T, Comcast, Verizon who are all crooked monopolies which I use because I have to just for survival. My enemies list includes companies like Amazon, Whole Foods, Disney, Starbucks, American Car companies, Big Banks, Safeway, etc. The list is getting longer every day.

        • Lisa_Hooker says:

          I know, I know!
          If everyone would just live like me we would all be much better off.

    • Flea says:

      Your lucky to be working,inflation is killing my retirement

      • Anthony A. says:

        Exactly. We are in our late 70’s and inflation is hitting us in all expense categories.

        Even my wife’s PCP (Her doctor) is pulling the stunt of calling between quarterly appointments to “discuss her medications” and bill Medicare for a “telavisit” (which will cost us $35). They are thieves.

        There is NO REASON to try to pull off a telephone call with her to “discuss her meds” when they know exactly what THEY have prescribed for her at any given moment. Plus, in two weeks she has a booked appointment for a visit with the Doc. Crooks.

        In addition, cable has gone up, the gas/electric utilities have higher “fuel costs” added, groceries are up a lot, gasoline is up, car insurance went up, and so on.

        Rant over.

        • COWG says:

          Anthony A.,

          Dump the cable, brother…

          Grab an antenna for the Houston locals…

          Way, way lots of free tv out there…

          Literally, tons of it…

          You’ll never miss cable…

          (Unless you like 15 religious and 37 shopping channels)… :)

        • Anthony A. says:

          COWG, I would dump the cable in a flash if it weren’t for the wife wanting to watch “certain” shows only broadcast on the cable. Plus, she is an Astro’s fan and can only watch the games on the special sports channel here in Houston that is part of the cable package.

          Me, I care less about cable or watching the Astros. But, for peaceful coexistence, I’ll pay the cable bill.

      • Swamp Creature says:

        Flea

        Forget retirement. That was for the last generation. You ain’t got none. Get over it.

  6. Flea says:

    I’ll bet FED shorted market ,before comments Braenard , what a shitshow

    • SoCalBeachDude says:

      Obviously not. The Federal Reserve is not involved in stock markets at all and does not own any stocks.

      • John H. says:

        Yet. Just wait til stocks react to rising rates at some unknown future level.

        It was not so long ago that they had never purchased mortgage securities, and they’ve recently experimented in the corporate bond market, no?

      • sunny129 says:

        SoCalBeachDude

        Have you heard of PPT?

        Plunge Protection Team refers to the Working Group on Financial Markets. The group, formed in the aftermath of the 1987 ‘Black Monday’ stock market crash, provides financial and economic advice to the U.S. President during market crises.

        In recent years, some have had suspicions concerning the methods of the Working Group, as it does not release records of its meetings and recommendations. Plummeting indices have rebounded in a day, leading to speculation that the Plunge Protection Team manipulates markets.

        Sweden central Banks have bought US euities including Apple! BOJ has and still buying ETFs of Japan! QE was a ‘seat of the pant’ origin from Barnake, with no prior research or record! Fed NEVER bought MBSs in it’s ENTIRE history(since 1913) prior to 2009!

        • Swamp Creature says:

          Hank Paulson, and his PPT, has been called to warm up the bullpin. Word has it that the recent plunge in the Transportation Index is a leading indicator of a stock market meltdown. Usually leads by 3 to 4 months. Add in the possibility of a new Covid variant, and its game over.

        • SoCalBeachDude says:

          The so-called PPT was entirely disbanded in 1993.

        • sunny129 says:

          SoCalBeach

          ‘The so-called PPT was entirely disbanded in 1993.\’

          Wow!!

          Explainer: ‘Plunge Protection Team’ to convene amid Wall Street rout
          WASHINGTON (Reuters Dec 24, 2018 ) – The Trump administration is arranging a phone call on Monday with top regulators to discuss financial markets amid a rout on Wall Street.reasury Secretary Steven Mnuchin will host the call with the president’s Working Group on Financial Markets, known colloquially as the “Plunge Protection team.”

        • Wolf Richter says:

          sunny129,

          Please read the whole article that you cited. It’s pretty clear what these people did and didn’t do. And they didn’t buy stocks, or anything else.

        • sunny129 says:

          SoCalBeachDude

          RE PPT (investopedia)
          How the Plunge Protection Team (PPT) Might Work
          On Monday, February 5, 2018, the Dow Jones Industrial Average (DJIA) experienced a drop that was twice as large as its biggest point decline in history. However, arbitrary and aggressive buying cut the decline in half in one day. On Tuesday and Wednesday of that week, stocks opened lower, and each time aggressive buying buoyed the markets. That aggressive buying, some say, was being orchestrated by the Plunge Protection Team.

          Or, to take a more recent example: The Plunge Protection Team’s aforementioned teleconference on Dec. 24, 2018. That whole month, the S&P 500 had been heading towards a record decline—the motive for the team’s meeting—and the DJIA dropped 650 on the 24th alone. But when trading resumed after Christmas, the DJIA rallied over 1,000 points. On the 27th, it lost half those gains, until a late-day reversal stopped the slide, and caused the market to close 600 points up. That’s no coincidence, conspiracy theorists argue.

        • Swamp Creature says:

          With these interest rates spiking like they are doing right now, and the Transportation Index (which CNBC doesn’t show anymore) signaling market crash, along with the inverted yield curve Bernanke and Tim Geitner may also be called out of retirement to join the PPT. Hank Paulson was out bird watching, his favorite passtime, when his cell phone started ringing off the hook.

      • Anthony A. says:

        SoCalBeachDude, I recall when GM went BK several years ago, the “Gov” ended up with a pile of the “New GM stock” and subsequently sold it over the years. Someone, maybe not the FED, in the Gov was buying and selling GM stock.

      • John H. says:

        SCBD-

        It appears that the dead corpse of the Working Group On Fin’l Markets (akaPPT) issued a report on Nov, 1, 2021. Its on Treasury website.

        Just goes to show you how hard it is to kill a federal government department, once it’s up and running!!

        Aside from that I believe that THE FED will buy stocks (or equity ETFs), some day, due to:
        A. Other banks have done it (as Sunny129 discussed above)
        B. The “mission creep” that it has applied to it’s variety of policy tools” every decade of its existence.
        C. Its over-riding compulsion to protect the markets from volatility (which it’s own policies have enhanced).

  7. SoCalBeachDude says:

    The FOMC needs to move the Federal Funds Rate up to 9.5% ASAP.

    • TheRealMRDyno says:

      That’s what the NRA has been saying.

      That would make it a great time to buy.

      Or sell.

  8. Anthony A. says:

    Ms. Braindead sounded like she was going to handle all this tapering herself…..”I expect, I expect, etc.”

    What egos these make believe leaders have.

    I’ll bet she has never been in a grocery store or pumped her own gas.

    • Shells says:

      I’m guessing she has done both, actually.

    • Wolf Richter says:

      Anthony A.,

      You misunderstand the meaning of “I expect.” I expect that my wife will be home tonight at 7 pm. That doesn’t mean that I am able to make that happen or that I even have any say in it :-]

      • DawnsEarlyLight says:

        Wolf, that’s certainly one expectation that will never change! 😅

      • Gabby Cat says:

        Husband said something very similar to our young boys recently. Smart guys! :]

      • Peanut Gallery says:

        Exactly Wolf. These interest rate hikes and tapering actions are not going to go exactly as planned.

        Yes, they were accomplices in terrible overspending in 2020-2021 but there are many things out of the Fed’s control right now.

  9. JayW says:

    Read an article just yesterday that was speculating how long it will take for mortgages breach 5%. The author speculated it could take months.

