False Hopes of Peak CPI Inflation: Prices of Services, Housing, Food, Fuel Spike. Dollar’s Purchasing Power Goes WHOOSH.

The Fed is going to have a field day with its rate hikes.

By Wolf Richter for WOLF STREET.

Raging inflation. The costs of services continued to spike in May, which has been the thing to watch for months because it’s where consumers spend most of their money, and it’s unrelated to “transitory” spikes in commodities. This is where inflation is getting entrenched and will be hard and painful to dislodge, and it’s now front and center. Costs of gasoline and natural gas blew out; the cost of food spiked by over 10%, while inflation in used vehicles resumed their spike, after three months of declines, and new vehicle prices continued to surge.

I said a few days ago, while observing the reinvigorated spike in gasoline and diesel prices, “Inflation not in the mood of peaking yet,” and that’s what we’re seeing, but for reasons beyond gasoline.

The headline Consumer Price Index (CPI-U), released today by the Bureau of Labor Statistics, spiked on a month-to-month basis by 1.0% in May, the worst red-hot month-to-month spike in this entire red-hot inflation cycle, with no sign of peaking. Year-over-year, CPI spiked by 8.6%, the worst since 1981. And the Fed is going to have a field day with its rate hikes:

CPI-W, which tracks inflation for “all urban wage earners & clerical workers,” and whose third-quarter average is used to adjust the COLAs for Social Security in the following year, spiked by 9.3% in May.

In the basket of goods and services that is used for CPI, there are always some items that decline or remain stable, and other items that move higher, and they all have different weights in the CPI, with housing costs accounting for about one-third of CPI, and some items may go down one month, but others may surge, and the whole thing gets compared to levels a year ago, which throws the “base effect” into the mix, and so the year-over-year CPI rates are never a straight line, but move up and down and offer many instances of false hopes. But in this inflation cycle, we had a nearly straight line higher, interrupted only by two events of false hopes: this April and the summer of 2021.

For people who spend all their money on necessities – such as rent, food, gasoline, utilities, and health insurance – inflation is a lot worse than CPI, because this basket of goods and services tracks more closely the spending by the big spenders.

Purchasing Power of the dollar goes WHOOSH.

The CPI tracks the loss of the purchasing power of the consumer’s dollar, and thereby the purchasing power of labor. In May, the purchasing power of $100 in January 2000 dropped to $57.80, and this is why this raging inflation has put Americans in a very sour mood:

CPI inflation in services spikes.

The CPI for services spiked by 0.8% from the prior month (close to 10% annual rate!), and by 5.7% from a year ago, the worst since 1990. And this is just relentless — and it is why the Fed is going to have a field day with its rate hikes:

Services include housing costs, which we’ll get to in detail because that’s its own disaster in the making. And it includes other items, most prominently these (year-to-year % change):

  • Health insurance: +13.8%
  • Airline fares, summer special: +37.8%
  • Lodging in hotels and motels, summer special: +22.2%
  • Delivery services: +16.4%
  • Laundry and dry-cleaning services: +10.1%
  • Car and truck rental spiked month-to-month by 1.7%, but year-over-year was down from the crazy spike last year: -0.4%

The CPI for housing spikes, but with a lag.

The CPI for “shelter” accounts for 32.4% of total CPI and is the largest component. It’s designed to reflect housing costs as a service (not as an asset to be purchased). The largest components within this basket are “Rent of primary residence” (7.3% of total CPI) and “Owner’s equivalent rent of residence” (23.8% of total CPI).

“Rent of primary residence” jumped by 0.6% for the month and by 5.2% year-over-year (red in the chart below). It measures what a very large panel of tenants reported as the change in their actual rent payments over time, including in rent-controlled apartments.

“Owner’s equivalent rent of residences” jumped by 0.6% for the month and by 5.1% year-over-year (green line). It measures the costs of homeownership as a service, based on what a very large panel of homeowners report that their home would rent for.

