Powell Confident in “Softish Landing” for the Economy, But We May Keep Inflation. Markets Can Figure Out their Own Landing

Most Reckless Fed Ever on the move finally, biggest rate hike since 2000, QT next, but too little too late.

By Wolf Richter for WOLF STREET.

“The Committee is highly attentive to inflation risks,” the statement from the Fed’s policy committee said today, adding to its inflation concerns the lockdowns in China that “are likely to exacerbate supply chain disruptions.”

Nowhere in the statement does the Fed explain that the raging inflation followed $4.6 trillion in money-printing in two years that unleashed all kinds of craziness, including in the markets. But that party is over.

“Soft or softish landing” for the economy. Markets on their own.

Tightening might be “unpleasant,” Fed Chair Jerome Powell said, but labor markets are very strong, and the balance sheets of consumers and businesses are solid, and they can handle higher rates, and “we have a good chance to have a soft or softish landing,” he said. “The economy is strong and is well-positioned to handle tighter monetary policy,” he said.

He was speaking of the economy – employment, GDP, etc. – and not the financial markets, which are on their own and can figure out their own landing amid higher rates and QT.

Fed hiked all policy rates by 50 basis points, most hawkish move since 2000:

  • Its federal funds rate target to a range of 0.75% to 1.0%.
  • The interest it pays the banks on reserves, to 0.9%.
  • The interest it charges on overnight Repos, to 1.0%.
  • The interest it pays on overnight Reverse Repos (RRPs), to 0.8%.
  • The primary credit rate it charges banks, to 1.0%.

How and when Quantitative Tightening (QT) kicks off.

QT starts on June 1. The whole thing is going to take place in a “predictable manner” by letting maturing securities roll off the balance sheet, subject to “caps.”

During the phase-in period in June, July, and August, the Fed’s securities holdings will drop by $47.5 billion per month: $30 billion in Treasuries and $17.5 billion in MBS. Reductions will come from maturing securities being redeemed, and from pass-through principal payments for MBS.

The full-speed period begins in September when the Fed’s securities holdings will be allowed to drop by $95 billion a month, with the “caps” set for Treasury securities at $60 billion and for MBS at $35 billion.

There were no surprises. This was largely spelled out in the minutes of the last meeting. And this is how this Fed will continue to operate: everything will be telegraphed well in advance, and there will be no surprises.

Powell takes 75-basis-point hike off the table for next meeting, puts 50-basis-point hikes (plural) on the table.

During the press conference, Powell said that a 75-basis-point hike “isn’t something the FOMC is actively considering,” but “there is a broad sense on the committee that additional 50 basis point increases should be on the table at the next couple of meetings.”

So 50 basis points at the June 14-15 meeting and 50 basis points at the July 26-27 meeting would bring the federal funds rate target to a range of 1.75% to 2.0% by the end of July. Then there would be further rate hikes.

We may get the “softish landing” and keep the inflation.

Powell was confident that these and more rate hikes, up to “neutral,” whatever rate that might be, would bring down inflation without causing a recession – the “soft or softish landing.”

He might be right about the softish landing: The rate hike path lined out to “neutral” might not cause a recession, given the huge excesses in the economy, the huge demand that has created shortages of all kinds, including labor shortages.

If the Fed considers “neutral” 3%, and inflation is 8.5%, then this neutral is still stimulative, and it will likely not cause a recession though it might take some of the excesses out of the financial markets and lower inflation pressures somewhat, without actually getting inflation back down. So, look mom, no recession!

Yeah but… inflation will then still be raging. This type of inflation cannot be brought down by short-term policy rates of 3%. So we may get the “softish landing” but keep the inflation.

Trying to slow demand via higher interest rates.

Monetary policy attempts to impact demand via the mechanism of interest rates, particularly long-term interest rates that would increase the costs of borrowing for consumers and businesses.

Higher costs of borrowing will make it more difficult for some consumers and businesses to borrow, or too costly, and they might not buy what they could have otherwise bought, which would reduce sales for companies – some might feel it more than others.

Credit tightening also tends to push zombie companies, that were held upright by yield chasing investors, off the cliff into default and a debt restructuring, which could get rough for stockholders who usually end up with nothing or nearly nothing in a debt restructuring.

And the Fed knows that falling asset prices are likely to lower inflationary pressures because asset holders who’re getting slapped around in this environment will eventually spend less and might forgo that $100,000 pickup truck or home remodel job, which would take some pressure off the shortages.

Classic bear-market rally powered by short-covering.

During the last 90 minutes of trading, after Powell took the 75-basis-point hike at the next meeting took off the table, stocks spiked by around 3% amid panic-buying by speculators trying to cover their short positions.

Still the Most Reckless Fed Ever, pouring fuel on the fire.

The Fed’s target range for the federal funds rate is now between 0.75% and 1.0%. The effective federal funds (EFFR) rate, which reflects actual trading in the federal funds market, is normally close to the midpoint of the target range. With the Fed’s new target range, the EFFR will be somewhere near 0.87% going forward.

But CPI inflation is now 8.54%, and the “real” EFFR is now a negative 7.67%, which represents the amount by which the Fed has fallen behind, and it’s unprecedented. OK, lots of stuff is “unprecedented” in our crazy times, but this sticks out, and it means that the Fed continues to pour fuel on the raging inflation fire, which makes it the Most Reckless Fed Ever.

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  364 comments for “Powell Confident in “Softish Landing” for the Economy, But We May Keep Inflation. Markets Can Figure Out their Own Landing

  1. SpencerG says:

    At this point I think higher gas prices will do more to tame demand/inflation than the Fed. It is hard to get rid of your gas guzzler… and those gas prices take money out of your wallet that you could buy other things with.

    • Leo1992 says:

      People cannot cut necessities. The bottom 50% are already buying lowest priced factory made junk food. We cant expect them to start going hungry.

      Some will say that the bottom 50% did not work hard or were pure dumb and this is just Karma.

      To them, I would say that read Tolstoy’s writings where he realized that all he achieved could only be because he was born smarter than others. He then set on the path to push himself to do more than just benefiting from his smartness. He worked hard to not benefit from what he was born with but to use it for the greater good. We chose the wrong leaders!

      • RobertM700 says:

        And soon, perhaps, our leaders will no longer allow us to choose them.

      • RT says:

        I doubt that we have any real choices of leaders for a long time now. The major parties are just two wings of the same bird. Their financial, foreign and other polices are all pretty much aligned and all heading in the same direction. Just that some progresses faster than others. Otherwise no difference at all. Look at the 2008 situation, the burst that was supposed to correct all the malinvestments was prevented from the top from both sides against the wishes of 90% of the voters from both sides.

        • Jacki says:

          We have two full blown anti labor fascist parties in the USA. Just one of them pretends it’s not.

      • Sierra7 says:

        The oncoming elections may be decided by “votes” or “pitchforks”!

      • NBay says:

        That chart has Vietnam War costs/profits, then deficit spending/de-reg/union-busting/monopolies, then QE written all over it.
        So, one copy went to my WS folder, one to my Vietnam folder, one to my Reagan folder, and one to my GFC folder.

        All I have to do now is think the “policy” timeline through. Maybe I should make a “9-11 wars” and dot-com bust folder, too.

        A very good chart, thanks.

        • NBay says:

          Ever since Carter tried to do the obviously right thing and got shit canned for it, our leaders (public and private) have been playing “get in and get out with minimal personal damage and max wealth”.
          We went from the Ugly American to the Stupid American….not sure which is worse…..guess both are bad.

        • NBay says:

          Bush 1 was the last (albeit small) bit of Carter-like integrity seen at public higher levels…Private leadership is a wasteland, human dregs :-(

    • J-Pow!!! says:

      I win.

    • SilentC says:

      It’s ironic how some politicians vilified oil and now oil could cause their political demise.

      • JC says:

        Oil was vilified for the exact reason it is hurting now. Some countries use it as a weapon, for geopolitics and war, and have oil importing countries on their knees.

      • JC says:

        along with humanity.

    • RemoteWorks says:

      You can think that way in the US about every essential consumption good: housing, higher Ed, healthcare, energy, childcare.

      They will be the determinants of discretionary consumption for the average household. Americans will keep on saving almost nothing on average. Meaning they aren’t working for themselves, they are working to keep the status quo of a system designed against them.

      Those on fixed incomes are sacrificed to satisfy the top 1%.

      • phleep says:

        Negative real rates means the top 1% is still subsidized to borrow and acquire even a bigger share. Politicians of either team and Powell will get their leashes yanked hard if not.

        This was always a possible path of this system. It has veered closer and further from this. Plutocrats have all the cards this time. Any leader deviating from this will be excoriated in the press. And frankly, will be proposing some different kind of madness. Like Powell’s Fed, far enough down some paths, there are no good alternatives.

        • RemoteWorks says:

          The alternative is moving to LCOL areas, work remotely and tell the NIMBYs each time they want you to pay for their bloated healthcare bills: “sure! Right after you fix access to affordable housing”.

          Meaning, solutions are only possible at the individual level.

        • joe2 says:

          Exactly. There are good reasons (for the .1%) the Fed is still doing what it did for over 10 years, but with a little fluff of misdirecting talk.

    • Thefalcon says:

      Did people ditch the gas guzzling SUVs and trucks in the last massive gas price runup that topped out in summer ’08?

    • CreditGB says:

      It is much more that gas friends.
      Everything is up and up way more than the figures presented monthly. They also don’t reflect the inflation of price vs volume. A pound a few years ago is now 14 ounces. A 35 pound bag of dog food went form that to 33 lbs to now 30 lbs. Price per bag is up too abut 25 to 30 percent. Just a simple example of the carnage that is cutting the life out of budgets all across the nation. Consumers are drained so look for the inevitable recession as the summer approaches and worse when the fall miserable harvest, and its huge costs come home to roost.

  2. Depth Charge says:

    “If the Fed considers “neutral” 3%, and inflation is 8.5%, then this neutral is still stimulative, and it will likely not cause a recession though it might take some of the excesses out of the financial markets and lower inflation pressures somewhat, without actually getting inflation back down. So, look mom, no recession!

    Yeah but… inflation will then still be raging. This type of inflation cannot be brought down by short-term policy rates of 3%. So we may get the “softish landing” but keep the inflation.”

    Did anybody bother to ask this psychopath to explain how he intends to stop inflation without getting in front of it?

    • Leo1992 says:

      Inflation is the most Brutal form of tax as it hits the poor the most. That last chart clearly shows that Fed is not interested in controlling inflation.

      • Djreef says:

        The poor don’t turn out at the polls, so they kinda are getting what they pay for.

        • RobertM700 says:

          The poor don’t turn out at the polls so we elect sociopaths? If our elected officials and other powerful leaders only care about themselves, their families, and perhaps any friends; we are screwed.
          The masses will pay for our excesses, they always do, but hopefully not enough to drive them to serfdom.

        • phoenix says:

          We’re still under the impression that voting makes a difference? Both parties work for the same master

        • phleep says:

          Short term candy to keep the poor quiet in 2020 (spending what we did not have, or rather borrowing against future inflation) was part of a solution but now definitely part of the problem. This system (by its mass voters) fires anyone who proposes sacrifice, and hires folks who promise candy. So goes the Republic. The poor seem to be becoming synonymous with “the bottom 50 percent.” See their “wealth” in the charts around here.

          Plenty of poor folks are bad risk managers. This is true alongside the policies and environment they arise in. They are duped and manipulated by the major parties and firms hawking childish escapist trash to them. It has a 1930s Europe feel.

        • Winston says:

          “The poor don’t turn out at the polls, so they kinda are getting what they pay for.”

          Not with mail-in ballots during pandemics which are harvested en masse and placed in ballot boxes for them. We then get simple, but wrong, answers from their preferred pols who are even worse than the “conservative” posers in the other half of the UniParty.

          So, even though we peons are scr*wed not matter who we vote for, votes from very low information voters is even worse.

        • Poor like you says:

          But if things get bad enough, the do show up with pitchforks.

        • Happy1 says:

          Unfortunately we don’t vote for Fed chair or Fed policy

      • RemoteWorks says:

        > Inflation is the most Brutal form of tax as it hits the poor the most.

        It hits those on fixed income the worst, along with the disabled and the sick.

        The poor who are healthy can work, even when old.

        • Wolf Richter says:

          It hits working people because their income doesn’t keep up with inflation, and the purchasing power of their labor declines, and their standard of living declines, though their pay goes up. Inflation is insidious for working people.

        • RemoteWorks says:

          > It hits working people because their income doesn’t keep up with inflation, and the purchasing power of their labor declines, and their standard of living declines, though their pay goes up. Inflation is insidious for working people.

          It depends on what you consume. I don’t consume the three items with the higher inflation: housing, healthcare and higher education, and now grow my own food as well.

          I’ve also been enjoying DEflation for years thanks to remove work. The more resourceful you are, the better. You can actually benefit from inflation as well.

      • CreditGB says:

        It is also the “tax” that never reduces. Wages take forever to catch up if they ever do, and those on fixed or limited incomes are permanently damaged, and taken out of the ranks of consumers.

    • Marcus Aurelius says:

      Something is missing.

      Most are saying inflation is more like 15%, or double what the Government is claiming. So, inflation is 7 – 8% higher than the Gov figure?

      OK, lets go with that. This means to me, that when the Gov said the inflation was 2% it really was 7-8% higher, at 9-10%?

      This would explain why prices are higher than the last 10 years, last 20 years, last 30 when supposedly inflation was low? Obviously it wasn’t.

      Where am I wrong?

      This tells me that inflation has been around 10% per year for decades. It would account for gas going from 34 cents a gallon, when I drove my Pontiac Gran Prix, 2-door tank, off to college, versus the $4.50 I pay today?

      • Wolf Richter says:

        “… inflation has been around 10% per year for decades.”

        Do the basic compounding math. If inflation is 10% a year for 7 years, your income would need to DOUBLE over those 7 years to maintain your standard of living. We might be there now. But we weren’t there in the prior decade. That’s total nonsense, designed for people who can’t do compounding math.

        • Educated but Poor Millennial says:

          Wolf,
          off the topic, or can be related too,
          Should I sell my airline stocks? (AAL, DAL, LUV, ALK) or wait for rebound due to the travel season?
          I am getting worried now since everything goes heck together , talking about the entire stock market

        • Crunchy says:

          Well I certainly feel like my standard of living has dropped by about half for each reelected U.S. president.

          I would not be able to send my (hypothetical) kids to private school today.
          I would not be able to afford college by working between classes today.
          I would not be able to afford a house today (at least not until I had maybe enough retirement saved up to pay for the down payment).
          I would not be able to pay my doctor or hospital bills out of pocket today, even for relatively minor treatment.
          I would find it implausible to buy a new car today, at least in cash (although I’ll admit the cars last much longer than back then).
          I would not be able to run the household (with children) on a single person’s income today. And that’s a big 50% cut in standard of living right there.

          It may not show up in “the numbers” but our lifestyle has diminished greatly since…well, anytime in the (with anyone still living) past.