    Hilarious that it only took 1-2 days. The question now is how high will they go? I posed this question to Wolf last week: what’s causing the recent spike in mortgage rates?

    I was surprised that he didn’t have a few ideas, but to his credit we all can agree that this is playing out much faster than most of us expected.

    My thought process says the mortgage industry / investors are pricing in the flood of MBS and 10-yr treasuries that will start hitting the market in 1-2 months. The FED has created massive fake demand over the last two years, suppressing yields and driving up prices along the way. As such, investors expect the FED to give them significant discounts on price & higher yields as compensation for absorbing all of these FED owned assets that they’ll then carry on their books for years to come.

    Translation: the mortgage industry is right-sizing rates, driving them up, so they can afford to purchase all of these MBS at much lower prices than the FED purchased them at.

    Just my $0.02.

    • Wolf Richter says:

      Yes, this has been very fast moving.

      Refis have died. The first layoffs in the mortgage industry (PennyMac, etc.) are already happening.

      • Jay says:

        And so it starts. There’s no telling how many people are going to let go who work in the mortgage business.

        And from there, the contagion will spread.

        But don’t worry, America! There won’t be a recession by the end of 2022, easily a year earlier than what’s currently “the guess” by the experts.

        • Wisdom Seeker says:

          Feature, not bug; more workers are needed in the productive economy. Need more output to break the supply chain bottlenecks driving the inflation. Alternative is to break the inflation by killing demand, but that’s destructive to living standards. Increasing production and diversifying supply chains makes everyone wealthier (except for the monopolists).

      • TonyT says:

        USAA is laying off 90 in their mortgage division.

      • Swamp Creature says:

        Wolf, Mrs Swamp has seen refis dry up since the 1st of the year. But no matter. Condo sales in the city are booming and making up the difference and then some. A lot of multi-family buildings and 2 and 4 unit townhouses were converted to condos and now are on the market and selling well even at the higher interest rates. They are the only game in town as traditional townhouses are too expensive for the average 1st time homebuyer. We are working 18 hours/day including weekends.

      • Nathan Dumbrowski says:

        Friend in the mortgage business was told by leadership today to begin to prepare for the cascade of mortgage defaults. They still make money in the mortgage business on the way down as well

        • Cem says:

          Could you expand on this?

          I have a coworker with a husband who’s a VP at a well-known lender and they already made huge cuts with more planned.

          He told her that they were front running huge anticipated plunges in the industry’s customer base.

        • Peanut Gallery says:

          Why would there be a “cascade” of mortgage defaults?

          Please explain.

        • phleep says:

          Cascade of mortgage defaults: if people are running out of money or jobs or both, having bought in at the top, it’s easy to imagine. So many were out over their skis in 2008.

          But it is weird that the economy and jobs are said to be running hot, even as stocks are sputtering, and bonds rates rising. When does Wall Street echo to Main Street?

        • UrsaTaurus says:

          Remember, they don’t even have to be underwater to default, just not able to make payments. It’s not difficult to imagine that as inflation eats up more and of the paycheck; maybe student loan payments start up; car payments rising etc. – that all of a sudden that mortgage payment that originally was stretch but doable no longer is.

          And that’s not even including more dire scenarios like longer-term un(der)employment. Or actual big declines in home prices.

    • Abomb says:

      Just a week or so ago either NAR or realtor.com was saying rates would hover around 4.5-5% thru the end of the year. I mean I suppose that could happen but seems highly unlikely. Are they forecasting lower rates so as not to increase the FOMO already in the market. Maybe they know the crash is coming and want to limit it spiking any worse. You can tell by the drip drip drip of bad headlines that people are individually getting bolder in making more negative forecasts based on what everyone else is saying.

      • Swamp Creature says:

        Abomb

        I wouldn’t pay any attention to what Realtor.com or NAR are saying. I get some of their pubs. In 2007 while the Real Estate market was in full meltdown mode with much more to follow, they said that “This was never a better time to buy a home”. These people paid hucksters and liars.

        • JayW says:

          Trust me, I don’t. If I read something from them, I immediately start busting out laughing. Most anyone associated with the real estate business in terms of sales is mostly a cheerleader. Kinda reminds me of JPowell.

        • Peanut Gallery says:

          I mean, you’re asking a barber whether if you need a haircut…

          You know what he’s going to say ;)

      • Swamp Creature says:

        We just did an inspection of a 1.2 million 19th Century townhouse in the heart of the DC Swamp today. The Realtor never showed up to let us in and sent a lock box code that was invalid. It turns out the number they sent was the serial number of the lockbox instead of the code to unlock the box. These people have to be the dumbest people on the planet. Total morons.

    • COWG says:

      “ was surprised that he didn’t have a few ideas, but to his credit we all can agree that this is playing out much faster than most of us expected “

      Jay,

      Most of the things you read from the “pundits”
      are going to be a load of BS…

      No one, and I repeat no one, under the age of 50, has experienced or has a practical understanding of high inflation and what it can do to an economy…

      Think about that for a minute next time you read what some “guru” thinks…

      When even the HMFIC stumbles into the house like a clueless drunk rube, it should be a warning …

      Looks to me while she’s not at the podium, Brainard’s now in charge…

  10. 2banana says:

    You all hear that giant pop of the housing market?

    • Publius says:

      Only for the masses. Expect an even larger share of cash/investor-purchased homes.

      • TonyT says:

        Why? If home prices go down, why would they buy?

        If rents go down (e.g. recession), and home prices are going down, why would investors buy?

        • Marcus Aurelius says:

          There are at least 2 Million new Americans entering America every year.

          Expect 50,000 a week.

          They need housing and the Government will pay whatever the Hedge Funds and Private Equity companies demand.

          Brilliant Plan.

        • DawnsEarlyLight says:

          Maybe Publius meant they will buy ‘when’ house prices are lower.

        • Flea says:

          Marcus These are not Americans entering US ,more like no income refugees ,

        • phleep says:

          > If rents go down (e.g. recession), and home prices are going down, why would investors buy?

          Faith-based, that the Fed put will refloat them again, as in the last 15 years. That’s the 1% everybody talks about: they can time market swings this big. They built up enough dry powder (and the contrarian view) to do it.

        • OutsideTheBox says:

          MA

          Two million a year ? Really ?

          Of course, you don’t supply number for how many die or emigrate.

          You insinuate USA population is increasing.

          It isn’t.

  11. fred flintstone says:

    More like Braindead……..she and her crooked friends are playing a dangerous game. Tightening now……no way this end up a soft landing unless oil drops to 40 bucks and corn drops to 5 a bushel…..both for other factors. They will have to hit the brakes hard.
    Just goes to show that when one of these morons gets a call from someone who has the super power big bucks…..ordering them to raise rates…….the show must go on. She got the call……and suddenly Ms Dove is Ms Hawk. After two years of watching this mess unfold.

    • Wolf Richter says:

      fred flintstone,

      You need to get ready for much higher interest rates. Inflation is going to hit 10% here pretty soon. And the Fed has gotten the message. It doesn’t matter where the economy is going, inflation MUST come down or else the whole economy will turn into a giant shithole.

      • Danno says:

        Yes Wolf I fully agree they raise til they break but will the next QE be even larger or will they actually act responsibly in the future?

        That’s the zillion dollar question…

        • RM says:

          It will be larger. One last mega pump before the entire system implodes.

          They will go full Japan and just start outright buying ETFs.

          Not for a couple of years though. This market still has to drop by 60%+ first.

        • Augustus Frost says:

          A question often discussed here.

          My position is that monetary policy will not jeopardize USD reserve currency status.