Both measures are still below the overall CPI and therefor are still holding down CPI, but each month, they’re holding it down less than in the prior month, and they will come into full bloom later this year:

CPI for housing costs v. Asking Rents v. Home Prices.

CPI rent measures track rent increases that are actually experienced by tenants that have been renting these apartments and houses for a while.

“Asking rents” track advertised rents of vacant apartments and houses listed for rent. They’re a measure of what landlords want for their apartments and houses that they have listed for rent. They do not reflect actual rents paid by tenants. But they show where the market is.

The Zillow Rent Index has shot up, starting in the summer of 2021 as it was coming out of the Pandemic trough. On a year-over-year basis, it jumped 16.4% in May. The year-over-year increase is down slightly from prior months. But on a month-to-month basis, the index jumped 1.0% in April, the latest data available, up from the 0.8% increase in March.

But it takes a while for asking rents to become actual rents that tenants are paying, and it takes a while longer for these higher rents to get picked up by the CPI panel of tenants when their lease expires and when they get actual rent increases.

You can see this lag in the chart below. The “rent of primary residence” (purple) and the “owner’s equivalent rent” (green) are in the process of catching up with the Zillow Rent Index (red line), and will continue to rise, even if the asking rents, tracked by Zillow, back off over the next 12 months. In other words, the CPI housing components that account for nearly one-third of CPI will fuel CPI inflation well into 2023 (my discussion of this phenomenon):

The cost of buying a house spiked by 20.6% year-over-year in the January through March period, according to the latest Case-Shiller Home Price Index (purple line below). I document this raging mania in The Most Splendid Housing Bubbles in America.

But the CPI doesn’t measure the cost of purchasing a house as an asset; it attempts to measure the cost of the service that a home provides – shelter – via its “owner’s equivalent or rent” (red). Both indices are set to 100 for January 2000:

CPI, nondurable goods.

The CPI for nondurable goods is dominated by food, gasoline, utilities, and household supplies. After having risen only 0.3% month-to-month in April for another moment of false hopes, it spiked by 2.1% in May from April, and by 14.3% year-over-year, the worst spike since April 1980:

“Food at home” CPI spiked by 1.2% for the month and by 10.1% year-over-year. In some categories, such as beef, price increases, while still red hot, backed off a tad. In other categories, such as poultry and fish, price increases worsened.

Major categories, and % change from year ago:

  • Cereals and cereal products: 12.8%
  • Beef and veal: 10.2%
  • Pork: 13.3%
  • Poultry: 16.6%
  • Fish and seafood: 12.2%
  • Eggs: 32.2%
  • Dairy and related products: 11.8%
  • Fresh fruits: 8.5%
  • Fresh vegetables: 6.4%
  • Coffee: 15.3%
  • Fats and oils: 16.9%
  • Baby food: 12.9%

“Food away from home” CPI – any food eaten outside the home, such as food from vending machines, cafeterias, sandwich shops, and restaurants – jumped by 0.7% for the month and by 7.4% year-over-year, the most since November 1981.

The Energy CPI, after falling in April from March for that beautiful moment of false hope, re-spiked in May on the spike gasoline prices, and on the spike in natural gas prices (the Energy CPI accounts for 8.3% of overall CPI):

  • Total Energy CPI: +3.9% for the month, +34.6% year-over-year
  • Gasoline: +4.1% for the month, +48.7% year-over-year.
  • Utility natural gas to the home: +8.0% for the month, +30.2% year-over-year.
  • Electricity service: +1.3% for the month, +12.0% year-over-year.

The CPI for durable goods.

This is a mixed bag. It includes new vehicles, used vehicles, consumer electronics, furniture, appliances, etc. Month-to-month, CPI for durable goods ticked up 0.1% in May, after having been roughly flat in April, and having declined in March.

Year-over-year, durable goods spiked by 11.4%, but this was way down from the 18.7% spike in February:

The false-hope peak inflation. The month-to-month dip in durable goods CPI in March and the flat spot in April (along with the drop in gasoline prices in April) had given rise to the false-hope proclamations that inflation had “peaked.” What we can say is that inflation in durable goods may have peaked from the crazy spikes we saw last year and early this year, and that CPI inflation has moved from durable goods into services, and that it continues to rage in nondurable goods.