          That is certainly not the end of the list, but maybe some retrospection on what middle-class lifestyles in the past provided for without so much government “help”.

        • georgist says:

          How much would my income have had to go up over the past 10 years to buy the same home?

          Let’s factor in understated inflation on homes, at the real rate.

          Then let’s factor in the marginal tax rate of my higher salary.

          Then let’s admit that you have to *more than double* your income to live in the same home as ten years ago with the same standard of living.

          End the age apartheid. Crash housing.

        • Wolf Richter says:

          Home prices are asset prices, subject to big declines. See all my housing charts. Homes are not consumption items because you don’t consume a home and their value doesn’t go to zero (normally). Homes are assets that you can sell. So you’re talking about asset price inflation, not consumer price inflation.

        • Ryan S says:

          Crunchy,

          You’ve added another variable that is very important to keep in mind. Living standards are a reflection of both consumer price inflation and wage inflation. If wage inflation doesn’t keep up, living standards decline without necessarily having a high consumer price inflation environment.

          In 1992 I worked at a union grocery store in Santa Monica and was paid $14.70 per hour as a journeyman clerk. Out of nostalgia I continue to follow the industry. A new three year contract was just approved in March 2022 raising the top pay from $22.50 to $26.75 over 3 years for my former job classification. After going up only 53% over 30 years, it is now going up 19% in 3 years. Obviously, this is a job where living standards have gone backwards, but it also confirms that the notion of 10% price inflation (or even 5%) for decades is absurd. Inflation over the period was relatively low, but the raises were even lower. Thus, the standard of living for grocery workers declined significantly even when price inflation was relatively benign.

          Going forward, the 6%+ average increase for the next three years tells me that inflation is unlikely to abate anytime soon. Given the history of the past 30 years, that is a massive increase and reflects the “inflationary mindset” (as Wolf says) on the wage side of the equation. It is the failure of wages to keep pace with even relatively low consumer price increases that have devastated many workers’ standard of living for several decades. Workers may get better raises going forward, but I doubt it keeps up with inflation.

        • georgist says:

          No I’m not talking about asset price inflation.

          The primary cost of a home in urban areas is the land. The location value. This value is created by society and the rent on the unimproved value of land should be taxed and shared among all.

          Instead we are forced to pay more now than 20 years ago in labour time for this land, which is not progress, it is a regression.

          We have to work longer to exist in exactly the same house as 20 years back. Labour time is worth far, far less now. That is inflation.

          What clearer definition of inflation could we ever have than having to work twice as long for the same thing?

        • Anonymous says:

          The rate of inflation can’t be judged accurately by a few items the government arbitrarily chooses to measure.

      • I actually agree with you. The magic was to average in the highly inflating necessities like health, housing, education with endless, cheap deflated crap from China. Shazam! the average was lower. But the things Americans need have been out of control for a long time.

        The American middle class lifestyle has been plummeting for 20 years. Covered up by ever more debt. Most “middle class” Americans today are just closet lower class.

        • RemoteWorks says:

          > The American middle class lifestyle has been plummeting for 20 years. Covered up by ever more debt. Most “middle class” Americans today are just closet lower class.

          Agreed. Does it matter in the big scheme of things when the environment in the next 2-3 decades might be unlivable anyway? The permafrost is melting FAST.

      • Jay says:

        Mish over at Mish Talk substitutes the Case-Shiller Index for home price increases for rent & OER, and he comes up with inflation at about 11%.

        Even that seems low, given my chicken sausage at ALDI has gone up 67% in one year and the value of my home has gone up at least 25%.

        The adjustments made to CPI by BLS from 1983 to 1998 intentionally underestimate inflation to keep SS COLA increases from being real world.

        • Wolf Richter says:

          Jay,

          I can’t wait for the day that housing drops and the Case-Shiller drops for four years in a row, like it did between 2006 and 2011, and then Mish will have to show low or even negative CPI, meaning CPI DEFLATION, based on this model, while CPI = 8%, hahahaha.

          I bet you that Mish genius will bury this math when the Case-Shiller starts to decline and then turns negative year-over-year hahahaha

          If the Case-Shiller had been used instead of the “Homeowners equivalent rent” index, CPI would have been negative (DEFLATION) from 2007 through 2011. Is Mish ready for this?

        • Seen it all before, Bob says:

          Wolf,

          I’ve always liked this chart. It clearly showed the housing bottom in 2012. The Home Price Index returned to the CPI Owners equivalent of rent. The bottom was when they intersected.

          Currently the CPI owners equivalent of rent in rising with inflation. The Home Price Index is still rising but slower.

          When will they intersect again? I believe that is the optimal time to buy a house.

          Will inflation continue to rise slowly while the home index flattens? That would be a safer to prevent a spiraling 2008 housing crisis again with massive foreclosures.

        • Phoenix_Ikki says:

          Wolf, same sentiment here, there’s nothing I would enjoy seeing than for these prideful house humping cheerleaders to eat a giant serving of humble pie…

          Although in their typical rationalization, they will look at it as minor setback and continue to sing the gospel of housing goes up forever…

    • Jay says:

      JPowell is, more than anything, trying to construct a soft landing for residential real estate. The FED is slow poking MBS runoffs in hopes that 30FRM don’t exceed 6% in the near-term. That remains to be seen with the FED owning close to 60% of government backed mortgages.

      As homes sales continue to tank through the summer, the MBS runoff will not take off meaningfully. Runoff means home sales payoff mortgages, lowering the FEDs MBS holdings. I just don’t see enough government financed housing activity by September to fully support $35B in MBS. So, they’re going to have to start selling MBS outright. By fall, we’ll be entering into a multi-year period where families are going to start hunkering down, not moving as easily, change jobs as much and will reduce overall spending.

      Selling MBS will put pressure on higher mortgage rates, meaning investors will have to scoop up the excess along with the treasuries and new government debt.

      I sincerely hope by September it all starts to go sideways and we’re looking at 30FRM north of 7%. That becomes the doomsday scenario which pushes us towards a real housing downturn in 2023 – 24 of at least 20%. Anything less than 20% will be a soft-landing win for JPowell.

      • John H. says:

        Jay-

        Good post

        Are you including the returns of principal — that occur each month in every mortgage payment — in your computations.

        I don’t know the ratio of principal/payment on the Fed’s massive MBS portfolio, but would be interested to know how significant it is versus the $95B targeted reduction.

    • Harrold says:

      The fed is clueless just like we are, just like wall street and just like “experts” at banks. They are HOPING to tap the brakes as many times as it takes to slow the economy just a little, but enough to chill demand and inflation. When you are on ice and you tap the brakes it is very easy to cause a skid.

      That is the hope. But it never worked in history. Once inflation starts it doesn’t stop until there is a bad recession. Just take out your oiji board and ask Paul Volcker.

      I still say these small steps are just jawboning. Nothing “real” will happen until after the election. The dems are putting a lot of pressure on Jay, and he would like another term. He won’t get it if he causes bad economic news between now and November, which causes a big shift to the red team.

      • phleep says:

        If Powell is handing out candy (sub zero cost credit) to the rich, the red team then wins, by promising the poor (white voters) it will crush the “correct” poor groups. Poor whites will stream to a guy who will make them FEEL like they are not on the bottom and in decline. Everybody is trying to extract something for free (low cost), and the lowest rung will eat the losses. Discipline will be harshly restored among the poor, with help from the cultural moves exemplified in the Supreme Court majority now: heavy on religion and abstention. Expectations will be adjusted.

      • Flea says:

        Remember which politician said it’s the economy,

      • Tom Bond says:

        The Fed is not clueless, they are dishonest. The only issue Powell is partly honest about is that they “have all the tools to contain inflation”. He just missed to say that having the tools and properly using them are two very different matters. The rest is old tired BS.

        Wolf: “the Fed’s securities holdings will drop by $47.5 billion per month: $30 billion in Treasuries and $17.5 billion in MBS, Reductions will come from maturing securities being redeemed”
        Those who understand the bond market know full well that this isn’t going to reduce inflation.

        • Wolf Richter says:

          Tom Bond,

          “Those who understand the bond market know full well that this isn’t going to reduce inflation.”

          Those who understand the bond market know that QT will raise long-term interest rates (and even the threat of doing it raises long-term interest rates, as we’re seeing), just like QE pushed down long-term interest rates. That’s the reason for QE and for QT in the first place. So higher long-term interest rates hit the real economy, housing, business borrowing, etc., and asset prices, and demand. That’s why central banks are trying to manipulate long term interest rates. And DEMAND is a huge factor in inflation. There are also psychological aspects to inflation – the “inflationary mindset,” as I call it – that higher long-term interest rates will impact.

      • CreditGB says:

        Personally, I doubt that what Powell does or doesn’t do at this late date, will not tame consumer inflation, and the underlying inflated costs that have yet to percolate into the consumer market.
        One of the major components, oil, a base for so much of our products and almost all of the transportation of goods and services, is not relenting on its path as we produce less of it for world markets.

    • Augustus Frost says:

      At 8.5% inflation and deeply negative “real” interest rates, the majority of the population’s living standards will decline and they will become poorer if the mania is over.

      Avoiding a statistical recession because GDP is (supposedly) increasing doesn’t change this reality.

  3. Michael Droy says:

    Since when has monetary policy been so reactive.
    The idea should always to be get interest rates above inflation quickly when it is rising.
    It is like they are doing all they can to not tackle inflation

    • 2banana says:

      Almost like a plan.

      Now guess where this end…

      • Marcus Aurelius says:

        With Everybody having a FedCard with Digital Currency (and no paper money, Gold or Silver).

        The dream of the bankers since, perhaps, 1450.

        • Sams says:

          Well, maybe the bankers will notice there is a catch. With central bank digital currency there is only one bank.

          “One Bank to rule them all, One Bank to find them,
          One Bank to bring them all and in the darkness bind them.”
          Modified from JRRT

      • Flea says:

        Didn’t you hear Biden bragging about deficit reduction ,inflation is paying for iy

      • Degobah Smith says:

        Hopefully, not with a very large “bang” heard all around the world.

        • phleep says:

          There goes my real estate. All near major Navy bases. I can open a glass shards store. Until the ocean rises.

    • Mike R says:

      The Fed has never done that in history. Go back and look at every single 2 year yield, when it reached that rate, and how the Fed reacted to it every single time. The Fed is taking their rates to where the 2 year yield is now, and when it hits that, there will be a full blown recession. It’s inevitable, and the landing is going to be very very hard. As in all stocks in the indexes will be down at least 60% from their all time recent highs before year end 2022. You will see one last new peak in the indexes, before that crash. It will be the most harrowing crash anyone alive today has ever been through. The Fed saying it won’t do .75 hike ensures such a crash. All of the rate increases from here are not only futile, but they are literally adding more fuel to the raging inflation inferno. CPI is hot, but wait until you see where it’s at by end of summer. You will see readings well north of 10. When you hit 10%, that is hyperinflation, and once that takes root, there is no reigning it in. Forget about what Volker did. Back then the US had virtually no debt. What he did cannot ever be done again. So basically the US dollar is now in a rapid spiral downward, and it’s value will be halved in the next 24 months, this is a currency reset folks. The Fed has baked that into the cake. You think the Dow market is at 33000. Nope. It’s really now the equivalent of half that. Because that is where the dollar is heading. Your buying power is going to be halved folks, in 2 years. Mark these words.

      • Carmine says:

        Neither Volcker nor a recession curbed wage inflation in the 80s. The US imported massive deflation from China at the expense of leaving its working class behind. Who’s going to provide the deflation now, the Moon?

        • HowNow says:

          The outsourcing of labor was not a conspiracy. When, on a phone call with the linen buyer from Walmart, the CEO of Fieldcrest Cannon was told that he’d have to cut his prices – to negative profitability – or lose the Walmart business, he folded. His company lost 35% of their business on that phone call. And that began the end of local manufacturing of textiles.
          Multiple that by every industry, and you get the wholesale outsourcing of goods to Asian and other low labor cost manufacturers. Companies could not compete carrying local/US laborers. So labor-intense work went overseas. It was the result of the success of low cost products being sold to the lower classes here by Walmart and then online sellers. From Walmart, it went to all other retail competitors who had to price match. As we bought cheaper goods, laborers in the U S got the shaft.
          I remember when a TV reporter from one of the major networks was at a UAW factory site and said that more than half the cars in the employee parking lot were Japanese cars (this was back in the 80s), just before the union went on strike.
          This wasn’t a corporate conspiracy. This wasn’t a conspiracy of shoppers buying cheap goods. This was an inevitability of the “free market”. Without an industrial policy – which would gag Libertarians and the ultra-wealthy oligarchs – you don’t need to be a genius to know what the outcome would be.

        • Lily Von Schtupp says:

          HowNow I was fairly young but tuned in and vividly recall Ross Perot warning of the NAFTA labor outsourcing during the prez debates.

          “You implement that NAFTA, the Mexican trade agreement, where they pay people a dollar an hour, have no health care, no retirement, no pollution controls and you’re going to hear a giant sucking sound of jobs being pulled out of this country.”

          Boy were they quick to jump on that sound bite and dismiss him as crazy, but he called it good.

        • eg says:

          Lily Von Schtupp — if you can find it, James Goldsmith also warned about the impact of importing wage deflation via the GATT in “The Trap”

    • Mark says:

      “It is like they are doing all they can to not tackle inflation”

      That’s how you do it- Do nothing until the midterms. Sacrifice the country (again) for political gain. Let inflation rage to protect the rich. This is business as usual.

  4. 2banana says:

    It’s all fun and games until the food riots start.

    Or soldiers and police start “supplementing” their small and shrinking pay.

  5. Dave says:

    I’ve been doing this for 27 years professionally. Run a medium-sized family office. Can someone from the irrational exuberance movement explain to me how a hike in interest rates justifies the DJIA up 900 points? I’m not a Buffet disciple but he may’ve nailed it on the head when he recently said [paraphrasing] Wall Street has been a casino for the past two years.

    • Wolf Richter says:

      Bear-market rally powered by short-covering. Oldest trick in town. Only in a bear market.

      • Dave says:

        Thanks for your reply. Post GME every move in either direction is attributed to shorts covering or market makers manipulating. I don’t play short squeezes so it’s hard for a dinosaur to decipher when shorts are actually covering anymore.

        • Marcus Aurelius says:

          Inflating the currency will drive up “prices”.

          Take a DOW at 30,000 and double the currency.

          Dow now 60,000? Value? The same.

          In Zimbabwe everybody in the market was a millionaire, or even billionaire. Hell, in Weimar Germany, towards the end of their inflation , the average income was, what, 1 Million Marks a day?

        • Juicifer says:

          Fun Fact: If a baby were born when Greenspan first introduced that “Irrational Exuberance” term to the world, back in 96, next year that baby would be 27 years old: the exact same number of years that you ran your medium-sized family office!

          27 years sure fly by real quick, huh? And for yet more number oddities: Greenspan, the former “Objectivist” and member of Ayn Rand’s “Collective”, also sometime Fed Chair, just turned 96!