          The public, markets, and economy will be thrown under the bus to preserve the Empire. Look at US policy toward Russian energy imports. Yes, it’s somewhat symbolic (limited imports from them) but an indication of elite thinking. Americans are already being told of the sacrifices they will have to make supposedly to “stand with” a country most of “us” couldn’t even find on the map prior to February 24th.

          It’s no different in Europe, where the EU elites will throw everyone and everything under the bus to save the European Project.

        • RM says:

          Augustus,

          Ironically, the actions of the US/NATO/Europe in this conflict have done more to undermine the status of the USD as the global reserve currency than anything the likes of the Fed have done at home. Other nations are now looking at it as a liability and forging closer trade ties with each other and settling more and more transactions in alternative currencies.

          Internal monetary policy won’t matter a jot compared to the consequences of geopolitical recklessness such as freezing Russian assets and driving them into the arms of China. We’re already seeing countries like India, Brazil and even Saudi Arabia starting to stick a middle finger up to the Global American Empire.

        • COWG says:

          AF,

          Empires require a stable energy supply…

          My thoughts are short term pain for long term gain…

          Positioning the US influence with a) natural gas exports and b) the US military protecting ME oil…

          That would be the long game that I would play…

        • Wolf Richter says:

          People are forgetting a huge factor: If the Fed’s policy rates are 5%, and inflation is heading down to 3%, and there’s a run-of-the-mill recession, the Fed can CUT rates serially by a whole bunch, to something close to zero, and doesn’t need to do QE. That’s the classic model. Lots of Fed heads have said they’d like to return to that model.

          When rates are near zero, and then a recession hits, that’s when QE gets dragged out, because the Fed’s policy rates bump into what the Fed calls the “lower bound” (near 0%), and the Fed can’t cut any further because it won’t cut into the negative.

        • Jos Oskam says:

          @Augustus Frost
          “…My position is that monetary policy will not jeopardize USD reserve currency status…”

          I fully agree.
          However, I live in Europe, and I can assure you that everybody and their uncle is getting sick and tired of the way the USD is being used to force policy decisions. The US is behaving more and more like the schoolyard bully, using the USD as a stick.

          This weaponizing of the USD is a much bigger threat to its role as a reserve currency than any pure monetary decision.

        • COWG says:

          Jos Oskam,

          As long as the US military keeps Belarus and Russia from marching through the Suwalki line to Gdańsk, that’s the way it’s going to be…

          Sorry, bud…

          I think drifterprof can give you some ideas if you want to relocate…

        • Jos Oskam says:

          @COWG

          Nobody I know is afraid of the Russians marching anywhere into Europe, since it is more than obvious they would spread themselves too thin doing that.
          Lots of people see this kind of fearmongering for what it is, the last gasps of a failing empire.
          And they hate sitting in the cold and paying through the nose for everything because of it.

      • Depth Charge says:

        “…inflation MUST come down or else the whole economy will turn into a giant shithole….”

        IMO it’s already a giant shithole, it’s just being masked by the trillions in stimulus washing over everything. I am seeing more businesses, specifically restaurants, fold over the lack of employees and the rising prices. Inflation destroys business. The PTB screwed the pooch. There’s no going back.

        • Augustus Frost says:

          It will be a lot more evident when the asset mania crashes (regardless of future monetary policy), cheap borrowing ends, and borrowers have to quality under any credit standards actually resembling prudent lending.

          Lending and credit quality standards are and have been a complete farce for years.

        • The wealth effect is a Ponzi scheme says:

          Why would u bust ur ass in a restaurant job when the pay doesn’t keep up w the minimal expenses it takes to survive? Give up, lay down. Thanks JPow and Co.!

        • Flea says:

          Quick shops in my area closing at 4:00 pm no help

        • Depth Charge says:

          TWEIAPS –

          I’m still trying to understand how a person just quits working and resigns themselves to a life of zero income. I’ve been working since I was 11. No work = no eat.

        • OutsideTheBox says:

          Just imagine how many nails he has pounded !

        • VintageVNvet says:

          This for DC:
          It’s actually quite easy to quit working and get by with Zero INCOME — on the books at least, and at least for ”a while.”
          This from one who started selling newspapers in the streets at age 7, because I could and dad said I could buy a new football or anything I wanted WITH MY OWN MONEY…
          Several entire years in my 20s and 30s show NO income on my SS summary in case I forget the freedom I had and I suspect many folks have and have had, BUT,
          Ya gotta be thrifty in all things: housing- NO payments of any kind, so tent or a couch or ”squatting”; transportation either ”shanks mare” or hitch hiking; food — tons of free food all over, especially USA, but other places in world too; medical services, tons of free med services, especially in USA, but other places too, esp. in what was Great Britain; entertainment, free books almost everywhere.
          Of course, when one tires of that lifestyle, one can always find work of the lowest cash paid manual labor kind, and I washed a ton of dishes, pots and pans, dug miles of ditches, etc.

          ”Work is the curse of the drinking class.” May apply???

        • phleep says:

          > how a person just quits working and resigns themselves to a life of zero income.

          In my area, there are plenty of guys around who steal. They are combing through the parking areas at 3:00 a.m. I do my jogging at night, so I see it.

          I’ve seen this career path before. I’ve seen guys go through the whole arc from young and fairly fit to wrung out and then dead. But more show up.

          And those guys shooting up the bars and concerts? drug dealers fighting for turf.

      • Marcus Aurelius says:

        Consider a Mind Experiment, a la Einstein.

        What if THAT is the goal?

        There are those who believe in EVIL. They really do. They think there is EVIL and EVIL forces. But, when you bring up a really EVIL scenario, they call you a conspiracy nut case……then, I ask again, is there EVIL or not?

        There is, or there isn’t. Can’t hedge that one, unless that is part of the EVIL “plan”. Deny the existence of EVIL?

        If there truly is EVIL, how would it play out? Like today? Like what is happening now?

        I suggest you all track down a 5 hour video by a “famous” Australian singer named ALTIYAN CHILDS. It will answer your questions. It is the most frightening video I have ever watched. Truly Evil.

      • fred flintstone says:

        Wolf, Thanks for your site and comments……lots of good info…….yep to your comments……I would love for them to do the right thing and tighten…..in spite of any recession threat…….I do believe rates are going higher permanently for several reasons.
        Personally I would welcome higher rates but my comments are not aimed at achieving that goal. I view this site as academic economics….not personal.
        My issue is Brainard changed like a chameleon…..it is my fear there is no Volcker today or very many other patriots who care more about the country than their short sighted personal interests…….its mostly politics…….and I fear them giving up on inflation at the earliest hint of weakness…..bad for the country……but…..politically there will be tremendous pressure once the unemployment rate and poverty rates start to climb.
        We’ll see. Right now I don’t see an FDR, Reagan or similar leader that would stand up and say no to all the various lobby group and have it stick.

      • Swamp Creature says:

        Wolf

        The whole economy is already a giant shithole. I don’t care what government economic figures say.

      • DawnsEarlyLight says:

        If just a small increase in rates has such a quick and appreciable effect on the economy, do you think Fed increases of more than a quarter percent are likely?

      • KPL says:

        But what happens if the Fed hits the brick wall of recession while raising rates or it is not able to raise rates much before economy craters?

      • John H. says:

        Wolf –

        If I understand it, the Fed has two main levers it uses to influence the the speed and direction of economic growth: FFR, and balance sheet.

        The FFR lever is limited on the downside by the zero rate bound when trying to stimulate the economy. When fighting inflation, the balance sheet lever is limited by the current size of the Fed’s balance sheet.

        Does either the “zero bound” or the “balance sheet bound” provide a challeng in our current bubbly predicament?