Consumer electronics CPI: This is a category where products have gotten immeasurably better and more powerful over the years. Think of your smartphone: it would have run circles around a huge super computer that cost many millions of dollars in the 1980s. And given the vast increases in power, utility, features, etc., the amount of money you pay for what you get has fallen year after year.

And it did in May too. The CPI for “information technology commodities” fell by 7.1% year-over-year, and the CPI for “video and audio products” fell by 5.2%.

The used vehicle CPI, after having declined on a month-to-month basis for three months in a row, rose again in May, as I suspected it would, based on price increases in the used vehicle market. Month-to-month, the index rose 1.8%, and though a huge increase, it was lower than the crazy increases last year. Year-over-year, the CPI spiked by “only” 16.1%, which is still crazy, but less than half the year-over-year spikes in November through March.

This chart shows the index value (not the year-over-year % change of the index value). Clearly, the used vehicle CPI peaked at totally crazy levels, and some, but only “some,” of this crazy spike will unwind in 2022:

The new vehicle CPI spiked 1.0% for the month and by 12.6% year-over-year, the second-worst spike ever, after April, in the monthly data going back to the 1950s, amid widespread new vehicle shortages and ruthless “above-sticker” prices. But some models are now starting to see rising inventories amid the ongoing plunge in sales, which might eventually tamp down on this above-sticker pricing BS. Much higher interest rates would help bring demand down further, relieving some of the price pressures.

This chart shows the index value (not the year-over-year % change of the index value):

“Core” CPI.

The “core” CPI, which excludes the volatile commodities-dependent food and energy components, tracks inflation in the broader economy. Month-to-month, it jumped by 0.6% in May, same as in April, and accelerating from February and March. Year-over-year, it rose 6.0%, the third-worst since 1982, behind March and April:

And here is Fed Chair Jerome Powell’s reaction to today’s WHOOSH inflation blowout, as captured by cartoonist Marco Ricolli for WOLF STREET:

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  394 comments for “False Hopes of Peak CPI Inflation: Prices of Services, Housing, Food, Fuel Spike. Dollar’s Purchasing Power Goes WHOOSH.

  1. J-Pow!!! says:

    I have everything totally under control!!!! This is all going as I planned!!! There is no inflation!!!! Repeat!!! There is no inflation!!!! This is all transitory!!!! Soon the debt will be appropriately marginalized!!!! Hahahahahahahj!!!!!!

    • Phoenix_Ikki says:

      Well, you are right Papa Powell, it’s transitory but next time you need to put into context it is transitory over maybe 10 or 20 years, otherwise us doomers might mistaken you meant 6 months as transitory…

      • Raj says:

        And I thought there is no plan!

        • anon says:

          The ‘plan’ is to blame ‘The Putin Price Hike’.

          Don’t you feel much better now that President Joe Biden has assured us the economy is strong?

      • Peachy says:

        10 months ago, in the video below, he actually did specify that transitory meant about 12 months, so not year after year. So he just got it completely wrong or wrong grossly dishonest or both.

    • Raj says:

      Thanks J-Pow!!

      We can all now leave our jobs, sit at home and get rich with:
      1. Our House earning more than our jobs!
      2. Our Cryptos and Spac stocks.

      You have solved all the world problems. We will always have enough printed dollars to buy wheat!

      • Rudolf says:

        Holy shit someone give Jay-P a job at some kind of national bank as a board director or something.

      • A says:

        I literally follow a 25 year old on Instagram who has 5 mortgages on 5 rental properties and just posted today that he quit his job and “retired early.”

        This is what real people are doing because of the FED’s insane policies.

    • Maximus Minimus says:

      For a moment, you almost fool me repeating phrases like the real papa Jerome.

    • The wealth effect is a Ponzi scheme says:

      J-Pow!!! I love that you have the first response to this article <3, truly fitting.