      • phleep says:

        Bear market rally followed by beer market rally.

    • Satish Prabhu says:

      QQQ reached a top of 117.75 on March 17 2000. Here are the gyrations that followed.
      Date Price % Swing # Days % Loss
      Date ……… Price ……. % Swing…. # Days ……. % Loss
      27-Mar-00 … 117.75 ……. 0.00 ……….. 0 …….. 0.00
      14-Apr-00 …. 80.37…….. (31.75) ……. 18 …… (31.75)
      01-May-00 …. 95.62…….. 18.97 ……… 17 …… (18.79)
      10-May-00 …. 79.75…….. (16.60) …….. 9 …… (32.27)
      16-May-00 …. 90.16…….. 13.05 ………. 6 …… (23.43)
      23-May-00 …. 74.81…….. (17.03) …….. 7 …… (36.47)
      17-Jul-00 …. 101.75…….. 36.01 ……… 55 …… (13.59)
      02-Aug-00 …. 86.68…….. (14.81) ……. 16 …… (26.39)
      01-Sep-00 … 102.65…….. 18.42 ……… 30 …… (12.82)
      10-Oct-00 …. 75.12…….. (26.82) ……. 39 …… (36.20)
      20-Oct-00 …. 86.32…….. 14.91 ……… 10 …… (26.69)
      30-Oct-00 …. 76.76…….. (11.08) ……. 10 …… (34.81)
      03-Nov-00 …. 83.06……… 8.21 ………. 4 …… (29.46)
      30-Nov-00 …. 62.98…….. (24.18) ……. 27 …… (46.51)
      11-Dec-00 …. 74.37…….. 18.09 ……… 11 …… (36.84)
      20-Dec-00 …. 55.73…….. (25.06) …….. 9 …… (52.67)
      28-Dec-00 …. 61.56…….. 10.46 ………. 8 …… (47.72)
      02-Jan-01 …. 53.43…….. (13.21) …….. 5 …… (54.62)

      A lot more ups and down but LOST ANOTHER 62% to
      reach final bottom of 20.35

      30-Sep-02 …. 20.35 ……. (61.91) …… 636 …….(82.72)

      A lot more ups and down but LOST ANOTHER 62% to
      reach final bottom of 20.35

      30-Sep-02 20.35 (61.91) 636 (82.72)

      My apologies for the bad formatting. The 2000 downturn was bad but not horrible for the economy. The stock market viz. the Nasdaq was another story altogether. So was the real estate in certain prime localities in the Bay Area. I was smart enough to cash out of the Nasdaq right at the top, but was still screwed because I went in again when the Nasdaq was again trading at 4000. I dollar cashed averaged a couple of times till I threw in the towel. I was 30+ at that time. Me and my wife both lost our jobs. We had bought a house in Cupertino in September of 2020 and saw it crater in value by 20 percent. It came back to the original price in 2007 but then again cratered and did not see the price I paid till 2016 and 2015. So 15 years of no growth.

      • YuShan says:

        Your Nasdaq experience I think is very typical of what happened to a lot of investors and will happen again this time:

        People who are lucky enough to get out near the top think that they have an excellent deal to get back in once it dips -20%. They will be adding even more (if they still can) at -30%. Then they get slaughtered when it craters to -70%.

        If the bubble is exceptional, the collapse will be exceptional too.

        Some people argue that stocks are an inflation hedge, which is true to a point. Suppose inflation stays another year at 8%… Then theoretically stocks are “allowed” to go up by 8%, provided that profit margins stay intact. But profit margins are likely to shrink, because people lose spending power, wages go up, high inflation makes people insecure about the future so people reign in spending, etc.

        Also, central banks will then really have to up their game with much higher rates, so bond yields will be much higher. Then stock valuations have to fall to compete with bonds. Also, companies will have to deleverage because debt gets too expensive. This further shrinks profit margins.

        Some people argue that in 1920’s Weimar hyperinflation, stocks did OK. That was true, eventually. But stocks first lost about 80%+ of their nominal value during the high inflation year before the high inflation turned into true hyperinflation. Look it up!

        • Augustus Frost says:

          Stocks aren’t an inflation hedge. Look at the 1970’s and 1940’s before that.

          Earnings rose in the 70’s yet performance was mediocre to terrible. Stocks weren’t in a mania (not even close) the entire time.

          Valuations at the 1973 peak prior to a 45% haircut were bargains compared to this mania. The “Nifty 50” which were overpriced weren’t anywhere near as ridiculously overvalued as the most overpriced stocks now. The stocks were also real businesses, as opposed to mostly a bag of hot air.

          Balance sheets were rock solid then compared to the stable rags where companies record their results now.

      • Seen it all before, Bob says:

        Thank you for the data, Satish!

        I also experienced this wild ride back in 2000-2002.

        I said several times after large company stock fell 20%, “It can’t go any lower”, so I cautiously bought more which then dropped another 20% before I gave up.

        Is this a repeat of 2000?

        When the stock market started to drop in early 2019 (Pre-Pandemic), the Fed lowered rates to near zero and prevented a crash and resumed the bubble inflation. There was not the inflation like we have today.

        Pension funds, 401K’s, and 1% wealth are mostly all in stocks.
        Most of the voters have some or all of these.
        Will the Fed jump in to save us from another DotCom Bubble that affects the wealth of the majority of the voters?

        Who will be sacrificed? The wealthy and upper middle class with retirement accounts? The middle class and poor who are severely affected by inflation? Or both?

        The good news is that current homeowner and stockholders who purchased before 2019 have a huge bubble buffer to prevent them from becoming underwater. They will likely not be destitute like some who went all-in with tech stocks back in 1999 or houses in 2006.

    • Harrold says:

      Thank you for posting that question. It reminded me of my stock trading days.

      Very often on fed days the market will do the opposite of what you’d expect. But then the next day, watch out for the reversal (doing what you originally expected). Let’s see if that happens tomorrow. I think I’m about to feel sorry for people who bought this dip.

      • Old school says:

        You have to do risk management to ensure you don’t have a wipeout in a recession because multiple bad things tend to happen. Current setup could play out like this:

        1. Paper assets drop 50%
        2. No buyers for your home
        3. Inflation runs at 8%
        4. You lose your job.

        You can’t be living on the edge and survive a severe recession. Got to have a stash of cash to see you through til things stabilize. Cash is a waste 95% of the time, but it’s insurance against a severe recession.

        • phleep says:

          Loss in cash value is the insurance premium. Steep until the day you need it and have it.

        • phleep says:

          I wonder about complex and underfunded pensions too. Could be some nasty awakenings for comfy folks.

        • Harvey Mushman says:

          #4 can be especially catastrophic. Loss of a job means loss of income, loss of health insurance and whatever other benefits you had with your job.

        • Seen it all before, Bob says:

          Yes, having survived 2000 and 2008, having a stash of cash to survive 2-3 years is my plan.

          Goals:

          1) Buffer if I lose my job. I can likely get some job within this timeframe to cover some income and health insurance.
          2) To prevent losing my house and all of the equity in it. Despite being underwater for a year in 2009, it was better to keep the house using the cash than to walk away and lose it.

          I missed out on many stock and house investments in 2012 so having extra cash would help not to miss out again. I was bad with timing in 2000 and jumped in too soon. I was bad with timing in 2012 and didn’t jump in at all.

        • Cas127 says:

          OS,

          Agree with you entirely but the really bad thing that has happened over the last 20-25 years are the successive meteor strikes followed by long slow crawls out of the impact craters.

          1) 2000-2002 Internet implosion
          2) 2003-2008 Very slow jobs growth due to China and DC genius
          3) 2009-2014 Housing implosion (thanks, ZIRP 1.0)
          4) 2015-2019 Somewhat faster jobs recovery (maybe, but details…)
          5) 2020-2022 Pandemic
          6) 2022 Decades of ZIRP’ing finally offset China price goods deflation to re-introduce America to late 1970’s

          If you were unlucky enough to get nailed by every negative event above, that would have needed to be a big old pile of cash in 1999.

          You are 100% right about cash = safety, I just wanted to make the broader point that a nation in serious decline is going to drag a lot of the just (along with the unjust) alike down with it.

        • Marcus Aurelius says:

          You are correct.

          As of last week, I have cash equivalent to one years expenses.

          It is an awesome feeling.

          Yes. I am losing 18% this year due to inflation, but I am adding 18% of this cash reserve as we speak.

          This does not include the Gold and Silver Coins.

        • Augustus Frost says:

          Only a very low proportion are prepared for a worse and inflationary version of the GFC.

      • Ryan S says:

        Excellent call so far!

    • Rally is based on what they didn’t do but that was pretty much programmed into the narrative. The strong hands haven’t sold along with the crowd. Some like Buffett are buying and hedge funds are making a comeback. Large blocks of money are trying to get into, or out of the market at opportune moments. Sometimes the market is just too small to accommodate them. The monetary base has tripled in just a few years. The dollars spending power is down, which givers vendors incredible leverage. Most reckless Fed ever and with high dollar value stocks most retail investors are priced out of the options market.

  6. Confused says:

    I’m amazed that Democratic politicians think that extending the pain of hot-running inflation into 2024 will be better for them on Election Day 2024 than ending this mess in 2022 or 2023. Perhaps they need more time to unload their overpriced assets.

    • Jackson Y says:

      The consensus in the Biden administration is they think high inflation with a very hot job market is less politically damaging than high unemployment. That’s why they’ve always erred on the side of overstimulating the economy.

      The midterms will tell whether or not voters agree. I’m just praying for a clean referendum on the economy this November, without other distractions.

      • Phil says:

        Too late for that.

      • Miller says:

        I feel like that might have been true last year but the administration’s thinking did change fundamentally by Feb. 2022–the Cabinet and top advisers came to a general understanding that sustained high inflation was much more harmful to the Dems than a short, sharp recession, and Biden himself singled out inflation as the biggest threat in his SotU speech. Yellen has turned hawkish and that pressure is a big reason why even Lael Brainerd, once the most dovish member of the Fed, has turned hawkish and JPow himself is invoking Paul Volcker as a model now. (Remember there was talk for a while about the Fed backing off QT and interest rates hikes entirely in May, or keeping at 0.25–but they’re absolutely moving more hawkishly as Wolf is pointing out here.)

        I have some relatives who do canvassing for Dems and they agree the consensus and even the core strategy have changed totally, in part since working-class Dems esp are getting angrier about the financial hits from inflation, and some of the crime and social unrest in the US are being linked to it. So the thinking has shifted into a need for tougher inflation-fighting, with a growing acceptance that it’s better to have a controlled recession–even if a deep and painful one–that we exit out of, to pop the bubbles and stabilize prices, which the Dem base is demanding. This was Brainerd’s own reasoning in switching to a more hawkish stance.

        • Augustus Frost says:

          I’m guessing the government’s strategy is to tighten monetary policy and loosen fiscal policy, maybe not to the downpour of “free” money during the pandemic but at a higher level than before March 2020.

          I’m taking the “under” on any claim of avoiding a recession, expect it will be worse than most people anticipate and that this “can kicking” exercise (which is exactly what it is) will create another set of “unanticipated” economic problems later, again.

          I agree with your comments on social “blowback”. It’s coming. The country is so divided (balkanized) even now and there has been noticeable social and economic decay over the last 50+ years.

          The country is in a very poor position to handle a recession (at any time) given the actually awful long-term fundamentals, but this doesn’t mean it won’t get one anyway.

          No, there isn’t something for nothing, ever.

          The majority of Americans are destined to become poorer or a lot poorer once the end of this mania is confirmed.

        • Lynn says:

          “financial hits from inflation, and some of the crime and social unrest in the US are being linked to it.”

          Wow, they are finally getting that clue. That was the first thing I thought of when seeing that flash mob robberies were targeting both jewelry and baby diapers.. Not surprising. Baby needs the rent paid..

          Yeah, everyone is blaming the democrats for high inflation. Even the democrats.

          Kind of makes me wonder if Powel is really still working for republicans..

      • Sean Shasta says:

        Jackson y: “Clean referendum on the economy”

        Why? Is the economy the only thing that matters in any country?

        Economy is important, however, we need to be able to move forward as a society on all fronts.

        As individual families, we watch our finances. But we pay attention to all other things that impact on the well-being of all our family memebers.

        Why should the country work differently?

        • Augustus Frost says:

          Families (functional ones anyway) have a shared purpose.

          The US is a dysfunctional balkanized society. It’s not a nation, it’s a political entity. Nationhood and nationalism imply a mostly shared culture or at least enough of one where its members have enough in common to have a reason for “cohabitation”. The US doesn’t have that, not even close.

          For a further analysis of what I am talking about, read the section in “The Sovereign Individual” by Davidson and Reese-Mogg titled “bogus kinship” and the related concept of “coefficient of relatedness”. That’s what you are inferring in your post.

          Bogus kinship is the pretense of equating citizenship or residency with family. This is the idiotic premise behind the inferred expectation that taxpayers are supposed to volunteer to put the interests of people they don’t even know and will never meet over their actual kin (and community). You’re never going to hear this absurd thinking expressed explicitly but that’s the primary idea behind the supposed imaginary “social contract”.

          From the standpoint of the state, the “coefficient of relatedness” is always 1. In reality, it’s either at or closer to a big fat ZERO.

          The idea was bad enough even when American society was a lot more cohesive in the past. Now, it’s supposed to apply to a population of over 330MM, the majority with little if anything in common, other than sharing the same geography.

          No, this doesn’t mean I believe in “me first” for everything. It means exactly what I wrote.

        • Sean Shasta says:

          Augustus Frost: You wrote:

          (1) “This is the idiotic premise behind the inferred expectation that taxpayers are supposed to volunteer to put the interests of people they don’t even know…”

          Ok, I understand this extreme position.

          (2) “No, this doesn’t mean I believe in “me first” for everything.”

          I find this contradictory with (1) where you called it an “idiotic premise”.

          This is the everyday struggle human beings face. Whether to stand alone and move forward in their own self interests OR whether to act in everyone’s interests.

          Here is a kernel of an answer: Though all of us are very different, almost all of us would rush to help a stranger who has fallen down. Why? There is absolutely no self interest. In fact, there may be some costs of efforts, physical strain, distraction from our own task, and time. We still do it because there is an innate human bond.

          So the answer is not to go in the direction of kinship=0 because it goes against our basic human tendencies. And we can do it only for ourselves without worrying about what the broader society is doing. That is completely irrelevant because Life is a personal journey…!

      • RT says:

        Too bad a “major distraction” is already leaked by Politico. This coming election would not be a pure referendum on economics. Perhaps that is the reason why they “leaked” the document in the first place, to divert attention from the economic front and to galvanize a certain voting bloc for the upcoming midterm.

    • Sean Shasta says:

      Confused: Hmm…I thought the Fed was independent…? Perhaps you can clarify.

      On a side note, Warren Buffett during their recent AGM said that “Powell was a hero”. I take it to mean Buffett was appreciative of Powell keeping the economy afloat during Covid times.