        Do you chart the size of Fed balance sheet against GDP, and could you provide some historical perspective on it compared to where it’s been and how it compares to other central banks and where they’ve been?

        Apologies if this has been discussed in past and I missed it.

      • JayW says:

        If the BLS properly captured housing prices rather than surveying rent, inflation would be 12-15%. My Kroger boneless chicken finally shot up 25% after two years. The only thing, food wise, that I can think of that hasn’t gone are the Costco Kirkland protein bars: $17.99 for 20. What a deal.

      • cb says:

        Wolf said: ” whole economy will turn into a giant shithole.”
        ————————————————-

        What would we the call the economy of the last decade(s) as interest rates were suppressed, money was pumped, offshoring was rampant, wealth gaps were widened, health care – housing – and education prices exploded, debt slavery expanded ?????

        It’s been a hole for many. Now others are falling into it, or recognizing they are in it as well. Deferred recognition because of debt, stimulus and forbearance.

      • TheAltonRoute says:

        I’m getting ready for the Fed’s Austral plan.

    • Anthony says:

      Texas Tea hits $102 as I write…..

      • Massbytes says:

        Yep. Those planned strategic oil reserve releases don’t seem to be having much effect.

        • Anthony A. says:

          Those crude oil reserves have to be sold before they can leave the reserve. Most crude oil sales are contracted out for several months, and this release will take many months to get into the GLOBAL system.

          It’s really just a political stunt at best, and possibly, the repurchase of the release in the future will be at lower than current sale prices. Such a good deal? Not…

  12. twinkytwonk says:

    After listening to these morons for 25 years ( I was too young to care prior) I have learnt they are full of it. They will never do the right thing let alone keep to the rules they themselves set. It’s like being paralyzed whilst someone extracts all the money from your pockets.

    • LK says:

      The older I get, the more full of it I realize people are. Actions truly speak louder than words, no matter how much the words are liked, subscribed, retweeted, shared, or other absolutely meaningless performative signal boosting happens.

      Today’s world needs more put up or shut up.

    • Swamp Creature says:

      twinkytwonk

      As the former Archduke of Austria Hungary, Ferdinande once said in 1914:

      “Trust no one. Assume everyone is a scoundrel until they prove otherwise. Then you can take them into your circle of trust”

      This is the best advice I’ve ever heard for your personal and professional life.

      • Apple says:

        He had a righteous mustache for sure.

      • GSH says:

        The Archduke F. got that right but still got assassinated in Sarajevo the same year. Obviously not paranoid enough. Sometimes they are really out to get you.

        • Swamp Creature says:

          Didn’t Wolf’s ancestors come from Austria/Hungary? It once was a great proud empire for 300 years.

        • Wolf Richter says:

          Swamp Creature,

          Very close. Bohemia. At the time, it was part of the Austrian Empire, now in the Czech Republic. Grandfather went to school in Pilsen, location of the original Pilsner brewery, which competed with the original Budweiser, which was (and still is) brewed in the city of Budweis (German name). That’s why I have beer in my veins! Grandfather served in the Austrian Navy in the late 1800s when Austria still had a navy. The whole clan was run out of there in 1945 amid a huge bout of ethnic cleansing that expelled all the German speakers that had been there for thousands of years and that even the Romans dealt with and wrote about. Those folks lost everything. However, my grandfather (as a younger son, no farm no inn) and father were engineers designing machinery for Siemens in Germany, which is where I was born.

  13. ace says:

    Wolf,

    does this mean active, outright sales and not passive roll off? is that what Lael is suggesting with respect to treasuries and maybe MBS?

    • Wolf Richter says:

      ace,

      We’ll find out more tomorrow in the minutes, maybe.

      Passive roll-off alone is going to amount to a reduction of over $100 billion a month, or over $1.2 trillion the first year. It may be more than that. That’s already quite a bit.

      I suspect that they’re considering selling MBS outright because they’re so squirrely and unpredictable, especially with rising interesting rates cutting off refis.

      They will also cap the maximum per month, maybe at $100 billion a month.

      And there will be a phase-in, as last time, but shorter.

      • Abomb says:

        That’s interesting that you think they want to sell the MBSs not that I think you’re wrong. I have no clue other than to think that if they sell MBSs mortgages rates will crush the housing market, and I have a hard time seeing them do that.

        • Abomb says:

          Sorry should have said “considering” not “want” in the first sentence

        • Wolf Richter says:

          They have already publicly suggested it (Bullard among others). There are technical reasons for doing it. MBS are just funny creatures. They would roll off mostly through the pass-through principal payments, rather than maturing securities.

        • Swamp Creature says:

          I’d like to see what happens to the long term Treasury and Corporate Bond funds when interest rates start spiking to Paul Volcker rate levels? I think there will be a run on these funds when investors open their monthly statements and see declines in their principle of 30% or more. I wonder how anyone can be so stupid to buy these funds in the first place just to get say another 1% yield. I’m on the verge of dumping my own fund because of their sorry performance on short term muni bonds.

        • Augustus Frost says:

          Swamp Creature,

          Going by futures prices, 30 YR UST has declined from 191+ to about 146 since March 2020. That’s 45+ points or almost 25% already (less the pitiful coupon payments) and this is just getting started.

          It’s better for shorter maturities but still bad.

          The future losses for currently issued debt are going to ginormous.

      • Bull&Bear says:

        I watched Bullard’s interview a couple of weeks ago, and he did say that balance sheet reduction will be Passive.

      • KGC says:

        Thing is even at $100 Billion/month it will take 3-4 years to get rid of all the excess they’ve printed over the last couple years. that’s a really long time of high inflation/recession.

        While I do have some fond memories of the 1970’s the inflationary policies from then didn’t fade away until the 1990’s. The home mortgage rates in the 80’s were all double digits. And credit cards (which nobody is talking about) were over 25%. It took decades for people to dig out of those holes.

        Imagine what the impact would be if student loans were 15-25% interest. We have two generations of citizens who’ve been taught that they need not save, but should live on credit.

        This depression is going to hurt.

        • Lisa_Hooker says:

          Not only living on credit, but they seem to have learned to avoid any capital accumulation. They live in their cash flows.

  14. Danno says:

    Reading this the image that comes to mind is a 16 year old, high as a kite, driving dad’s 1968 Wildcat during a snowstorm on an icy road, knowing the brakes have failed, dash a glow and trying to will the car to a safe stop.

    “Oh my god, what have I done.”

    And these clowns sleep well at night and feeling secure and “safe.”

    Does the FED have security like the President?

  15. breamrod says:

    let the dow go down another 1000 and they’ll walk it all back( after they’ve covered their shorts).

  16. Kunal says:

    US Fed is such a disgusting organization. They openly lied about inflation, CPI, blatant robbery from poor people and now that they are caught naked, they are doing more and more lip service, while still printing and still keeping interest rate at near zero. This lady and Fed mafia has no common sense and compassion left and its sickening. Every night must be thinking of millions of ordinary Americans she screwed. And more lip service. All Fed members must be fired. Every economist said that unhinged printing and interest rate suppression will cause inflation but these clowns did not get it, are they brain dead or simply corrupt?

    • Wolf Richter says:

      “Keeping rates near zero”

      Hahahaha…

      Mortgage rates over 5%

      2-year Treasury over 2.5% up from 0.2% six months ago. Open your eyes, Kunal. This is happening a lot faster than anyone expected.

      If the 2-year yield keeps on keeping on, I’m going to buy some 2-year Treasury notes at the auction on April 26. Time to shift money out of the bank into something that pays a little interest.