      Wolf, any insight on what u think happens when people have to start servicing their student loan debt in September? I think that stimulus leaving company earnings is going to be a serious catalyst come late fall.

      • rankinfile says:

        With mid-term elections soon after that Sept. deadline you will not see student loans being due.With the next presidential election you may see them cancelled.

    • Nate says:

      Well, it was temporary during COVID supply chain fiasco. But then Ukraine war. Then china zero COVID. Now it’s gotten into services, which will be a bitch to get back down because expectations are baked in.

      Honestly, I think a lot of this is out of the Fed’s hands. I don’t see them deliberately induce a recession until they are sure it’s not mostly supply driven, and the supply drivers are largely autocrat antagonists to the USA with their own priorities.

      Too big of a risk a recession won’t fix inflation so we end up with really nasty stagflation if they go too big. Plus makes the servicing too expensive that screws up fiscal stimulus to get out of the financial coma.

      So probably just building up their powder for the inevitable recession once the consumers throw in the towel because they burned through their credit is my best guess how things go. Still sucks for the average stock/bond portfolio and this has to hit labor at some point.

    • Bead says:

      No meaningful inflation, just the one in your imagination. Furthermore you are employed so what’s your complaint? Just sell some shares. Buy an electric car if and when one is available to buy. Lose some weight.

  2. SoCalBeachDude says:

    Bond market rout so severe double-digit losses are the norm – Yahoo!

    • Raj says:

      Nothing goes to Heck in a straight-ish line, except the purchasing power of US Dollar.

      • Ryan S says:

        Yes, lots of straight-ish lines on the CPI graphs in this article.

      • SoCalBeachDude says:

        The purchasing power of the US Dollar is superb and increasing every day for what we buy most in SoCal: imported goods.

  3. Andreas says:

    Got a 9-year old son with crazy hair. Went to the chain hair place a few weeks back and they charged $20 for a simple haircut- for a 9 year old. Few days later, I Amazoned some clippers for $80. I figure I only need to cut his hair 4 times and I break even, plus I do my own anyway since I don’t have any.

    There are some things we just have to say no to. Mine is that. Granted, it doesn’t help that I botched it but, it’s summer in Florida and too hot for hair anyway. I figure I have a few months of practice until it’s deemed acceptable.

    • COWG says:

      Florida?

      Just paint it green or purple and no one will ever notice and he’ll be a cool kid…)

    • MarMar says:

      When he’s older, he’ll look back real fondly on this moment. /s

    • andy says:

      You can get good electric clippers in Aldi for $20. I’ve been using same set since the pandemic started, saved a thousand at least. After few tries I do better than any salon now.

      • Juicifer says:

        I know, right? lol.

        The point of the OP was the inflation in the haircut price, but the real giveaway that the Inflation Mindset has really set in is the fact that someone things 80USD for a pair of electric clippers is a good buy!

        Make way for the $20 Big Mac. You know it’s coming…and everyone will shrug, mumble some complaint under their breath…and buy 20.

        They got you right where they want you. Darned if you do…

        • josap says:

          Necessities.
          Not a BigMac. Hamburger on sale and make your own, much better for you anyway.

        • Cookdoggie says:

          Yup. Now that cereal has doubled in price, we’re making our own granola. Don’t give in, make em pay.

      • phleep says:

        I bought an electric clipper set at Big Lots in 2008. I have cut my hair with it ever since. It has a set of snap-on guides for various hair lengths, and is only slightly more complex than a lawn mower to use. Picture you are mowing a lawn , but over spherical ground (head), and make slight variations for longer and shorter lengths.

        • Cookdoggie says:

          My barber is Japanese, doesn’t say a word, takes 20 minutes, gives a thorough, meticulous cut, and finishes with a hot towel and head massage. $16. Hard to duplicate that at home.

      • Djreef says:

        I’ve been shaving my own head with a triple blade for decades. 10 minutes in the shower and done. I have no idea how much I’ve saved.