      If all it takes is keeping interest rates down and doing QE forever, I think most everyone on this site can do it without blinking an eye.

      Guess it doesn’t take much to be a “hero” as long as you are taking care of the 1% while shafting everyone else.

      • YuShan says:

        There is nothing heroic about running up a massive bill that somebody will have to deal with in the future.

        The stupid thing is that most of the excesses have been committed when there really was no justification for them. Of course in the darkest days of the GFC in 2008-2009, the Fed had to step in. But in 2010 it was safe to start (and keep) unwinding these excesses. A similar thing can be said of March 2020.

        The ECB is even more stupid. They introduced negative rates in 2015(?) and still maintaining them to this day! And buying massive amounts of public and private debt each month (at negative yields!). But the economy was doing fine at the time. They just thought 1.5% CPI inflation was “too low”. It’s beyond ridiculous and their will be a high price to pay for this nonsense.

        • Sean Shasta says:

          YuShan: I agree, I see things the same way as you. That is why I put the word hero in quotes.

          But it speaks to the short-term selfish outlook and the lack of wisdom on the part of Buffett who has been forever praised as the “Oracle of Omaha” and an investment wizard. He and the other billionaires have been the beneficiaries in this financial la-la-land over the last 40-50 years. And I see neither wisdom nor heroism on their part at all. On the contrary, I see selfishness, greed, and hypocrisy.

      • Confused says:

        Hi, Sean Shasta,

        The Fed is supposed to be independent just as the U.S. Supreme Court is supposed to be nonpartisan. I wasn’t suggesting that President Biden should browbeat Fed Chair Powell the way Trump did, but the Democrats have blamed inflation on greedy corporations, a broken supply chain, Vladimir Putin, and the Wicked Witch of the West. They could say that the Fed has suppressed long-term interest rates far too long. Better still, they can take away the Fed’s temporary authority to use QE. Moreover, when selecting new members for the Fed’s Board, President Biden could have tried to determine whether the candidates understand finance or live in the theoretical world of an economics textbook.

        • Sean Shasta says:

          Hi Confused:

          “The Fed is supposed to be independent just as the U.S. Supreme Court is supposed to be nonpartisan. I wasn’t suggesting that President Biden should browbeat Fed Chair Powell the way Trump did, but the Democrats have blamed inflation on greedy corporations, a broken supply chain, Vladimir Putin, and the Wicked Witch of the West. They could say that the Fed has suppressed long-term interest rates far too long. Better still, they can take away the Fed’s temporary authority to use QE. Moreover, when selecting new members for the Fed’s Board, President Biden could have tried to determine whether the candidates understand finance or live in the theoretical world of an economics textbook.”
          ==================

          Neither party is going to do anything to end the party!

          I am learning that both the parties are on the same side – and both parties are under the control of the bankers, billionaires, and the 1 percenters. As George Carlin puts it – “It is a club and you ain’t in it”.

          Almost all the politicians on both sides, if not all of them, are extremely wealthy. So they are not going to let their wealth trickle down at all if they can help it.

          To paraphrase George Carlin – the 2-party system is just an illusion, we are being played and we don’t even know it.

          And I am not being cynical at all. Just realistic after observing how things work over the last 30+ years.

      • Confused says:

        Hi, Sean Shasta,

        I totally agree with your last comment to me about Greenspan, etc.

        Did you hear that the State of California is now offering to give first-time homebuyers an interest-free, down payment loan equal to 10 percent of the cost of the house, provided their income is low enough? The loan will be forgiven if the buyer stays in the house for five years. This is another program that likely will drive house prices higher in California.

        • Sean Shasta says:

          Hi Confused:

          “Did you hear that the State of California is now offering to give first-time homebuyers an interest-free, down payment loan equal to 10 percent of the cost of the house, provided their income is low enough?”

          No low-income or even middle-class family can buy a decent home in major California cities anymore. House prices have been inflated with foreign buyers who leave their homes locked and unoccupied, a massive bubble in the FANA(G) and other tech stocks, and widespread home speculation due to ZIRP.

          It is such a shame that a beautiful place has been brought to its knees by bad policies both at the Federal and State level.

        • Wolf Richter says:

          Confused,

          You’re spreading BS. This applies ONLY to CalHFA first mortgages. I doesn’t apply to any other mortgages.

    • Not Confused says:

      Laying blame on “Democrats”? Your handle appears justified.

      • Confused says:

        Hi, Not Confused.

        I think the Democrats are largely responsible for enacting three rounds of stimulus spending. However, that PPP loan program smells more like a Republican idea. Given the $4.5 trillion of money printing by the Fed over two years, the addition of the last two rounds of stimulus spending probably caused house-price inflation and general price inflation to soar. At least where I live, house prices were normal until after Election Day.

        • Sean Shasta says:

          Confused: How about the multi-billion dollar tax cuts by the Trump administration? And earlier under Bush? With non-stop ZIRP under Greenspan during the Bush years?

          Both parties have consistently played games with our finances. That is why our economy has been hollowed out over the last 40-50 years.

    • RobertM700 says:

      The excesses must be paid for, by the masses through inflation, using the slowly boiling frog mechanism.

      • Flea says:

        Dalit says riots start after 2024 elections ,we’ll see . But there plan is always to turn the people against each other,they win simple

        • Sams says:

          Divide and conquer work, util it doesn’t. It does not work any longer when there is nothing but chaos and anarchy. Some bad judgement and there is division and nothing to conquer.

    • andy says:

      Perhaps they are eyeing your assets.

  7. Levi C. says:

    I don’t understand the logic behind committing to only 50 basis point hikes going forward as all it does it limit your options and for what gain? As usual it’s the slidey way of speaking in that 75 basis point hikes have not been “actively considering” so it may just be double speak but again to what end I can’t possible understand. My best guess is it’s to reassure markets but that should be the last thing he wants to do if inflation is the target.

    This reminds me of a point when I was very new in my profession. I was speaking to an older and well experienced colleague about a strange discussion I had had with a member of our executive team where the manager asserted something that my education, training, and experience told me was factually incorrect. I looked for clarification as to what I wasn’t understanding to which he replied that I was right and our executive was speaking complete nonsense.
    “And now you realize you know more about our job than the ones tasked with overseeing it.”
    I get a similar feeling with Mr. Powell & Friends in that they aren’t nearly are smart as they need to be past, present, and future.

    • Depth Charge says:

      “Oh what a tangled web we weave, when at first we practice to deceive.”

      Powell is a paid and practiced liar. These people are ripping the country off blind, and bamboozling everybody to cover their tracks.

      • Escierto says:

        Ok, you know he’s a liar and I know he’s a liar along with all the other readers of this blog. Among the general US population he’s a hero worthy of respect. Therein lies the problem. Until the man on the street regards Powell and his henchmen as lying criminals who deserve to be taken out and shot, nothing is going to change.

        • Anthony says:

          Gosh Escierto,

          “Ok, you know he’s a liar and I know he’s a liar along with all the other readers of this blog.”

          Nearly the full description of communism/fascism…(take your pick)

          It goes,

          They know they are lying,
          We know they are lying,
          They know we know they are lying,
          We know, that they know, that we know, they are lying,
          But they still carry on lying…

          had to put lots of commas in the 2nd last line but they are not really there in the true line…… lol

        • SoCalBeachDude says:

          The Federal Reserve was CREATED BY CONGRESS AND IS FULLY ACCOUNTABLE TO THE US CONGRESS and it is the only profitable agency in the entire US government and rebates 94% of its profits each and every year to the US Treasury and it has done so for nearly 110 years.

        • Augustus Frost says:

          The FRB’s “profits” aren’t real profits. The claim is a farce.

          The “profits” are the result of “printing”.

      • historicus says:

        In a system that boasts of checks and balances….
        who checks the Fed?

        • phleep says:

          The Fed became the de facto legislator of stimulus circa 2008 and now. Those supposed to check the Fed (Congress) are so busy posing at throwing bricks at each other, and promising candy to their constituencies, they don’t get the big choices done (like major national immigration law reform 30 years overdue). It also provides the classic organizational shell game where one can always point suspiciously at the other as the reason the customer will be disappointed, and ejected into the street.

        • RT says:

          The checks and balances that was designed in to the system has long been gone and ignored. Also, the federal reserve was not part of the original system anyway.

          Supposedly we have checks within the federal government, but they usually end up working with each other.

          The checks against the federal government (State rights, nullification, etc) have been pretty much destroyed after the War between the States. Federal government now rules supreme.

          Federal reserve system created in 1913 was totally outside of the original Constitutional scheme. There’s no one really there to hold them accountable. No the Congress, not the President, not the Courts, not the States, and definitely not the people. We are still waiting for a complete audit of the federal reserve banks and a list of all their stock holders.

        • Dan Romig says:

          RT,

          IMO, two key points to keep in mind regarding the creation of the Fed.

          First, when it was signed into law, it had a twenty-year charter. It would need a renewal by Congress in 1933 to continue operating.

          The first two central banks of the USA also had this twenty-year charter written into their creation. And, the first two central banks did not have their charters renewed by Congress.

          Second, Congress skirted this potential event from happening on 25 February 1927, by the passage of the McFadden-Act. The Federal Reserve System is now, essentially anyway, immortal. Congress could kill it, but that will not happen in my lifetime.

          As Nick Lowe sings, “And so it goes.”

      • Swamp Creature says:

        Powell needed to apoligize to the American people for his total mismanagement of the Money supply and interest rates. He didn’t do that and blamed everyone but himself. Further, he should have then announced his resignation.

    • SpencerG says:

      Yeah… I didn’t understand that either. A little mystery about how high the Fed will go each month is a good thing when fighting inflation. Volcker didn’t tell anyone how high he was jacking up rates. He just did it and let them guess as to what he would do next.

      Perhaps this is just at the start of the process. They could always have a called session and add a .50% hike in the middle of the month as well.

      • phleep says:

        There is a long history of why central bankers have come to telegraph their intentions. It is to avoid massive value destruction and sudden depressions. Greenspan took the cryptic secret stuff very far and the backlash now is from that. The public wouldn’t anymore stand for drastic surprises, nor would the huge swaths of suddenly bankrupt companies.

        • Anthony A. says:

          And of course, the FED members won’t have time to unload their market positions ahead of any unannounced surprises.

    • dishonest says:

      Did Powell lose his job few months ago or not?
      If not, he’s as smart as he needs to be.

    • Marcus Aurelius says:

      The frightening thought is that they may know exactly what they are doing.

      • Sean Shasta says:

        Marcus Aurelius: Absolutely. When no other conclusion makes sense, this is the only conclusion that’s left. So it must be the correct one!

    • Old School says:

      Levi,

      I think in the Fed’s mind they need to lower demand to the right level. There is so much debt and speculative gambling they have to telegraph everything to ensure they don’t blow up the plumbing in the “nobody fully understands” financial system.

      There is such a delay in their actions and the affects on the real economy. Maybe current mortgage rate is enough to cause a housing crash. It will take a few months to find out.

    • InExcess says:

      Levi,
      How can you question the smartness of the great FED?
      This is their words,
      In 2021, Inflation is transitory, 2022, ah well….Let’s jam in a few 50 basis points, the damn thing is raging hot.
      These might very well be their future words,
      2022, softish landing, 2023/2024, oops, we didn’t see that (hard landing) coming.

      These people are supposed to see 10 to 20 years out and plan monetary policy accordingly.
      There are no more FED governors who have the balls like Volcker.
      None!

  8. Depth Charge says:

    The FED is doing everything in their power to make it look like they are serious about stopping inflation while doing as little as possible to actually stop it. That’s why everything is always too little, too late.

    “We could raise interest rates in 15 minutes if we have to.”

    ~Ben Bernanke

    Don’t listen to what they say, watch what they do.

    • Jackson Y says:

      This. The market gave them the green light to get back to neutral ASAP (as of yesterday, futures were still pricing in a 90% chance of a 0.75% increase at the June meeting), yet they took that off the table. And they’re going to delay the first baby step towards balance sheet reduction for yet another month, for no apparent reason.

      It’s a complete dereliction of duty and the entire committee should be fired.

      • Wolf Richter says:

        The Fed didn’t put the 75 basis point hike on the table. Some Wall-Street manipulators did. And I never bought it. 50 basis points was the base case all along.

        And the Fed didn’t “delay” anything. In the minutes from the last meeting, it said what it would do: announce QT in May, start phase-in in June, go full-speed a few months later. And that is exactly what they announced today. There was no surprise.

        This is just a rehash of what I wrote in the article. I wish people RTGDFA before posting anything.

        • Zark Muckerberg says:

          I suggest you put the entire article in the title to get people to read it 🤣

        • SpencerG says:

          Yeah… I was really surprised yesterday when I heard the market went up because the Fed hadn’t done a .75% hike. “Where did that idea come from?” was the thought that ran through my head. The Fed had been pretty specific that the discussion was from 0.25% to .50% TO START WITH.

          People who think the Fed isn’t going to do “anything” DEFINITELY have it WAY wrong. The people who think the Fed isn’t going to do “enough” PROBABLY have it wrong. The concern needs to be that they aren’t going to do “enough fast enough”… Powell’s desire to seem “reasonable” undercutting his true power to influence Americans into cutting back on demand enough to strangle inflation in its crib.

          Maybe Powell will get more aggressive with rate hikes and QT as soon as he gets confirmed by the full Senate. Maybe it will happen once the November election is over with… even Volcker had to stand down his first attempt until the 1980 elections were over. But I don’t see how this ends right (for the markets OR the economy) if the Fed keeps trying to be “reasonable.”

        • COWG says:

          Last December ( so long ago), the Fed was selling 3 quarter point rate hikes in 2022…

    • Jack X says:

      Depth Charge* Ya know ya right but ya know why? Cuz their stupid plan is to try talk down speculators & bring down inflation, that’s why the delay & procrastination, they believe the threat of tightening will bring down commodities without having to do it, it’s failing.

      The Fed think they’re smart, gambling is an addiction & they encouraged it, look at what happened, commodities & stocks surged, they made it worse, they created an uncontrollable monster, a hyper bubble & only a total collapse will teach the market. This is historic, it’s psychological, people have been overcome with greed & fantasies of wealth, this is worse than 1929, far more participants, no smartphones in 1929.

    • RT says:

      Well, so what would happen if they really decide to raise the FFR to 8.5% overnight to match the published official inflation rate?

      What would that do to the market and to the economy over night?

      It would definitely benefit the savers, the people who have no debt, the people who paid their houses and cars off, the people who have no credit card debt.

      Who would lose out in such scenario?

  9. gorbachev says:

    There have been situations where the cause of inflation
    was high-interest rates. I don’t think we’re there.

    • JC says:

      Erdogan’s School of Economics?

    • Sams says:

      Monetary high interest rates are inflationary. High interest rates create more money than low interest rates. That is the math of interest rates.😉

      • Wolf Richter says:

        Sams,

        Low interest rates increase demand funded by borrowed money. They also increase asset prices, and these assets can be sold or leveraged, and the proceeds can be spent, which increases demand. That’s why central banks lower interest rates: to increase demand. And this artificially stimulated demand can create inflationary pressures.