      • Harry Houndstooth says:

        Pure wisdom dispensed daily. If you think there is a better place to get investment advice, you are mistaken, IMHO.

        Wolf may be willing to get 2.5% for cash over the next two years but I never make a capital commitment longer than minutes without the expectation of at least doubling my money. Wolf has elegantly demonstrated how the markets are driving interest rates straight up. Asset prices will be going straight down.

        Remember, he who loses the least in a bear market if the winner.

        Since now cash is trash, just like 1999, I want cash to pluck the diamonds after the crash.

        Of course, you can profit on the way down, with our suggested SRTY and SQQQ. As always, don’t get greedy and go back into cash as your account balance hits new highs and re-enter the positions on market rallies.

        Bid for authentic Wolfstreet Beer mug $250. Wolf, I have not had a single human offer to sell me a Wolfstreet “Nothing Goes to Heck in a Straight Line” glass beer mug at any price. So I am asking again for anyone holding an authentic mug to send me an email with your asking price.

        HarryHoundstooth at yahoo dot com.

        • VintageVNvet says:

          I already sent you my ”ask” HH, but didn’t hear any counter offer, so thinking you’re not serious???
          (of course, my one million wasn’t serious either LOL)

        • cb says:

          Harry Houndstooth said: “Wolf may be willing to get 2.5% for cash over the next two years but I never make a capital commitment longer than minutes without the expectation of at least doubling my money.”
          —————————————-

          and how has that worked out for you? Are you a billionaire yet?

          there are a few newbies on this site. They might actually believe you. If it’s not complete BS, name a few of your extraordinary trades …………………

        • Lisa_Hooker says:

          Would consider a 1 year or 3 year lease (provided I can get reasonable insurance). Please make an opening offer.

      • cb says:

        @ Wolf –

        It sounds like Kanal has perfect vision. His comment is 100% correct.

    • Swamp Creature says:

      Kunal

      The Fed screwed more than just poor people. They screwed middle class people who played by the rules, and watched their savings get depreciated by 20 to 30% over the last 10 years. This is robbery. Worse than some thug who steals your hubcaps off your car. And for what gain? The whole sh$thouse will collapse anyway. ENJOY

      • Hal says:

        What the heck are “hub caps”? : -)

        • Anthony A. says:

          Hal, they are also called wheel covers. They go on cars and cover a plain steel wheel. Old guys know about them.

        • Wolf Richter says:

          “They make good ashtrays around the office.”

          “What are ashtrays?”

        • Prophet says:

          Hub caps are widely used in the adult entertainment industry. Exotic dancers wear hup caps and are, in fact, an integral part of the dancer’s wardrobe.

        • Bubba says:

          “Poverty caps” are smaller and just cover the lug nuts on a steel wheel. Fancier models had the full wheel covers that covered the entire wheel. That’s what you had when you got the corner office.

        • Tony (one of them) says:

          @Wolf

          “What are ashtrays?”

          Don’t you mean “What’s an office?”

        • Hal says:

          btw – I was joking. just hadn’t heard the term in quite a while…

          Like not since people called to tell you they were talking on the kitchen phone — in the DINING ROOM!!! We got a long cord!!!

        • phleep says:

          I want to be able to slam the phone down (or throw it) when a trade goes against me! But that would scratch the screen, now.

    • SoCalBeachDude says:

      Way beyond laughably false.

  17. DawnsEarlyLight says:

    It’s great to see treasury rates going up, but it’s hilarious when described as ‘Spiked’, when the rate just went up .016 of a percent! 16 basis points is background noise.

    • Wolf Richter says:

      DawnsEarlyLight,

      This is a huge move here. 100 basis points = 1 percentage point. 50 basis points = 0.5 percentage points. 16 basis points = 0.16 percentage points (not 0.016 percentage points as you said)

      To give you feel: the iShares 20 Plus Year Treasury Bond ETF dropped 2.2% today in price.

    • Wisdom Seeker says:

      You’re off by a decimal. They moved by 0.15% which is a huge move in Treasury yields.

      If you graph the daily change of something that’s supposed to be really simple, really safe, like a short-term Treasury fund (SHY: 1-3 year Treasuries), it looks like a seismograph that just caught the first waves of an earthquake. Total chaos for bonds right now. There was a very brief seismic-bond event when COVID hit in 2020 but otherwise you don’t see anything like this until you look back to late 2007-2009. Not a good sign!

      • DawnsEarlyLight says:

        A long overdue earthquake! Don’t forget, this ‘wave’ has been held back for a manipulated amount of time.

      • DawnsEarlyLight says:

        Interest rates have never been this low, so comparing rises in interest rates as historically ‘seismic’ is a no deal comparison.

  18. Zark Muckerberg says:

    Spooking the sheeps again lol 🐑🐑🐑💨

    The fed know what sup, using a dovehead to make this speech

  19. A says:

    The FED screwed up 2021 worse than any year since the 1970s. The only way they can fix this mess is to plunge the country into recession.

    99.9% of people have no clue what’s happening but the fact is it’s already over except for the crying.

  20. Abomb says:

    Doesn’t “neutral position” by the end of the year imply that the FFR will be closer to the inflation rate rather than the 2.5-3-ish% they’re currently targeting by end of year?

    • Wolf Richter says:

      Abomb,

      “…imply that the FFR will be closer to the inflation rate”

      Yes, in theory. But they’re talking about the “long-run” neutral rate. So on average over the years neutral rate. And looking back a decade, that might have been about 2.5%.

      Jacking up the FF rate to the rate of inflation by year end would be the equivalent of your screen name hitting Wall Street :-]

      So probably not. But it could be 2.5% or 3% or something of that nature. Bullard is already over 3% in his projection for year-end fed funds rates. It CPI hits 10%, a few months in a row, we might see 4% by year end. And that wouldn’t be long-run neutral anymore. A 4% FF rate with 7% mortgage rates are going to have some real impact here.

  21. Wisdom Seeker says:

    I think there’s an error on the labeling of the Yield Curve graph. The data shown there are today’s yields, not March 25, right?

    6Mo treasury was only 1.01% on 3/25, today it’s 1.13%.
    3Mo Treasury was only 0.55% on 3/25, today it’s 0.65%
    2Yr Treasury was 2.3% now 2.51%.

    Scary that this is even visible, normally the curve moves much more slowly. Someone had an animated yield curve watcher back in 2008 but I can’t find the link for it now.

  22. Brewski says:

    The big question will be: “Where were you when the fecal material hit the overhead?

    My Guess is that it will be a big SH*T STORM. And no hiding.

    Cheers,

    B

  23. Brewski says:

    PS. Wait until 7 months from now when the digital currency gets front page news.

  24. DR DOOM says:

    Another required Jaw boning virtue signaling ” I feel your pain” moment followed by we are (Fed) going to kick some inflation ass sometime in the future. My wife just bought $7 a lb hamburger at our N.C. Ingles store today. The Fed proabaly hedonic adjusted it to $5 a lb because it was in a foam tray and film wrapped instead of butcher paper. F-em’ all.

    • Wolf Richter says:

      DR DOOM,

      Yes, but I’m going to nibble on some of those jawboning 2-year Treasury notes at the April 26 auction if the yield keeps going higher, in order to place some money that is now earning 0% at the bank. By then, the two-year might do 2.8%. And two years from now, I might replace those notes with a jawboning 6% 10-year note. Jawboning works in real time. Monetary policy itself takes months and years to work into the markets.

      • Depth Charge says:

        Since it takes “months to years” for monetary policy to work into the markets, Wolf, why not just raise the Fed Funds Rate to 10% tomorrow? It will take years to have an effect.