    • Antwan says:

      I used to spend $28 once a month on a haircut until covid resulted in a long lockdown in my locale. Bought a $36 haircutting kit from Costco and my partner does all my haircuts now. More convenient and I save $336 a year. And yikes, how good was the Amazon kit to be double in price versus the pretty good one at Costco?

      • Jon says:

        I stopped going to Salon after covid.
        I do all the haircut in home only.
        Saves time and $$.
        Not going to Salon ever.

      • Digger Dave says:

        I bought a Wahl hair clipper circa 2003. Still runs. Haven’t paid for a haircut since. What’s my return on that purchase?

        • Dollar Stretcher says:

          Same here. I haven’t paid for a haircut since 1999. my Wahl clippers just keep going. The kit came with spacers so it’s really easy for an amateur to use. My wife however spends $120/month on her hair.

    • Augustus Frost says:

      I’m cheap but that’s one expense I won’t eliminate. I pay $16 or $17 now at one of the chains. Visit about 10-12 times per year.

      I save money in other ways, like with my clothes. I wear mostly “business casual” including jackets. Practically everything I have is custom made in South America at prices comparable to or a fraction at a department store. I also have enough informal wear to last the rest of my life. Only thing I buy now regularly in the US for almost 15 years is something like socks.

    • David Hall says:

      I bought a Conair Even Cut. I set it to #2 or #3. Saved $15 a haircut.

    • Nate says:

      Funny I did the same during high COVID. Went back to the barbor and realized wife with clippers pretty close in quality to the cheap haircuts. So, fuck it, staying with the clippers to pay for Netflix.

  4. 2banana says:

    “We’ve been very, very clear that we will not allow inflation to rise above 2 percent…”

    and that the Fed can raise interest rates instantaneously if inflation becomes a concern.

    When asked Bernanke what degree of confidence he had in his ability to control inflation, the Fed chairman responded, “one hundred percent.”

    Ben Bernanke, 2010

    • Enlightened Libertarian says:

      Well, he did control inflation. He passed it on to his successors.
      Good job at passing the multi trillion buck on to someone else.
      Thanks a lot “Helicopter Ben”.

      • Mr. House says:

        He didn’t control inflation, he just funneled it into the asset markets, exactly the same thing that has been happening since the 80’s.

      • phleep says:

        That particular road to heck went not in a straight line, but steadily as everyone realized i is easier to write checks than to produce what they are supposed to buy. The fundamental failure in logic and incentives (supposedly the heart of economics) is now obvious. How to go bankrupt? First slowly, then all at once.

    • Cas127 says:

      Let’s zero out Zimbabwe Ben’s pension.

      We can call it the Political Class Accountability Tax.

    • Augustus Frost says:

      Bernanke is a complete fool. He was fortunate that accommodating psychology and prior benefits of globalization made his crack-pot economic theories work temporarily.

      • COWG says:

        Emboldened by the lack of inflation most economists were calling for… But didn’t get…

        • Sams says:

          Lack of consumer price index «inflation». Other indexes did shoot up. Measuring the inflation they did not get.

  5. Kunal says:

    J Pow has no intention of reducing inflation. He is all talk no action. He is the new clown next to the one in WH now. Yearly inflation growth will continue to hit new records till Sep or Oct because last year it was mostly flat in those months.
    More inflation means over time all assets will grow in value as dollar declines even more. Note the USD Ruble ratio. WH clown said 2 months ago that Ruble will be flushed down toiled, well did not last long, its USD that’s getting flushed.

    • Ryan S says:

      “More inflation means over time all assets will grow in value as dollar declines even more.”

      Historically, that’s the opposite of what happened to stocks during the inflationary 1970s.

      • Peachy says:

        That’s because interest rates went above 20%. Do you think Powell will raise rates that high or even close?

        • Ryan S says:

          Interest rates didn’t go above 20% until December of 1980, so that does not explain why stocks did so poorly in the 1970s. Rates were well below 10% most of the 1970s.

          In any event, stocks today apparently have trouble with rates at .75%. Powell doesn’t need to get anywhere close to 10% to crush the stock market.