        High interest rates reduce demand funded by borrowed money. Many projects stall or don’t happen. Asset prices fall and leverage backfires and absorbs cash. This puts downward pressure on demand, which reduces inflationary pressures.

        But inflation is also a psychological phenomenon – I call it the “inflationary mindset.” Meaning that businesses are raising prices and get away with it because their customers are paying those prices, and it cycles through the economy. For inflation to thrive, the inflationary mindset needs to be widespread. And that’s what we have now.

        • Sams says:

          That is the economic textbook explanation. It is not wrong, but by some contested and it may not be all of the explanation.

          Historically inflation was defined as an increase in the amount of money. When I say that interest is the inflation it is in the context that interest as an mathematical operation on the amount of money expand the amount of money.

          Manipulating the interest rate in the market is an indirect way of manipulating the amount of money in circulation.

          Think what could be done if the currency was digital and with a built-in feature where the central bank could set the interest on the money itself. Think of a dollar bill where the value face value did change on command from the central bank.😉

  10. JM says:

    The FED has starved more old ladies on fixed income than a Chinese Gulag Camp. These FED bankers are sick evil people and have only served to keep a boot on the neck of the USA for over a century. All the boom and bust we see from housing to stocks to interest rates result from the FED. Shameful and disgusting. End this criminal banking cartel before they end America.

    • phleep says:

      So — go back to the wonders of 1893? The crash lasted years and years. The US Gov has to be bailed out by a super-rich guy wheeling and dealing profitably in gold (John Pierpont Morgan). Then 1907? We had to beg a hyper-rich guy to save the financial system (John Pierpont Morgan). GREAT.

      Or there was good old Adolf renouncing his country’s debts. Next stop was to balance the books by confiscating the world from the neighbors.

      So you want the likes of Elon Musk and his peers as the kings of the financial system?

      • phleep says:

        Or put monetary policy in the hands of Congress? Have you HEARD those people lately? They can’t screw in a lightbulb, and should be nowhere near such policies. Hard enough to keep them from their fellows’ throats. Who then? Biden? Trump?

      • RT says:

        The cycles of boom and bust before 1913 were all well documented. They happened due to malinvestments and bad business decisions and plenty of other bad business decisions. The bust is to correct those malinvestments and to force investors back inline. Those boom and bust cycles are not the “end of the world”. Besides, the US dollar were bind to gold and silver and so it was not a fiat currency. The business cycles of boom and bust can go on, but it won’t affect regular people who are not in the market. Their US dollar holdings (in gold and silver) are not affected by the business cycle, as long as they do not make any reckless investments.

        Fractional reserve banking and the completely fiat currency are the major causes that makes the business cycle even worse. The creation of the Fed and the belief that a small group of bankers can control the entire market, and influence business cycle is truly arrogant. And history since 1913 has proven that such small group of bankers are not capable of controlling the “market” and business cycles.

        So the intervention, plus fractional reserve banking and now a completely detached fiat currency all contributed to the significant loss of wealth by the lower and middle class. The normal people like most of us are, now have less and less ways to work hard and save the fruits of our labor for us and for our children. In this case, going back to the system before 1913 seems to be a good and wise decision.

        • SoCalBeachDude says:

          The lack of any system at all prior to 1913 regarding central banking proved to be catastrophically disastrous as we clearly confirmed by the “Panic of 1907” after which the stability of a system with a central bank was fully conceived and then implemented in 1913.

  11. Doubting Thomas says:

    Wolf – Just checking my math and logic: $4.6 trillion divided by $95 million per month equals approximately 48 months or *four years* to complete the tapering. Seems like a heck of a long time. Am I missing something? Thanks.

    • Jackson Y says:

      They don’t intend to get back down to $4.6T and there’s a good chance market tantrums will “force” them to stop before reaching $7 or $8T.

      • Wolf Richter says:

        Nonsense. INFLATION is forcing the Fed’s hand now. INFLATION. Look up what that means. It destroys the currency. And it’s raging.

        • Richard Greene says:

          Federal Reserve Credit last week
          added $2.0bn to a record $8.918 TN.
          Over the past 137 weeks,
          Fed Credit expanded $5.192 TN, or 139%.

          That’s some “war” against inflation !
          No guns or heavy artillery.
          Just fly swatters.
          But that’s reality so far.
          Everything else is just talk and promises
          for the future. I prefer to live in reality.

          The inflation problem has been serious
          for long enough to expect more from the Fed.

          But this is an election yea, and Democrats are in trouble. EVERYTHING is political these days, including Fed policy.

          I made that comment here months ago, and “The Big Bad Wolf” disagreed with me.
          I believe The Wolf was wrong.

        • Wolf Richter says:

          Richard Greene,

          “Federal Reserve Credit last week
          added $2.0bn to a record $8.918 TN.”

          You’re spreading BS. That gets you thrown into purgatory.

          Federal Reserve assets FELL last week for the second week in a row and are $20 billion BELOW where they were on March 16.

          The Fed’s total assets have been essentially flat for two months, though they go up and down on weekly basis. After the last two weekly declines, the balance sheet that comes out later today will likely show a small increase.

          Read the linked article so you understand what is happening with MBS.

          https://wolfstreet.com/2022/04/21/peak-balance-sheet-feds-assets-dip-to-5-weeks-ago-level-end-of-qe-end-of-an-era/

          Click on the chart to enlarge it:

    • Jack X says:

      No ya not missing anything but it’s 95 billion, the Fed won’t last 6 months, in fact QT will stop before they get to 95 billion a month in Sep cuz it’ll all collapse by then.

      • Anil says:

        Precisely. QT will not last 6 months & Powell will do a U turn. shrinking the balance sheet is myth. Politicians just kicking the can?

        • Wolf Richter says:

          Anil,

          At first they said that the Fed is trapped and can never end QE, and when it ended QE, they said that the Fed is trapped an can never raise rates, and when it started raising rates, they said that the Fed can never do QT, and when it got ready to do QT, they said that the Fed will stop after six months, and when the Fed…

          Last time they did QT, they did it for 2 years, and inflation was BELOW the Fed’s target, including when he did the U-Turn. Now inflation is raging. Entirely different scenario.

      • Wolf Richter says:

        Jack X, that’s ridiculous BS. RAGING INFLATION is the issue now, in case you haven’t noticed.

        • Jack X says:

          Wolf ya missed my point, I agree 100% with you, read my other comments.

          The point I’m making is the Fed has a record of doing ruinous things worrying about their& their wealthy friends assets, we ca see that clearly over the last decade, They are corrupt & need to let the system correct, by no means do I advocate any reversal I actually believe rates should be far far higher & rising 1% at a time, QE is corruption & a disaster.

        • SoCalBeachDude says:

          What is at issue is MASSIVE CORPORATE PRICE GOUGING which is what is causing so-called ‘inflation’ in the US and globally as well as record high levels of DEBT AND SPENDING.

    • SpencerG says:

      Doubting T…

      The part you are missing is that they can accelerate the monthly QT. That is what they did last time so it wouldn’t be unexpected for them to do so this time. Quite the opposite… and with an election coming up six months from now it would be in line with their historical practice of showing restraint in an election year. But the minute that election is over in November… hang on! I don’t think Volcker waited a week after the election in 1980 before he made his big move.

    • Doubting Thomas says:

      Oops, $95 Billion (with a “B”) per month. I made the same mistake as Dr. Evil in the Austin Powers movie.

    • Swamp Creature says:

      Doubting Thomas

      This tapering will never get completed. I’m wondering if if will even get started. We’ll be in a recession or depression before any serious reduction in the balance sheet occurs. Then it will be taken off the table.

      • Wolf Richter says:

        Swamp Creature,

        “Tapering” has already been completed. You’re talking about “Quantitative Tightening” or “QT,” which hasn’t started yet, but will start on June 1. No one knows what “completed” means in terms of QT, and the Fed yesterday was vague about the end point. But they’re going to do it for a long time, years, before they feel they got to the end point. The end point might come when something goes haywire.

  12. historicus says:

    The Fed said they liked to “average” …
    so if year one is 8%…..the next four years should have a Fed inflation target of 0%.
    But they are sticking to the 2-2.5% game….
    So if year one is 8%…and the next nine somehow drop down to 2.5%….
    thats over 30% drop in purchasing power BEFORE COMPOUNDING!
    And that is “stable prices”?….and thats IF inflation comes down to 2.5%…

    This Fed is quick to save markets….
    and slow to save the citizens of this nation from this damaging inflation.
    Where is an honest Q & A of Powell?

    • drifterprof says:

      Correct me if I’m wrong, but a current year 8% inflation rate averaged with the previous 9 year trailing annual inflation rates (I’m on phone so can’t calculate exactly) would be roughly about 2.4% average 10 year trailing annual inflation rate.

      • historicus says:

        And my reference was going forward and averaging back.
        the 8% will be in the rear view mirror next year…

        So you deduce the 8% is right in line with the Fed’s program?
        And 2.4% inflation for ten years…..when you put down the phone do some more math. 2.4% for ten years compounded gets near 30% drop in purchasing power of the dollar. And I’ll guess that fits right with your vision of “stable prices”.
        I hope you enjoy the Fed’s world.

        • drifterprof says:

          “The Federal Open Market Committee (FOMC) judges that an *annual* increase in inflation of 2 percent in the price index for personal consumption expenditures (PCE), produced by the Department of Commerce, is most consistent over the longer run with the Federal Reserve’s mandate for maximum employment and price stability. ”

          Take note of the word “annual”

      • COWG says:

        dp,

        As historicus pointed out, you didn’t factor compounding…

        However, using your 10 year time line, roll forward 8% this year, maybe 6% next year, compound it out and see what it does to your trailing timeline….

        Not pretty… and you can’t undo it…

        • historicus says:

          No mention of Powell rolling back this inflation…..
          8% baked in seems okay with the Fed.
          They push all attention to bringing the rate down….but to what?
          Why not wring out this inflation blip….?
          And speaking of inflation…the base number is now 8% higher (assuming 8)….so a Fed target of 2.5% is on a number 8% higher than it was when the Fed was pushing that target level one year ago. The 2.5% inflation then is a greater incremental jump than assumed 12 months ago.

        • drifterprof says:

          COWG –

          It would help if you could show me where in the Fed’s official policy it mentions that the policy goal for inflation is compounded 2% interest instead of annual 2% interest as I quoted above from federalreserv.gov website.

        • COWG says:

          dp,

          Their 2% is target “per year” above the last year… This is a “month to month “
          Calculation…

          Google “ CPI SSI historical chart “and you’ll see the index numbers for CPI since 1974… The Fed uses PCE so their numbers will be slightly lower over the same time frame…

          From the chart… 10 years…

          Feb 2012 index 224.317

          Feb 2022 index 278.943

          Difference 54.626

          Divide the 54.626 by the 224.317

          24.4 % CPI over the last ten years from Feb 2012 to Feb 2022…

          This was also when some years had 1% or so inflation…

          The yearly rate you hear so often is a monthly rate from the index annualized not a Jan-Dec hardline time frame…

          This is where the compounding comes in because you are calculating based on index numbers annualized vs a hard one time number as a calendar year calculation…

          Also, the index means a lot to COLA and SSI raises because the calculations are based on last years index numbers from July, Aug, Sept combined vs this years index numbers for the same months instead of the entire year…

          If you had 8% annualized inflation for the first 9 months and zero inflation for the last three months as compared to last years July, Aug, and Sept numbers , your COLA would be zero…

          That would hurt…

        • COWG says:

          dp,

          Not to belabor the subject, but here’s another example for you…

          Feb 2021 index 256.843

          Feb 2022 index 278.943

          Difference 22.100

          Divide 22.100 by 256.843

          Last 12 months inflation 8.6%

          If you want a calendar year, just use the index number from Jan and Dec of the year you want…

          Hope that helps…

        • COWG says:

          dp,

          Some more calcs that will help the compounding

          Feb 2022 8.6% actual Trailing 10 years. 24.4% inflation…

          Feb 2023 (6% assumed) Trailing 10 years 30% inflation…

          Feb 2024 (5% assumed) Trailing 10 years 34.5 % inflation…

          Feb 2024 (2% Fed target) Trailing 10 years 31% inflation…

          It’s all about the index numbers…

          If the Fed, in 2024, says “ yay, we hit our 2% goal”, that 2% is not in a vacuum… it’s on top of ALL of the inflation in the years behind it…

          That’s where the compounding comes in…

          You would have to have severe deflation in the index numbers to create a scenario where the Fed could ever, ever achieve a 2% goal of inflation for any period of time…

          Another way to look at it…

          From Feb 1974 to Feb 2022, because of compounding, the US has had….

          487% total cumulative inflation in 48 years…

  13. Jack X says:

    The fact is inflation will keep rising until it’s wiped out peoples ability to pay, debts will default on mass, 2008 will seem like a soft landing, the whole point of fighting inflation is to stop maximum destruction NOT to avoid a recession, it’s to late for a soft landing, 2013-2016 raising rates would’ve been a soft landing.

    Th economies need to collapse 20% to really bring down commodities. the Fed is so impotent the market is laughing at em, 50 bps hike, today the dumb ignorant market encouraged by a cowardly & immoral Fed pushed Natgas up 8%+, oil up 4.5%, wheat 3% up, all commodities rallied, on a 50 bps hike, biggest hike in 22 years, Dollar down 1%, they’re so high on euphoria they say “sure fed, whatever”, the stocks rally 3-4%, this is an indictment of the Fed, it’ll take utter devastation to rid this level of speculative frenzy.

    It’s that simple, the pain & will be symmetrical to the speculative frenzy, regardless of what the Fed does, too late, inflation will rise till it all collapses & that’s already begun.

    • Sams says:

      There is a catch, what if the economy collapses 20% or more and commodities prices do not come down?

      A collapse in the economy may kill purchase power. Together with high interest rates that may stifle all investments, down to the farmer not sowing anything as they do not expect there to be a market. Notice, people starve in the USA, not because shortage of food but shortage of purchasing power.

  14. TK says:

    I love the 100k pickup and home remodel remark. The hospital TV had a new homebuyer show playing. The buyers lined up to overbid a 20 year old home. They also borrowed enough to remodel to the “open concept.” Yet that concept is truly not needed and simply a marketing ploy by renovators that need to show newer and “hip-er.” How is a 20 year old home outdated I wonder? Same goes for the pickup. Reality is we deserve what we get, inflation included. Just sorry the savers and smart people are not able to benefit. The solution for intense capitalism is a world of smart people. But we are a nation of – insert label here _________ people. Good luck!

    • Nissanfan says:

      We live in a world, where if you don’t borrow money and live within your means, you are a sucker.

      • Old School says:

        Not sure about that. We have been through 13 years being leveraged up on assets was the thing to do, but usually those that use too much leverage lose it all in a recession. If you don’t use leverage a recession is when you should go shopping.

      • Abomb says:

        I’m a total sucker. It blows actually because I feel cheated for not taking on excessive risk.