        • Wolf Richter says:

          The Fed isn’t trying to create total utter chaos. They’re trying to nudge down DEMAND so that inflation will lose its fuel.

          I sometimes get the impression that you would prefer utter chaos and total collapse of everything, but that’s not really what the Fed is supposed to cause, from what I understand :-]

        • Depth Charge says:

          You’re onto me, Wolf. I would like a hasty collapse – back to normal. But I don’t think we’re ever going back to normal after everything we’ve just seen. The world has changed, and not for the better.

        • sunny129 says:

          ‘trying to nudge down DEMAND’

          Sorry,IMHO, They should have started ‘hammering it down’ late last year. They still rely on their favorite tool ‘jawboning’ Wow!

  25. Anon1970 says:

    Recommended reading: “Principles for Dealing with the Changing World Order” by Ray Dalio. He has been a very successful investor for decades. Forbes reports his net worth at about $22 billion.

    • Peanut Gallery says:

      LOL. Paging “mean” comment from Wolf Richter…

      I do like Ray Dalio’s historical perspective on hegemonies and debt cycles. I do think there is something to learn there. There’s a lot of useful past historical perspective that I think is important to incorporate into today’s happenings. It is actually quite “reassuring” (in an odd way) to know that civil unrest, financial crises, and changing world order has happened multiple times and it’s not just now that things are getting crazy ;)

      But I will let Wolf comment on how he thinks Ray Dalio is a fool and is often times wrong…

      • COWG says:

        “ But I will let Wolf comment on how he thinks Ray Dalio is a fool and is often times wrong…”

        PG,

        Easy to be “smart” with the financial conditions given, not earned, in last 40 years…

        Dalio is just one of the many who have annointed themselves higher being status…

        I think in the next 10 years we are going to find out who really is smart…

        Better to be lucky than good, eh?

      • Wolf Richter says:

        Dalio: “cash is trash.”

        Wolf: “…until cash is suddenly king.”

        “Cash is king” when prices have plunged, and yields have soared, and when there isn’t any liquidity out there chasing stuff, and you can deploy your cash to make the deals of a lifetime. Dalio knows this, of course, but didn’t tell people because he was talking his book and wanted everyone to prop up the stocks and bonds and other instruments he and his funds hold.

        • cb says:

          anytime Cash can be created from nothing, it can be created to compete with what should happen, and what you expect to happen. This has occurred many times ………… recently.

          don’t underestimate the deviance of the current crew. Fed, government and insiders.

          I think it dangerous to assume where the cash comes from. You might see more competition for the deals than you anticipate.

        • Lisa_Hooker says:

          @cb – after watching events since 2008 I gotta agree.

  26. Brent says:

    Why all the negativity O Ye, of Little Faith ?

    Today I am even more inspired than 38 years ago during RR ’84 Campaign “Prouder. Stronger. Better. It’s Morning Again in America !”

    RE & Stock Market gains …
    “They’re Real and they’re Spectacular !”
    (adapted from Teri Hatcher, Seinfeld Season 4 Episode 19)

    Skipper Powell, financial attack submarine USS Fed …
    “This is a Man who could stand beneath a hatch after being doused with a column of water, deadpan and still chewing his dripping pipe.”

    Fed Governess Lael Brainard …
    “When I saw her face, now I’m a Believer !”

    I am waxing poetic and writing running cadences soon to be heard near 29 Stumps:

    I don’t know but I’ve been told
    Fed’s rate hike is mighty bold
    Put the Medal on Powell’s chest
    Tell his Momma he did his best !!!

    • Augustus Frost says:

      This is the biggest asset, credit and debt mania in the history of human civilization. It’s lasted longer (over 20 years), the overvaluation has never been greater, it’s more geographically widespread (global) affecting more asset classes (all major ones plus numerous secondary bubbles) than ever before.

      Go read some financial history and you’ll know it’s not “morning in America”.

      No, it isn’t different this time and no, there is never something for nothing.

    • BuySome says:

      Pluck out those pins, release that gas,
      He can stuff those ribbons right up his ass.
      The ship’s awash, you can blame the Fed,
      These treasonous weasels should already be dead.

      • Brent says:

        Ahhh… that’s my kind of lyrics

        If you re-format you poetry and squeeze it within rigid frame of running cadence aka jordie call you’ll be crowned Poet Laureate 😀

        Usually world-weary Papa Sierra (Platoon Sergeant) whispers the first line-
        then the Platoon responds at >160dB

      • VintageVNvet says:

        We don’t know, but have heard tell
        The FED’s sent the economy all to hell.
        Not in a straight line, that’s far shore
        But nobody knows when they’ll do some more.

  27. SpencerG says:

    Chuckle… I saw Brainard’s comments today and asked myself “How long before Wolf has an article about THIS!”

    Not long!

  28. Gen Z says:

    Gone are the days when Greater Fools overbid C$150,000 for a cottage sized home in the Greater Horseshoe area, paying a million dollars in total, because of low interest rates.

    Where is the free market to offshore these work from home workers who refuse to go back to the office?

    • CrazyDoc says:

      This is what I am starting to see in my field (medical), employers realizing if the workers are not needed in person for a whole range of jobs that were on site, then looking for low cost talent outside the US would be a good way to reduce costs, especially with wages rising here. There is little difference if an employee is calling in to work from Phoenix verses New Delhi.

      • Gen Z says:

        In Canada, the work from home crowd bought literally million dollar cottages in the middle of nowhere. They can’t even commute one day to work because of the lack of transit and location to travel there.

      • Anon1970 says:

        Dell offers a help desk for buyers of its computers. After the warranty period is over, users can continue a software maintenance service staffed by its techies in India for a modest annual fee. This service has gotten me out of a lot of jams.

  29. Preparer says:

    “Preparing” he says, and the market is still down only 5% since it’s peak. Any dip is an easy buy

  30. w.c.l. says:

    For what it’s worth in this discussion, a bunch of I bonds I bought in 2003 have just reset to 8.25% this month. Somebody’s seeing inflation. Still the only thing making me any money right now.

    • Anthony A. says:

      Where did you see this rate? I believe it’s still 7.12% until May?

      • Wolf Richter says:

        There is also the base rate that is different depending on when the i-bond was issued. Recently issued i-bonds have a base rate of 0% or near 0%. A few years ago, i-bonds had a higher base rate. Then on top of this base rate, there is the CPI adjustment. So depending on when the i-bond was issued with what kind of base rate, you might get a total of 7.12% for one bond or 8.5% for another, or whatever.

      • w.c.l. says:

        Treasury Direct has an app on their website where you can enter the serial numbers of your savings bonds into it to store them (by saving the page) and get current values. I check at the start of the month just to see what’s going on and that’s what it says my thirty-odd units are now going for.

    • SnotFroth says:

      Wish I could buy an iBond. I tried signing up but I’m the lucky one who has to print out a paper form and get an “officer’s stamp” from a financial institution. What?

      The instructions on treasurydirect.gov say “don’t bother calling us, no one can help.” According to Reddit, no one has ever gotten past this road block.

      • Iona says:

        This is your lucky day mate. I actually did it! Went to my bank, got some sort of stamp, was rejected, account closed after some months. Tried with credit union, rejected. Tried again with bank and was told the credit union attempt was successful!?! Truly a pain in the ass. But I had paper bonds from 2004-5 I wanted to register as well as buy new ones. I sent many many emails and they would respond in a few days but never to follow up questions, always had to start a new conversation.

  31. Swamp Creature says:

    I predict JP will resign to spend more time with his dog. Brainard will take his job and may be the next Paul Volcker. That would make her famous in the history books.