    • Bubba says:

      America, F#@k Yeah!

    • jm says:

      As energy prices rise in future decades, people will regret the open floor plans and cathedral ceilings. It used to be that people closed off their parlors to save heat except when they had visitors who rated reception in the parlor. The dining room was closed off except at mealtimes. Rooms were heated by steam or hot water radiators that allowed control of heating individually on each room according to time of day. You still find this on Europe and the UK. American forced air heating with effectively no individual room control is brain dead.

      • Gilbert says:

        Not entirely true. Closing registers on forced air system effectively shuts down heat to a room and saves on heating expense.

        • COWG says:

          Gilbert,

          I think some HVAC folks will tell you you’re wrong in the world of central heat and air…

          Has to do with system balance and return air flow for efficiency…

          It’s efficient with individual room control and many folks are going to mini splits to accomplish that…

        • Dan Romig says:

          COWG,

          That is true. Also, it is not a good idea to shut off any sizable percentage of air registers as this causes increased flow and pressure from the fan’s moving air, through the heat exchange, into a smaller portion of the airways.

          Unless the fan(s) are controllable, it is better to have the same cubic foot per second maintained in the air passages.

          I did comment that in my modest Minneapolis home this cold January, my nat gas bill was six bucks a day. I consider that to be a bargain. Add a little for the electricity to run the furnace fan, and life is good at 19 to 20 C during the day and 16 C at night.

      • phleep says:

        Tell it to the last prior (and next) president who wants shower heads that explicitly use MORE water! Pedal to the metal baby!

    • RT says:

      Well, I don’t know any one that is buying 100k pickups nowadays. We have four vehicles that averages about $5,000 each and the average model year is 2004-2005. I don’t think any regular family can truly afford a 100k brand new pick up without getting heavily into debt.

      I believe most common Americans will gradually wake up to the new reality. The price at the gas pump and at the grocery story will contribute greatly to this new reality.

  15. unamused says:

    The Fed has been juicing the market with NIRP/ZIRP since the 2008 crash. That much is obvious.

    But if you look at the last graph you can see that The Fed has been cycling the FFR downwards since the early 1980s, finally bottoming out in 2009, every time the Financial Industrial Complex tanks itself and takes it out on the Real Economy. The pattern seems to be too consistent to be just a coincidence.

    This suggests that either excessively low rates have been the underlying policy goal for the last forty years or the Real Economy has been pushed into a state where it requires a downward overall trend in rates to maintain an illusion of stability and prosperity. At this point rates can’t continue to cycle down any lower, as they have for the last forty years, which suggests the parasite has just about succeeded in killing the host and increasing rates in the effort to contain inflation will only accelerate the process.

    I have a bad feeling about this, and I don’t think it’s just gas this time. Maybe some brandy will help get my thinking straight. Or I can have some root beer and Doritos and spend some quality time second-guessing myself.

    • DawnsEarlyLight says:

      I’ll take answer B, and double down on the brandy!

    • Bubba says:

      In this day and age, I think we could replace the humans in charge of the Fed with an algorithm. QE was a bad mistake from the very beginning in 2009, and Hoenig was the only dissenting vote against it. Housing wasn’t allowed to reach price discovery.

      • Old School says:

        To me the concept of the modern Fed was always a problem. When you clean up after every bust by printing you change people’s risk appetite to use leverage.

        Plus there is another failure that the Fed has broadened it’s responsibilities so much they didn’t do the most basic one which is ensure politicians didn’t overspend and debase currency.

        • phleep says:

          The Fed found so many loopholes, the whole thing is wide open. They can self-redefine to any shape and function on a dime. They can pump endless money anywhere. And they do.

          They are a substitute for a functioning legislature. Not a happy thing to say.

        • John H. says:

          OS-

          The concept of the modern Fed was problematic to some of the founding fathers, too:

          “It would, indeed, be little less than a miracle, should the credit of the [central] bank be at the disposal of the Government, if, in a long series of time, there was not experienced a calamitous abuse of it.”
          – Alexander Hamilton, Report to the House of Representatives on the National Bank, 1790

    • historicus says:

      The Food inflation hasnt even begun to hit the stores in my opinion.
      $8 corn, $11 wheat, $16 soybeans….and fertilizer 3 x’s higher than last year.
      The Fed answers to the stock market, not to their duties. That is clear.
      The inflation will shutter small businesses…..and damage the larger ones.
      Inflation can cause recession faster than 3% fed funds….a rate more in line with the financial history of this nation.
      The truth is the markets can’t handle that which was once normal rate structure…..fed funds equal to inflation…as it was for 70 years prior to 2009 and QE.

      • Dan Romig says:

        Most of my food expenses are in the produce section. Inflation has already hit my wallet hard.

        Agriculture productivity & output, on a global scale, has been hit hard as of late. And I agree with your prediction that it is going to ramp up food inflation very hard in the near term down the road.

        I have tilled out more space for my gardens this week, and will plant this weekend. All I have at my control anyway ….

  16. Brant Lee says:

    I think we would be better off with a recession than with current inflation. We have all lived through recessions but this 8+++% inflation sucks worse.

    • Wolf Richter says:

      A recession lasts a couple of quarters. Inflation lasts for years and destroys the economy and the currency.

      • InExcess says:

        Very true Wolf.
        Looks like you and I (and many others on your blog) have live through the devastating 70s. We remember!
        So how does this economy get back to “goldilocks”?
        Excellent graph you have.
        I note 2 tremendous peaks, one in the 70s and 1 in the 80s.
        The 2022 red line is alarming.
        The rate of rise is as bad, or maybe worse than the two mentioned above.
        How does the FED bring the economy back into a goldilocks situation without a severe landing?
        Just asking.

  17. Guido says:

    Isn’t this the fed that told us inflation is transitory and it is not Sony we should worry about, a year and half ago? In simpler terms, they told us this fire won’t burn down the house. Now the house is completely ablaze, they have opened their canisters to put out the flames. They are still in control, they assure us.

    Their best bet is to work with their brethren from BLS and cook up some meaningless numbers and call it a day.

    • The Real Tony says:

      Next year it will be like the boy who cried wolf with the Fed telling us that hyperinflation is only temporary.

      • phleep says:

        The war called their bluff. Only if things went perfect, would this have worked out. That is NEVER a winning place for a gambler (or risk manager) to be. It is “gambling for redemption.” Here we are, it is 4:00 a.m., we ask for one more free drink and one more chance from the dealer. The wind is cold out there.

  18. RickV says:

    Very good summary of the Fed moves. It sounds like the Arthur Burns Fed relived (Fed chief from 1970-1978). We will see if it comes to a Paul Volker moment (Fed chief from 1979-1987).

  19. Halibut says:

    Clint Eastwood… “I’ll kill you, I’ll kill your family, and I’ll kill your dog!!!”.

    Sorry, where was I? Ohh… Depth Charge meets JPow in an alley, and the clouds parted, the sun shines again…

    Crap. My Maker’s Mark is running low. I’ll be be right back…

  20. Kunal says:

    Wolf, I told you the criminal Fed will never let the asset bubble crash even if that means sustained high inflation. They will keep jawboning lying BSing but will keep the assets propped up. That’s the mandate of the rich and wealthy for which Fed works. Feds original charter was price stability and full employment and clearly that’s a big lie to keep the sheeps calm.
    US needs a true revolution and prosecution of the entire Fed. That’s the only cure but alas it’ll never happen.

    • Wolf Richter says:

      “… Fed will never let the asset bubble crash”

      It’s not “letting” it crash, it’s purposefully crashing it, if you haven’t figured it out. We’re already seeing the results.

      • The Real Tony says:

        I hope you’re right, I see the stock market as the Fed being able to bring a dead man back to life. Something supernatural.

        • Wolf Richter says:

          Check the markets today. Stocks getting shookalacked: Indices down 3% to 4.5%.

          Yesterday was a one-day bear-market rally powered by short covering that was predicted here in the comments (by “Andy”?). This stuff can be obvious.

      • John H. says:

        As Marty Zweig used to say, “don’t fight the Fed!”

        • historicus says:

          Fighting the Fed works when the Fed fights reality.
          The Markets are larger than the Fed…
          and the BOJ is about to find this out with their capping of their ten year at .25%

  21. Mendocino Coast says:

    All This time I have been waiting and waiting for Fed ,The Government to raise short term Rates and now its worthless we are F*cked now
    The cost of living is so Sky High making a 1/2 point Rise worthless .
    With this Inflation they would have to raise rates
    10 points
    Fire ” Everyone ” at the Fed yes Everyone clean house
    Recall Biden get rid of him along with a WHOLE lot of Jerks in power
    The USA has been a leader of economy world wide my whole life now that’s no longer.
    The People still in power are racing full speed ahead to grab what they can before being kicked to the door
    The USA is for sale to the highest bidder but whats left is nothing like it used to be now is it. People are leaving the USA

    • phleep says:

      > People are leaving the USA

      There is no “outside” on this planet anymore. No untouched or pure refuge. No dependable flow of resources. That is instinct talking, looking for a plentiful perch. That was the world before (but only at moments). Peace and happiness are transitory, we are all migrants now, as the world changes under our feet instantly. (I’m seeing major events about each 6 months lately, with semi-major happening in between).

      Latest: Europe will not buy Russian oil. Boom, it reverbs right back to your porch (if you are lucky enough to have one). We all have the headphones on, and they are turned up to 8 (not quite 11 yet)!

      • Hardigatti says:

        Oh. EU will still buy Russian oil but it will be from 3rd parties at a higher price. Morons.

    • historicus says:

      Mendocino…
      What’s amazingly dangerous…..it seems too many of these misguided FOMC votes are unanimous. Group think. Marching lockstep to the abyss.
      They could use a couple of people that comment on this web site on the FOMC.

  22. unamused says:

    I’m standing by my earlier prediction that The Fed will neither prevent a recession nor control inflation. I could explain my reasoning but it would be boring to utter stultification.

    Okay, sitting, to be perfectly honest. Standing is too much like work. Okay, slouching. I should probably get up and brush my teeth or binge-watch House or something.

    • Old school says:

      Fed has already screwed up. We are going to get a brief period of a recession and inflation and that’s going to be scary.

      • phleep says:

        “Brief” I can do.

      • historicus says:

        Imagine if they had kept a positive yield curve
        if they had not purchased MBSs at prices no one else would
        if they had kept Fed Funds even with the inflation rate…
        if they hadnt done QE
        does Powell imagine? Guessing……………………………..no.

      • Guido says:

        How do you reckon it will be brief? I am thinking this will be a depression.

  23. Walter says:

    I am 64, working and make $120k annually. have home ($800k todays value) paid for (annual taxes app $18k), need some opinions. No one so far has said how to invest (or not) at this point with a crash looming. Couple of questions:
    1) where to put $1 million cash
    2) it’s in LDLFX right now but watching that share price drop – will rising rates hurt it or help?
    3) A few hundred thousand in long term bonds bought years ago paying 6-8%, various maturity dates
    4) remainder in various equities, about 100k in AAPL, some in energy (Chevron, Honeywell, LNG

    What would y’all be doing right now?

    • Wolf Richter says:

      “where to put $1 million cash”

      Spend it on housing for the homeless. They need it more than you do. And then you don’t have to worry about it anymore, and you feel warm in your heart.

      • InExcess says:

        😃:)

        Best comment yet

      • Janna says:

        When we lived in Delaware, there was a car wash that employed the homeless and others down on their luck. The business also housed them (apartment bldg next door) and provided lunch. They were great workers and we visited often. I am sure the business turned a good profit as well because they were always busy. There are ways to make money and help others at the same time.

        • Crunchy says:

          The $15 minimum wage and those mandatory employee benefits will really help those hardworking folks, too!

          (oh, wait…?)

      • Okay so I get one homeless guy off the street, then what do I do?

    • The Real Tony says:

      I’m in the same boat as you. More and more it seems like the market always comes back as if by magic when the major indexes fall more than 20 percent no matter what the news or circumstances are. Every time selling starts to dry up the PPT can rocket the indexes higher. Long term I can only see gold, silver and platinum as the place to be.

    • SpencerG says:

      Congratulations on your success! I think we all hope to be in your shoes at your stage of life.

      While I truly LOVE Wolf’s answer, I will give you more of an investment response.

      Keep 3 and 4… in an “inflationary recession” you only want stocks that generate cash from companies where consumers absolutely MUST have their products… oil, utilities, and cell phones for instance…

      But move 1 and 2 either to the sidelines (cash/ST Treasuries) or into things they aren’t making any more of (Real Estate, NYC taxi medallions, gold/silver, art, antiques, etc.). At this point in time the markets are going to collapse BIGGER and FASTER than inflation bites. There will come another point in time where you can re-allocate again… but the bond and equity markets are WAY out over their skis right now.

      Bottom line… the right move at the moment is capital PRESERVATION. Let OTHER people take the near-term market losses that we all see coming. You would be better off just taking the inflation hit to a pile of CASH than taking the market hit AND THEN taking the inflation hit to whatever you have left.

    • Nunya says:

      Buy high quality dividend paying stocks which are trading at a fair price and/or undervalued. They are out there, you just have to look past the bullsh*t. The dividend will help soften the inflation hit, and if prices come down, buy more to increase dividend yield. Stay in it long enough to see the bottom and come out of the other side. Depending on your style of investing, average down or pyramid up.

      I would also take as much equity out of that home right now to prepare to buy when sh*t hits the fan. Think of it as swing trade that’s 12-18 months long. Buy near the bottom when the Fed starts to turn dovish and begins to send signals to Wall Street that they are ready to support them. If you can’t beat’em, might as well join’em.

    • Old School says:

      Walter,

      Sounds like you have been responsible and are getting to the end of your working career. As some say you have to transition from accumulation to having an income plan you can’t outlive.

      If you like to do it yourself there are a lot of resources on line to make a plan. You can make charitable contributions part of the plan.

      It’s debatable in the modern world whether you benefit society more by being a market participant or by giving your resources away. Some say by specializing in the labor and capital markets and paying your taxes you are benefiting society the most.

      I always like the saying that the person working in the toilet paper factory is as much of a public servant as a policeman or fireman.

    • Jim Mitchell says:

      Live from New York! Screw you!

    • Bobber says:

      I hope you will do better than my friend. He asked me about what to invest in a few months back, and I said no more than 30% stocks and the rest in short-term bonds. I said the very clearly the market was over-valued and risky.

      Apparently, he didn’t take my advice because a couple days ago he said investments have lost a lot and he needs to exit his semi-retirement and work full-time.

      He’s a tradesman, who began watching CNBC last year. He doesn’t realize CNBC is a perpetual stock-pumping machine.

    • TheAltonRoute says:

      Buy a million $ in crypto?