    • phleep says:

      Brainard is like Schrodinger’s cat. She seems to be trying to occupy two directions at once, matching the dilemma of the Fed.

    • Anthony A. says:

      Don’t forget Yellen, she is hiding in the woods somewhere nearby.

  32. fred flintstone says:

    One crazy idea…..
    If the fed knew that rates needed to go up a lot due to demographic factors
    and
    If the fed felt that politically they could not raise rates that much without being challenged by the political wing of both parties
    By acting dumb and letting things get out of control so they must raise rates way way up……….while even a liberal like Brainard says it needs to be done so poor folks will not suffer inflation……..and conservatives want it done to save their consumers.
    I suspect even with a severe recession rates will not be this low again in a long long time.
    This might be a master move by the folks in charge.

  33. Finster says:

    “But back in November 2018, this measure of mortgage rates by Mortgage News Daily, had peaked at 5.05% briefly, before the Fed buckled under Trump’s withering attacks.”

    To be fair, Trump was far from the only source of pressure. Wall Street was heavily on the case, with the Wall Street Journal and the television financial networks running editorials and segments practically daily either implicitly or explicitly calling for Powell & Co to back off. It’s not hard to imagine that ran in parallel with non-public lobbying. Between Trump’s regular lambastings and the crybaby contingent in full temper tantrum mode, Powell was getting it in full stereo 360°.

  34. JJ says:

    Quoting from Wolf’s posting, “(The poor can only buy necessities and now) they can only buy less, such as buying less of the cheapest store-brand cereal, which is the example she used.”

    I fight Fed inflation arsonists at the breakfast table by:
    I’m buying big 42 oz cardboard cans of raw oats ($2.60) at grocery stores along with whole pineapples ($1.99 ea.) and big tubs of store-brand peanut butter ($4.00) to fortify the protein in the oatmeal stirred up in 5 minutes with water on the stovetop. Top it with the chopped pineapple from the whole fruit and dab on a healthy portion of peanut butter. Splashing on some ALDI vanilla almond milk ($2/half-gallon) optional.
    Works very well, cheap and pretty healthy. Only drawback is the work chopping up the whole pineapple and prepping the plain oatmeal.
    You can even put the super tough antioxidant-rich pineapple core in a Blendtech blender with almond milk for a bonus healthy smoothie (lotsa bromelain in pineapple). I feel I am eating better than the majority of cereal eaters this way.

    • phleep says:

      If those poor folks managed their lives like you manage your nutrition, there would be little to talk about. Feeding one’s kid overpriced boxed sugar-drenched cereal and outsourcing their upbringing to Disney+ leaves them in a perpetual state of empty dreams of stardom, future peonage and outstretched hands for more stimmies.

  35. Bead says:

    Let’s see how the low income crew does in a genuine recession. Brainless is a vandal. Let’s see how serious these clowns are when the market really tanks.

  36. KWHPete says:

    Only in the USA………….

    Implement massive spending and QE at the same and screw up every market in the country from housing to labor to trucking to you name it.

    Now people expect the Fed to quash inflation by undoing the massive QE, but that is only part of the problem with massive spending on the fiscal side continuing and uncontrollable shortages on the other.

    And I still wonder how the Fed is going to control inflation for people on the bottom end of the economic scale where their purchases are mainly related to ones keeping themselves alive, you know, such things as food and energy.

    The Fed can’t print money to make more food or more energy.

    • tom15 says:

      I think she told told the peasants not eat cereal & read bloomberg
      for 10 ways to prepare lentils & fasting for an incredible body.

    • Lisa_Hooker says:

      The reality is the Fed can print money to make more food and more energy. It’s just a question of quantity. In fact they can print more money to pay the interest on the debt. Dire circumstances require extraordinary efforts.

  37. Wolf Richter says:

    10-year yield in overnight trading: 2.63%

    If that sticks, it’s 23 basis points in two days.

    This is getting pretty crazy.

    • JJ says:

      Would it be worth reconsidering going for the 2-yr treasuries at this month’s auction and go for a shorter term? What if rates go to 4-5% or higher during the second year?

      • Alku says:

        good point – I was also thinking about that. Wolf, isn’t it really too early to start buying in April?

      • Wolf Richter says:

        JJ,

        Yes, it’s worth considering, and I considered it. But I think there is a better option. So here is how I’m thinking about this:

        Currently, the 1-year yield = 1.78%. The 2-year = 2.53%. Assuming today’s yields will be the same at auction, with a 1-year, you will earn guaranteed 75 basis points less for 12 months than with a 2-year, but then in 12 months you have the chance of buying a security with a much higher yield for the next year.

        So that new 1-year yield in 12 months from now would have to be 3.28% to just break even. If you think that you can buy a 1-year 12 months from now with a yield considerably greater than 3.28% — so maybe 3.5% or higher – that’s why you would do buy two 1-year securities back-to-back instead of one 2-year.

        But I don’t know what the 1-year yield will be then. Instead…

        I figured that I will “nibble” at the 2-year in April and keep lots of cash on hand (earning between 0% and 0.5% today) so that I can keep “nibbling” all along the way as yields go higher, in a step pattern, with different maturities.

        That’s how I figure that at the moment. If something changes, I’ll go back to my calculator and start over again.

        Also, I want to keep plenty of cash on hand to deploy for other opportunities. So I don’t want to lock up too much of it.

  38. Lucban says:

    Current Treasury Series I bonds are at 7.12% now and will more than likely go up. The individual limit is $10,000/yr. I’ve been buying monthly for myself and other individuals in the family.

  39. Gen Z says:

    US 10-year at 2.635%

    What that means for the real estate bubble?

    Will Powell, Tiff Macklem or the “I support high home prices” Adam Vaughan do something to bring it down?

  40. c smith says:

    The irony and sadness of the whole inflationary process is maddening. Government prints money to give it to its favored constituents, including (supposedly) the poor and downtrodden. Then the inflation waves come, and the worst off are the poor and downtrodden. But do the recipients of this “gift” ever recognize that they are far worse off then before? Government has gotten bigger and more powerful, and tens of millions of people suffer for it. When will media do its job and tell the true story?

    • Hal says:

      Yep. The people suffering the most from all this inflationary helicopter cash are the ones who received the inflationary helicopter cash.

  41. Winston says:

    “explained this morning in detail that inflation is hitting lower-income households” harder.

    Thank you, Captain Obvious. That this is news to them only shows why we’re in the position we’re in.

    • Winston says:

      On second thought, this most likely isn’t a revelation for them. They are simply admitting it publicly to excuse the hurt they are about to cause to (not) fix the problems they and MMT “deficits don’t matter” inspired pols CAUSED.

  42. Anonomus says:

    5%+ 30yr interest rates are going to force many buyers into 7/1 ARM’s just to qualify. That is likely to create more default problems down the road.

    • Nathan Dumbrowski says:

      My first mortgage was a 5/1 ARM. I got that when rates were coming down and refinanced as quickly as possible. I think that while rates are on their way up it would be dangerous. Glad they got rid of the LIBOR rate it was attached to. Recall that was a scandal about that…
      The LIBOR Scandal was a highly-publicized scheme in which bankers at several major financial institutions colluded with each other to manipulate the London Interbank Offered Rate (LIBOR)

  43. joe2 says:

    “a more rapid reduction in the balance sheet”

    LOL! If they wanted to do it they would just do it instead of lying about doing it. The Fed cannot reduce their balance sheet while supporting increased government spending.

    The government doesn’t care about low income people. If they did they would not be importing more of them.

    Look at actions not words. It’s all baked in at this point. Do your own extrapolation.

  44. Hal says:

    Philadelphia Federal Reserve President Patrick Harker is joining the chorus now. Hmmm.

  45. gametv says:

    Wolf – I hope you will write a story on the big economic lie that is coming out of Washtington DC – namely, that our economic problems are a result of the invasion in Ukraine.

    The democratic party, which controls the vast majority of media, sees the Russian invasion of Ukraine as a convenient way to blame all our economic problems on a foe, while continuing the same economic policies that have actually CAUSED the hard economic choices we now face.

    Inflation is not happening due to the Russian invasion, it is due to the massive government spending, both from COVID policies and from Federal Reserve policies. High oil prices started long before this war and are due to the policies of the Biden administration toward domestic production of oil/gas.

    This is the cover-up, perpetrated by the neo-liberals to try to distract from the real truth. Their policies suck.

    • Wolf Richter says:

      gametv,

      “..write a story on the big economic lie that is coming out of Washington DC – namely, that our economic problems are a result of the invasion in Ukraine.”

      Nah. Everyone knows that inflation kicked off 15 months ago in a big way. I screamed about it a gazillion times.

      But the energy price increases we got since late February are going to make the already sky-high inflation even worse.

      • KPL says:

        “But the energy price increases we got since late February are going to make the already sky-high inflation even worse.”

        Yup! With Food prices contributing its bit too…

      • cb says:

        Wolf said: “Nah. Everyone knows that inflation kicked off 15 months ago in a big way.”
        ——————————————-

        Inflation has been big and continuous for decades.

      • Swamp Creature says:

        Bring on the high gas prices. $7/gallon. Get some of these gas gussleing monsters off the road. Too much traffic now that the lockdowns are over. Took me 1 1/2 hours to get home fighting the maniacs on the road, just to go 6 miles.

    • Bobber says:

      It’s the trickle down theory that clearly doesn’t work for the US, yet it is espoused by Republicans, Democrats, and the Fed. It’s a broader problem that is not addressed by any political party.

      • c smith says:

        Trickle down is absolutely a real thing. It is in fact the ONLY way which an economy can work. Productive people with capital provide labor opportunities for others who have little or no capital and/or little or no risk appetite. In this sense, economic opportunity trickles down to labor, which ALWAYS has the opportunity to accumulate capital and/or take risk to repeat the process. Finally, there truly is NO SUCH THING as trickle UP economics, as this process cannot work in reverse.

        • cb says:

          @ c smith – what nonsense dogma you speak.

          produce is a function of labor applied to the earth’s resources.

      • makruger says:

        Well, 20 years ago George W. Bush did say to a group of his donors:

        “You’re my base, the have’s and have more’s”.

        The democrats aren’t much better in this regard. So we’ll have to wait until Jesus returns before there is any real social justice.

    • rick m says:

      S.O.P. for politicians regardless of party today: Get the money. Take credit for the good. Get the money. Re-explain the bad. More money. Re-assign the blame. Gimme money. Disregard the ignoble past while reinventing the glorious future. Grab that cash with both hands and make a stash. I’m glad not to read about politician’s rottenness and deceit here. The origins of the present inflation have been comprehensively documented by our host among others. Naturally the politician’s version makes good political fodder to use on the ill-informed. But it’s not news so much as flak. A Wolf Street Flak Jacket, now there’s a piece of merch I might have use for, even though it’s 80 degrees this afternoon by the Gulf.

  46. The Feds management problem centers on funding government spending, which has been on again off again. As long as uncertainty clouds the outlook the Fed will remain accommodative and pump the asset markets. The corporate news organizations know this. The issue with bond yields is supply. Some Congressmen want to shut down the government to prove to their constituents that the world really is ending (as they were taught to believe).

  47. Peanut Gallery says:

    Fed minutes to indicate that they plan to allow 95B a month to roll off balance sheet, supposedly 60B UST and 35B MBS

    • Danno says:

      Jawboning 101 and yes they likely will until something breaks bad or the pitchforks start doubling in price due to demand.

  48. COWG says:

    As bond yields rise, I wonder how long it’s going to be before we hear all the gnashing and wailing about wanting to buy bonds for yield, but can’t because the Fed “tricked” them into buying over priced housing and stocks and now they’re wiped out and have no cash because they’re leveraged to the moon…

    Let the “bail me out “crying begin…

    • makruger says:

      Word on the street is to start accumulating long term treasury bond ETF’s since interest rates are “overbought” and bonds “oversold” so their prices may start rocketing higher again. This would be for capital appreciation and not for the measly interest payments.

      In other news, my savings account still only pays me 0.10% interest.

    • cb says:

      COWG said: ” before we hear all the gnashing and wailing about wanting to buy bonds for yield,”
      ————————————————

      how about the wailing about having bought bonds for yield only to have inflation and interest rates continue up, resulting in capital losses to exit their low yielding positions?

      • COWG says:

        I hear ya…

        Although sometimes I get confused when people talk about buying bonds when they are really talking about buying bond trading funds…

  49. Thomas says:

    Brainerd says “We have to get inflation under control, and SHE TALKS about QT but the financial sector HEARS “rate hikes.”
    As I have said elsewhere, rate hikes will do NOTHING to tame the 5 major sources of inflation.

    1. Wrong headed revival of real estate tax shelters in 2017 for big corporations. That requires changing Trump’s tax cuts. You need more Democrats in Congress to tackle this one. Not rate hikes.

    2. Oil and gas prices. This will resolve itself. Here’s how. Russia will sell its oil to China and India CHEAP, because it has to do that. China and India will buy less of the oil on the higher priced global market. They are HUGE consumers. Oil inventories will rise.
    This will lead to high inventories in gasoline, too, eventually, and it won’t take long. People are driving less, too.
    This price will come down, and rate hikes will have nothing to do with it.

    3. Semiconductor shortage. Two things will bring inventories up and the price of automobiles down. One, Taiwan will recover from the pandemic. Two, the US is building a semiconductor factory right now. Rate hikes have nothing to do with reducing these prices either.

    4. Global supply chain snarls. As I said elsewhere, this is having little effect on prices. Instead, it is depressing SALES and growth, as people look for alternatives to long wait times for deliveries of imports. Rate hikes have nothing to do with these prices or resolving this problem either

    5. Price gouging by the meat packing cartel. The Biden Administration is investigating this, and they seem to have little recourse other than legal action, which could take a year. Again, rate hikes won’t do ANYTHING to address this source of inflation.

    Raising rates will only AGGRAVATE inflation. QT, on the other hand, will create a massive and overdue shift in wealth from corporations to individuals.
    It will create a larger, more capitalist market.
    It’s a long term policy to retool the economy for an expansion based on infrastructure, alternative energy and high tech. This is also not an immediate fix for inflation, but long term, wage gains may outpace inflation, especially since inflation is not systemic, but rather, caused by these 5 limited problems. That may begin to happen this year.

    There is not a shortage of money for investment, loans, wage gains or taxes. Money is concentrated in an unproductive sector(relatively speaking)
    Because this sector is as rich as the ancient pharoahs of egypt, rate hikes will not be effective in addressing the misallocation of money.

    Rate hikes just won’t address inflation. Instead, rate hikes will cause a recession ON TOP of inflation.

    • Wolf Richter says:

      Thomas,

      Hahahaha, you forgot DEMAND. And you forgot the whole psychology of inflation that makes inflation even possible, with people and businesses paying whatever prices.

      The Fed created a huge amount of DEMAND with its policies. This is the most grotesquely overstimulated economy ever. Look at retail sales, look at durable goods sales. All of which spiked, which I have spent 18 months documenting.

      How could you so willfully ignore the power of DEMAND????

      An economy doesn’t operate on supply only, but on supply and demand.

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