    • Seen it all before, Bob says:

      If it were me:

      1) Retire from work next year when you qualify for Medicare
      2) Enjoy at least a decade of life with the 1M in cash.
      3) If after a decade, downsize the home and go live with grandchildren.
      4) Pull out of LDFLX at .48% expense ratio to BSV with .05% expense ratio. Both have similar short term bonds which will bounce back in 1-3 years. Pull out 2 years in cash, place 10K in Inflation Protected government saving bonds at 7+%. Always have 2 years of expenses in cash.
      5) Let the bonds paying 6-8% mature.
      6) Keep large cap dividend paying profitable company equities.
      7) Give to charity. They will likely need it in the next few years.

      • Seen it all before, Bob says:

        LDFLX at .48% is not too bad. You are paying them about 5K/year for the honor of the fund losing 50K this year on 1M.
        BSV with .05% expenses is paying them $500/year with the same outcome.

        The good news is both will bounce back and pay higher interest/dividends within 2 years since they are short term bonds. With BSV, you will end up with 9K more after 2 years from the difference in expenses.

      • Seen it all before, Bob says:

        An update: It was announced 2 days ago that I bonds will be paying 9.62% for the next 6 months.

        Buy 10K of those this year for every SSN in your household.

    • ace says:

      tell me you like to brag without telling me you like to brag

      ds

  24. Brant Lee says:

    Finally, banks will make more from my .01% savings account than borrowing from the Fed. I feel more important now.

    • Brant Lee says:

      Which begs the question: Don’t banks need to charge more than 8% on loans (mortgage loans for example) or lose money when inflation is running 8%?

  25. Walter says:

    Add to that – total funds are right at $3million.

  26. Matthew Scott says:

    Wolf, what does your EFFR chart look like for the 1960s early 70s? When inflation started its upward movement?

      • Sea Captain says:

        Eyeballing the difference between the two variables, fed – cpi. The difference has been largely positive, except for a few occasions, until after 2008, in which it has negative. This is incredible. A large black hole to back fill? Surely, as the service would say, the outcome now has to be choice between the lesser of two evils.

      • drg1234 says:

        Holy shit. That is a scary chart.

  27. ru82 says:

    I am guessing the negative GDP print scarred the FED? They do not want a recession to be the topic for the midterms elections?

    Probably better to have inflation talk instead of recession talk?

    FYI. I think the last PPI print was over 10% I wonder what the CPI print will be?

    • Jg says:

      Wolf – you have to admit you overvestimated what the FED would do. They are uber dives, and will back off rate hikes sooner thsn later. They are already pushing off selling mbs and doing QT. Pathetic.

      • Wolf Richter says:

        Jg,

        BS. RTGDFA.

        The Fed did EXACTLY what they said they would do at the last meeting, which came out in the minutes of that meeting well before the GDP print.

        Where do you get this garbage???

      • The Real Tony says:

        Also surprising was the Bank of Canada dropped their forecast rate hike of .75 percent to .5 percent June 1st before the the Fed even raised rates. We’ll see in the future if the Bank of Canada foretells all the rate hikes in America.

        • Wolf Richter says:

          The Real Tony,

          Nonsense. The Bank of Canada didn’t drop anything. Some economist dropped their forecast of what the BoC might do. Huge difference.

    • Wolf Richter says:

      ru82,

      “…negative GDP print scarred the FED”

      RTGDFA

      Nonsense. They did EXACTLY what they said they would do at the last meeting, which came out in the minutes of that meeting well before the GDP print.

  28. Phoenix_Ikki says:

    Why do I get the feeling that if inflation data do slow some downward trajectory next FOMC, Weimar Powell might surprise the market with.25 instead .50..if that does happen watch those firework pops and market to new high.

    This excess asset inflation is like Fast and Furious franchise, just when you thought this is the last one and beg for it stop, another one will pop up. Inflation is the archilles heel right now but by some dumb luck and timing, Powell might get his wish and leverage any downward momentum to say condition is improving and scale back. Let’s hope not but also wouldn’t be surprised based on his past incompetence.

    • SpencerG says:

      I doubt it. They know they are behind the curve on this one. They also know that the biggest killer of inflation is when the population THINKS the Fed is on top of things. Look at Wolf’s graph… Volcker was Fed Chairman until 1987… he may have let up on rates after 1982 but he kept them WELL ABOVE the inflation rate for the remainder of his two terms. He let everyone know that inflation was dead…and that it was going to stay dead.

      As opposed to last year, everything is now lined up to INCREASE Fed Funds rates as this year goes along… Powell will get his re-appointment confirmed by the full Senate in the next couple of months and the election will be over with in six months. Current “transparency” norms mean that the Fed will get off to a slower start than in Volcker’s day… but that doesn’t mean that Fed will back off prematurely. They know what is at stake here.

      • Phoenix_Ikki says:

        Honestly, I hope I am dead wrong in my assumption and you’re right. Anything that can help crash the market and especially in the housing market I am all for. It would be nice to see asset value fall back to down to earth and come closer to fundamentals than it is now.

  29. OutWest says:

    So when does the average Joe with a decent amount of coin in retirement accounts start to panic and sell to lock in profits before the bottom drops out?

    I don’t think we’re there yet.

  30. Depth Charge says:

    “The director of the International Monetary Fund (IMF) slipped up and admitted that the world’s central banks may have printed too much money and did not think of the consequences.

    “I think we are not paying sufficient attention to the law of unintended consequences,” said Kristalina Georgieva, who has led the IMF as its chair and managing director since 2019, during a debate on the state of the global economy hosted by CNBC on April 21.”

    “We take decisions with an objective in mind and rarely think through what may happen that is not our objective. And then we wrestle with the impact of it,” she said.

    “Take any decision that is a massive decision, like the decision that we need to spend to support the economy,” she continued. “At that time, we did recognize that maybe [there’s] too much money in circulation and too few goods, but didn’t really quite think through the consequence in a way that upfront would have informed better what we do.”

    • YuShan says:

      It is good to see some introspection. However, these people aren’t stupid, so I have a hard time believing that they really didn’t appreciate the consequences of their actions. It’s economy 101.

      • SpencerG says:

        Yeah… since when does printing a lot of money out of thin air NOT lead to inflation?

        They all have multiple degrees in Economics… they knew.

      • InExcess says:

        They are not stupid, they became very complacent.
        Their non-actions became a normalized risk/s to the economy.
        Now they (worldwide central banks) are in a big rush to bring the “Titanic” back on course

    • unamused says:

      Do you believe it is really possible for both Fed governors and IMF directors to be THAT dim-witted, and in the same way? I don’t. These guys are Ph.D. economists. They aren’t capable of making newbie mistakes. Our Illustrious Host here isn’t the only one what has been complaining about their wayward policies, and these guys could not have missed the years of heated criticism.

      What IS true is that national economies and the global economy cannot stay on an even keel unless debt continues to increase. Debt cannot remain stable and it certainly cannot be paid off.

      The Stupid Defense is what politicians resort to when they get caught and have no other way of weaseling out of their complicity. Complicit at what? Loan sharking wasn’t invented by La Cosa Nostra. It was invented by bankers and has been popular since Pasion. The goal of loan sharking is to subjugate the victim to generate a permanent stream of power and profit by way of a dubious deal that turns ugly and never ends.

      That’s what they’ve done, to the whole planet. They wanted to lock in a different sort of world government, a trapezocracy, rule by bankers. Carroll Quigley clearly stated that this was what they were doing over sixty years ago. These guys are anything but stupid. They can see where civilization is headed and know that catastrophe is imminent. And they want to make sure they stay way up on top when the worst happens, and they aren’t about to allow a repeat of what Philip the Fair did to the Templars.

      • Hardigatti says:

        I agree with you that our PhD economists are as smart as they come. However, our vaunted economists are consumed fighting short-term fires. There is no true long-term thinking. The next election is at most 2 years away.

  31. drifterprof says:

    I got out gradually around mid-2021.

    I was never good at musical chairs as a kid.

    • SpencerG says:

      Smart man. There will be a time to play the game again. But not for now.

  32. Anthony says:

    The USA, using the new measure of a recession, has been in one for the last three months and now interest rates have gorn up. That has to be a first….

    It will be interesting if hyper-inflation or even dragflation hits somewhere in the West. It could be the USA or Japan or Europe,(or all three) especially as oil prices(energy) are back up again. We all know what happens when energy prices zoom.(ouch)

    From this I guess, California will probably get another 100,000 (very welcome it appears) homeless over the next few months. Such is the defintion of a “soft” landing….

  33. Franz Beckenbauer says:

    The Fed pays 0.8% on RRP, which is basically the risk-free money market rate.

    If that is hawkish, Cinderella books a flight to ukraine.

    All the Fed says is BS. Everything. The bipolar markets know that. By friday, we might have all time highs again. It’s getting so obvious, it’s not even funny any more.

    It’s all complete BS.

    • Wolf Richter says:

      Come back on Friday and report to us about that all-time high.

      • The Real Tony says:

        I was the one who said the U.S. dollar would fall as if by magic. Only took a few days after that comment and being out of stocks cinched it for the market moving higher.

      • SocalJimObjects says:

        I think last month, there wasn’t that much corporate buyback. This month though there’s a ton of them coming. I don’t know about all time high, but this stops only after the muppets roll over.

      • Poor like you says:

        Didn’t even have to wait till Friday. Gains are evaporating already :D

  34. AD says:

    Yep, the S&P 500 peaked around 1510 in July 2000 and it dropped to 1183 in August 2001.

    So there was a bear market within 1 year of Bill Clinton leaving office.

  35. KPL says:

    CPI is due on May 11. Let us see what it brings. If it goes higher may be it will 75bps back on to the table

  36. Max Power says:

    The Fed can’t really let inflation “rage” in the long term. Even a projected 3% inflation over more than a few years will collapse the government bond market. The entire long end of the govt fixed income complex is predicted on the Fed actually sticking to its self-imposed 2% ceiling long range forecast. Yes, the so-called bond vigilantes have been kept under wraps for decades but that was mainly because inflation was in actuality placid on a long term basis. That’s why Japan for example has been able to keep up the game it’s been playing for decades. However, if you basically guarantee the “vigilantes” that whatever happens they will lose money on the long bond to maturity then they will, finally, come out in force.

    • Gilbert says:

      ‘predicated’ ??

    • eg says:

      “Bond vigilantes” as far as the US Fed is concerned became extinct once the gold standard went away, but that hasn’t prevented the scare stories about them being circulated.

      • Max Power says:

        Yeah, as long as the bond bull market was hopping since the early 1980 any talk of bond vigilantes is indeed moot.

        However, reverse the 40 year bull run and guarantee a multi-decade real loss of principal and they will become unextinct.

    • JJ says:

      “The Fed can’t really let inflation “rage” in the long term. Even a projected 3% inflation over more than a few years will collapse the government bond market.”

      You’re giving yet another good reason why Wolf replied to a commenter some weeks ago that “The Fed MUST bring down inflation or the entire economy will turn into a giant sh*thole.”

  37. YuShan says:

    Taking 0.75% off the table was pretty stupid imo.

    The “art” of central banking is that they can achieve stuff by mere suggestion without actually doing anything. By taking 0.75% off the table for the next few meetings, he is effectively loosening policy in people’s minds. He should do exactly the opposite: tightening by talking markets down without actually tightening too dramatically.

    The longer this goes on, the more dramatic action they will eventually be forced to take.

    • SocalJimObjects says:

      I agree with this. Oil futures are now shooting towards 110. When they are at 130, the Fed will be forced to raise 1% in one go, and after that the market is toast.

    • SpencerG says:

      I agree. “Let them Wonder!”

      Back in Volcker’s day he did it by not even reporting what he was doing. Professional “Fed Watchers” had to figure it out on their own… and debate their conclusions as well as what might come next. We have too much “transparency” now… the one thing Powell has is uncertainty and he gave that away (for now at least).

      • YuShan says:

        Exactly.

        In the past, they didn’t announce what they were going to do months or even years into the future. Instead, they had a known framework that they used, so investors could guess what they would do based on macro economics.

        Since the GFC, central bank policy has become completely discretionary without any framework. See for example how current interest rates deviate from the Taylor Rule that used to be an important part of the policy framework. Now it is very much like a politbureau just imposing policies like they did in communist countries.

    • Miller says:

      To be fair I don’t think JPow took 0.75% or even 1% hikes off the table. He kind of-sort of hinted at it but then barely a few minutes later, changed his tune completely saying that if inflation is not brought to heel immediately by the previous rate hike and QT scheme–and by that he meant bringing inflation down to 1-2% not just “moderating” it–the Fed will move more aggressively on both rate increases and QT. Like Wolf says at the top, the Fed orientation is now decidedly more hawkish it was basically an “all options on the table” statement, simply saying he’d prefer not to go to higher rate hikes but will if inflation doesn’t get tempered quickly. Lael Brainerd herself has turned hawkish and JPow is not openly channeling Paul Volcker as a model for his own moves from now on. Absolutely leaving that option open.

      • Miller says:

        should read “and JPow is now openly channeling Paul Volcker as a model for his own moves from now on.” most annoying typo

      • YuShan says:

        I do agree that they have turned hawkish. I also think that they will do larger hikes if they must (e.g. 20% inflation next month).

        However, Powell was quite specific and convincing that for the next couple of meetings nobody is considering anything else than 0.50%. So they have removed that uncertainty, which I believe is a mistake.

    • The Real Tony says:

      I guess trying to quell inflation early rather than late makes too much sense. The same mistake was made in the 1970’s when they let inflation get out of control.

      • SoCalBeachDude says:

        The US Treasury market very quickly rectified that quirky matter which proved to be very transitory.

    • Depth Charge says:

      “Taking 0.75% off the table was pretty stupid imo.”

      Not to Weimar Boy. He wants to continue to give hope to stock market speculators so as not to collapse the financial markets while simultaneously – miraculously – reigning in inflation. He’s delusional.

  38. Ben Sargent says:

    Does the calculations of CPI have anyone in the background manipulating any forecast variables to soften the calculation or is the process fixed? Just curious? Something like future interest rates, wages, etc?

    • Old Ghost says:

      Ben, I suspect you may be thinking about derivatives ? Something like $1 quadrillion in bets are out there. Nobody here seems to be considering them. But maybe the reason for the slow walking by the Federal Reserve on rate hikes is to give their owners (the big banks) time to get on the “right side” of the bets.

      Another something almost nobody here seems to consider is a default on debts. Most everyone seems to think that the powers- that-be will continue to “print”. But a default could preserve the dollar (as long at the Muppets are holding the bag).

      From where I sit. It looks like the big banks own both the government, and the Federal Reserve. If you can anticipate what will benefit the big banks, and move accordingly, you should do well.

  39. Michael Engel says:

    1) 5Y breakeven inflation rate = 3.24%.
    2) 10Y breakeven inflation rate = 2.86.
    3) If productivity beat both, we will be ok.

    • Putter says:

      Productivity down 5.2% Sorry, this is the 70’s. The stock market went nowhere for a decade and lost over 100% of it’s value in real terms.

    • Flea says:

      Why is Buffett buying hand over fist ,either money is worthless Dalit or he’s buying when other’s are fearful ,. Waiting for correction in brk b should reset at $270 then add more

      • Depth Charge says:

        At his age I’d say it’s cognitive decline.

      • Old School says:

        Buffet’s got a high class problem of too much cash coming in than can be deployed at double digit hurdle rate. It seems to me he is using the logic that deploying some cash at mid single digit hurdle rate is better than letting it all pile up in t-bills.

        One thing is he likes t-bills and equity, but not bonds. He thinks taking duration risk in bonds when the Fed has a printing press is stupid.

    • SoCalBeachDude says:

      ‘Productivity’ in the US plummeted more than 11% in 1Q 2022.

  40. Michael Engel says:

    EU interventions changed Germany yield curve : all rates > 1Y
    are positive. The 15Y is at the top at 1.121%. The 25Y form hump, an inversion. The 3M is moving up to minus (-)0.62%. When the spread between the two extremes will be large enough madam ECB will be forced to raise the deposit rate, because the market beat her.

  41. Marco says:

    Yesterday’s market knows the truth, the Fed are not serious about inflation

  42. unamused says:

    Softish landing?

    In aviation, a good landing is one you can walk away from. A great landing is one where they can use the aircraft again.

    A softish landing isn’t nearly good enough. Not good enough at all. But it was nice of them to tell us. Gives us something to look forward to.

    • COWG says:

      A soft landing is possible…

      They just have to throw the passengers out first…

  43. David W. Young says:

    Please pass the barf bucket. The U.S. Federal Reserve has never achieved the pablum condition termed “soft landing” after an abrupt period of monetary tightening. Never, ever, nada, no way, Jose, ain’t going to happen. Sounds good at first, but then you start seeing the economic numbers week after week, and please pass the bucket.

    The level of inflation ravaging the purses and wallets of American consumers will guarantee that the demand side of the equation will operate as it always has, outside of the machinations of the Feeble Fed. If it costs too much, we proletariat will do without or use less of it since our incomes, definitely forget bond and stock market gains going forward, are not increasing anywhere near the inflation rate of 10% and Beyond. All about cashflow, Mr. Powell, something you and Uncle Sam has not had to deal with with a perpetual printing press for each player.

    Strong demand and strong labor markets can melt like the Spring snows as American consumers, still the driving force behind the U.S. economy, hunker down and postpone large capital outlays until the washing machine blows up in the basement. Beating wash on a big rock may come back into vogue. Modern automotive vehicles last much longer than their predecessors, and one just don’t have to have that grossly over-priced average $340,000 home right away especially with monthly payment making a moon shot.

    The Fed balance sheet reduction is a joke after a $4.3 Trillion bulge. $100 Billion a month run-off is like a gnat on an elephant’s butt; may we all live long enough to see a visible reduction. Since these guys have driven the bus into the ditch, they are claiming a deer called Supply Chain Disruption and Putin Ukraine Invasion ran in front of them. Now, as of yesterday, they have been seen running away from the scene of the accident.

    This will be a very severe recession based on the levels of debt at every level with the words Default, Insolvency, and Credit Risk coming back into the vernacular. Corporate debt is at record highs and housing foreclosures are really picking up steam. Stretch the rubber band to its limits, and it going to hurt when it snaps back!!!

    Leaving the scene of an accident is a felony offense, or should be in the case of the most Irresponsible Fed in the history of FedDom.

  44. Richard Greene says:

    This is the best post on the Fed I’ve read this week.
    And the charts here are always easy to read, for those of us with poor vision. The conclusion is well summarized in the title, and first few paragraphs, which is good writing …

    But … early this year I left a comment here, saying that in an Election Year, with the Democrats in trouble, the Fed’s decisions will be very political. I predicted they would not do a lot to fight inflation, because doing so could cause a recession to start before the election.

    So far it seems I was generally right … in spite of the criticism I received from “The Big Bad Wolf”, who I believe gives random commenters, who disagree with him, a hard time, just to show us who is boss. I know it it not mature to say “I told you so”, especially because 2022 is not over yet, but then I’m not mature !

    • COWG says:

      “ in spite of the criticism I received from “The Big Bad Wolf”, who I believe gives random commenters, who disagree with him, a hard time, just to show us who is boss.“

      Consider yourself lucky…

      Some of us get tossed straight into moderation jail… :)

    • The Real Tony says:

      Recessions are supposed to take place near or at the end of a tightening cycle not at the very start of a tightening cycle. I for one do not believe the GDP data coming out of America.

      • Old School says:

        GDP is definitely an imperfect measurement, especially when there are negative real rates facilitating government spending. Median per Capita real income is probably a better measure of economic health.

  45. Michael Engel says:

    1) We produce soybean and wheat.
    2) There is a severe hunger in eastern Africa and several ME countries.
    3) The war in Ukraine exacerbated the problem. People are dying.
    4) US social programs will expand globally to save the world, providing food, water and medicine. A round trip to the 50’s, when Europe looked like Mariupol.
    5) US growing influence will increase inflation.
    6) Our fleets rule the waves. Our weapons are world best, test globally. And our “Hunger Program” save the world.

    • Flea says:

      Where is China ,they were all in in Africa let them feed the world. Oh that’s right they can’t fed there own people

      • COWG says:

        Sam Kinison on world hunger….

      • intosh says:

        And the USA “were all in” the Middle-East. You think it’s to promote democracy and freedom?

        You think there’s no hungry people in the USA?

    • Miller says:

      I’ve always found this sort of triumphalism and American exceptionalism to be bizarre but even more so now. Especially 4)
      “US social programs will expand globally to save the world, providing food, water and medicine.”
      We can’t even provide these things for our own people in the USA right now, our social programs are a messy patchwork even domestically, much of the US Southwest is literally running out of water (Lake Mead at record low level), much of our water infrastructure is at 3rd world level (see: Flint, MI), we have the highest rate of uninsured and undertreated people and by far the worst life expectancy of the developed world. In what utopian fantasy do you think we can provide these things for the world when we can’t even provide them for our own people?

      • SocalJimObjects says:

        From Wikipedia: Hunger in the United States of America affects millions of Americans, including some who are middle class, or who are in households where all adults are in work.

        6) The US armed forces only scare really small countries. Russia was so scared of the US, they actually invaded Ukraine. Like ROFL. Peak hubris. And how about Afghanistan and Vietnam eh. Tested globally indeed, and have been found wanting.

        • Miller says:

          Yep. I’m no historian but a professor friend pointed out the United States and Britain (defeat in Suez 1956, Israel/Palestine, Aden in the 60’s, Iraq and Afghanistan with us and even the UK’s own short war Vietnam war in 1945) have lost nearly every war we’ve fought since WWII, with exception of First Gulf War–and even that led to disaster, a big motivator for the 9/11 attackers who saw it as avenging the humiliation. I’m starting to think our respective MIC’s (just another group of oligarchs) might be the undoing of both the USA and Russia as great powers, offensive war in the modern day and age is just stupid and wasteful, neither of us have the demographics to wage it and modern tech with cameras and social media everywhere means the aggressor gets crushed in the media war from the start, with trillions of dollars wasted. It’s also funny how the American media tries to paint Russia’s failures in Ukraine as if they somehow benefit the US, with countries aligning into two poles just like the Cold War. We’re in a multi-polar world, I have a lot of old associates overseas and world opinion basically hates both the US and Russia for our aggressive wars, I’d say a solid majority would be in the “none of the above” camp. It’s also why China likely won’t do anything with Taiwan, they have the advantage of time and waiting things out as commerce grows closer with the island, and they’ve benefited most by focusing on trade and the new Silk Road while both the USA and Russia bleed and bankrupt themselves on the battlefield.

        • Old school says:

          I am serious when I say I don’t believe there are hardly any hungry people in the USA. Malnourished from poor diets or people not able to get fresh food maybe. Maybe a few without the knowledge to find the help offered.

          There are a lot of programs and charities out there at least in my area. How much do rice, dried beans and off brand oat meal cost? Those things can keep you alive and not hungry and all you need is the ability to boil water.

        • Happy1 says:

          Where are these hungry people? We have the most obese low income population in the world.

    • Miller says:

      And 5) and 6) too–what? Not trying to be mean or pick on you here, but there’s so much muddled thinking here it’s hard to even know what you’re saying. What does 5) even mean? How does the United States or any country’s “growing influence” increase inflation? Any Econ 101 student knows inflation is caused by a mix of excesses in the monetary supply and supply constraints. Any country’s influence has little to do with it. And as for 6) you seem to be stuck in a different world from decades ago. Did you not notice the humiliating US defeat against armed goatherders in Afghanistan less than a year ago? On top of a costly defeat (trillions of dollars) squandered in Iraq a few years before that (and failures in Libya, Syria, Yemen…) Thinking like yours ironically is the same blunder that’s gotten Russia into disaster with the Ukraine–even the best weaponry won’t help you when you’re seen as the aggressor, your troops are demoralized and your opponent is fighting on their home turf. The US military is great for defense but it’s delusional to think we can keep maintaining this huge base network, or go off invading and occupying other countries or supplying jihadi guerrillas like we did in Iraq and Syria (as if that even made sense strategically). We don’t have the manpower or capability for it anymore, and with a more than $30 trillion national debt and massive deficits amid rising interest rates, we can’t afford it either.

    • Marianna says:

      Will they feed Russia too? China?

  46. Gen Z says:

    The only things on sale at my local grocery store in Toronto are bleached wheat pasta and candy.
    Are the poor going to stock up on 99 cent pasta and get diabetes later in life?

  47. nsa says:

    Sarg: “variables to soften the CPLIE calculation…”
    Sure. It’s a “quality adjustment” referred to as HEDONICS.
    Examples: a computer monitor doubles in price, but now has four times the pixels. The cost per pixel halved so you have 50% deflation. Another example. You pay twice as much for a phone but it downloads porn twice as fast. This is 0% inflation.

    • Miller says:

      lol at the phone example, and funniest part is I’ve seen plenty of ludicrous ways the hedonics adjustments are used to try to minimize inflation (or ignore shrinkflation) so would not be even a bit surprised if some wonk somewhere actually tried something like that.

    • Thefalcon says:

      Your porn download = 0% inflation analogy is incorrect, it will actually result in 100% inflation.

  48. SoCalBeachDude says:

    The Dow (DJIA 30) is only down about 1,000 points today by 8:00 am and could go down several thousand points as reality sets in and the day progresses. Ultimately, there will be some decent bargains to look forward to later this year in stocks.

  49. John Apostolatos says:

    10 year yield has decidedly broken past the magic 3% number. Mortgage rates are the highest since 2009 in the biggest housing bubble of all time (without even QT having been started).

    Lawrence Yun tell us housing will continue to be strong despite the fact that the cost of financing a house has increased 50% compared to last year. Echoes of 2008?

    • SoCalBeachDude says:

      Just as expected and fully predicted. It will be well above 5% soon.

      • Old School says:

        Whether it’s correct or not the people that I listen to that seem to understand the inner workings of the financial system, don’t think rates are going to get very high before financial system begins to fail.

        It seems like there is low cost speculation that is interwoven in the financial system that is providing oxygen to the beast and when that starts failing the beast can’t breathe and collapsed. I don’t think anyone fully understands it, but there are measures of liquidity and depth in the Treasury related markets that give warnings.

  50. SoCalBeachDude says:

    The Dow (DJIA 30) only needs to drop by 20,000 to 28,000 or so in order to get back to proper, fair, and reasonable pricing metrics and people simply need to adjust their expectations accordingly on a go-forward basis.

  51. SoCalBeachDude says:

    The US Dollar is doing spectacularly well today and is up 1.35 at 103.90 as it races towards 120 and higher on the DXY. This is to be expected from all interest rates moving higher in the US at a rapid pace.

  52. Swamp Creature says:

    Prices of RE are leveling off here and first time home buyers are still out there buying entry level Condos vs single family houses and townhouses. That’s all they can afford. Using creative financing to mitigate the effects of the higher interest rates. Did one the other day 5.65% variable rate mortgage. It will have to get way over 6% before the demand slows.

    • John Apostolatos says:

      Demand has definitely slowed. Many no longer qualify so they have no choice because they can’t afford the house.

  53. DR DOOM says:

    I sold 50 unreadable date “junk” Liberty half dollars for smelt value of $22.60/oz Wed 5/4. I filled up my wife’s 2010 Honda Van. It took 19.4 gal at $3.80/gal for $73.72 total. Each half dollar smelt value at .36oz silver was $8.13/coin. It took about 9 coins to fill up.I have done this numerous times and it always hits me at the de-valuation of our money. The total face values of the 9 pre -1964 coins were only $4.50 but they bought $73.17 of gas in 2022. That is a loss of realitive buying power of 94% of the value of our money . At the end of the day we have already been f$&ked out of 94% and Americans did not give a shit about that. I suppose they won’t give a shit as the last 6% is also being stolen. What Powell does or does not do is just end stage empire bullshit fiat games. The question remaining is what happens as the last 6% approaches 0%? History holds the answer to that question. Can you guess or do you already know what it is? There is no comfort in the answer. Cognitive Dissonace however,is very comfortable.

  54. Michael Engel says:

    1) Trust the Fed. A shakeout day.
    2) The Dow, a channel down, coming from Mar 30 high.
    Bubble up/ bubble down.
    3) Today low test May 2 low.
    4) May 2 low tested Feb 24 low.
    5) The Dow is upside down on it’s head. If wrong…

  55. Phoenix_Ikki says:

    Damn PPT, do your dang job and instead of hitting the sauce early, look at what you’re doing the market?

    Or are you planning to hit the sauce early and pull in double time before the market close to reverse it up and be the hero again?

  56. SoCalBeachDude says:

    Equities and craptocurrencies fall a bit as idiot manic speculators clamor for the Federal Reserve to whisper sweet nothings into their ears and obviously empty heads.

  57. sunny129 says:

    Great day for Traders’ with experience and nimble hands with option trading! yesterday’s zoom of indexes was too good to be true!

    More hemorrhaging coming down the road, with violent volatility and fierce re-bounces, as long as there BTFD crowd and Positive spin from the Wall St pundits and the financial media!

    Newbies’ once in a life time, Bear mkt is right on schdule!

  58. SoCalBeachDude says:

    The US and global equities markets were a lot of fun today and should be even more fun tomorrow and in the day, weeks, and months ahead in 2022 as they move towards proper, reasonable, and intelligent true price discovery.

  59. SoCalBeachDude says:

    The only number of any real importance in the US is the yield (interest rate) on 10 year US Treasuries which is now over 3.0% and is soaring.

  60. Michael Engel says:

    1) SPX daily log : Jan 4 to Feb 10 highs to today low. // A parallel from Jan 24 low.
    2) SPX breached on Feb 24 low and BB #1 : Apr 16/20. Today low tested May 2 low.
    3) If Fri close breach May 2 low…

  61. Michael Engel says:

    4) SPX breached the weekly cloud and closed inside ==> bullish.
    SPX might be on the way to the cloud top bump.

  62. Benjamin Sargent says:

    Congrats to Mr. Wolf R. Called this one perfectly about as well as MSFT CEO in Nov selling on the DAY of the peak!

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