    • Escierto says:

      USD getting flushed? That’s hilarious. The dollar index was up almost 1% today – a huge move. Among all the fiat dirty shirts the USD is the cleanest.

      • Ctcarver says:

        DXY basket doesn’t include the Renmimbi. Currency of the world’s second largest economy, and a MAJOR US trading partner. DXY is going up while the real world purchasing power of the US Federal Reserve Note is declining at 9% annually.

        The Chinese real estate crisis/debacle means China will devalue ferociously, and hot money coming out of China may be the last leg propping up US assets.

    • Raj says:

      Believe it or not Kunal. Communism (both Russia and China) is still worse! We need to re-establish free market capitalism.

      • robert says:

        Communism and communist economics in Russia and China died over 30 years ago.
        But for a fun read, see the book ‘Communism, Capitalism, and Coexistence’, [from a bitter past to a better prospect] in which John Kenneth Galbraith and USSR economist Stanislav Menshikov rhapsodize about how the West and USSR-Russia can learn from each other to mutual benefit, even as the whole rotten mess was collapsing before their eyes and they didn’t see it.

    • Miller says:

      Jerome Powell has no choice but to move much more aggressively now in confronting inflation, if he continues to try to slow-walk this the USD collapses (as you yourself recognize) and that’s the worst of many unpalatable alternatives. A recession and worsening deficit, while unpleasant, would be temporary and soon overcome, but a collapse of the dollar means the rapid end of American geopolitical status along with incredible violence and bloody social unrest throughout the United States. It’s already happening–Saudi Arabia and the oil producers are taking renminbi and other currencies and quietly demoting the USD (leading to a vicious cycle where the per-barrel costs go higher), and exporters demand more of the increasingly worthless dollars. And then both stagflation and an inflationary recession (the worst kind of recession) come anyway. The Fed has to get moving much more aggressively, take a page from Paul Volcker’s notebook.

      • KPL says:

        “Jerome Powell has no choice but to move much more aggressively now in confronting inflation”

        Yup! But while the “Timid & Pussyfooting” Fed may well know it, you cannot become a Volcker by idolising him. You need to act and that needs courage and not subservience to wallstreet.

        • Miller says:

          Totally, this is one of those cases where the Federal Reserve needs to have its priorities loud and clear and take stronger action. Wall Street is not the US economy, it’s not even a good proxy for it–it’s more like a reckless casino, and excessive attention to it would wreck the American economy and standing permanently. A sharp Wall St. correction and recession are the only ways to cleanse out these asset bubbles.

        • Miller says:

          In fact on that note, my firm does a ton of international contracts and business so we’re very attendant to overseas chatter, and for first time that we’ve ever seen, our partners are openly talking in ways that show their contempt for the US dollar. They’re determined to continue raising prices aggressively as the USD loses its value and purchasing power, demanding alternative payments and moving more business and trade to China, the EU and other options. This is what Volcker “got” when he moved so aggressively to fight the last inflation threat–the power of such action isn’t just in the interest rates and quantitative tightening itself, but also in the way these moves restore confidence that the US economy is guided by adults able to shut up the real estate and WS speculators, housing bubble mavens, billionaires and rent seeking plutocrats, and defend the currency and US financial reputation. JPow and Co. need to learn this lesson too, and quick. The alternative is collapse and bloody social unrest in the USA that would make the summer of 2020 look like a picnic.

      • Augustus Frost says:

        I agree with your post except the part about recession “soon overcome”.

        This is the greatest mania and asset bubble in the history of civilization. There will be nothing “normal” about its end and the consequences won’t be temporary either.

        We’re talking about a multi-decade bear market, a worse version of the 1930’s and 1970’s combined.

        Believing it’s a temporary spot of bother is a belief in something for nothing.

    • phleep says:

      > More inflation means over time all assets will grow in value

      No, it means assets will hold some value against a declining dollar.

      My wealth effect in my house does not make me much richer, over a long time horizon. It keeps me from being impoverished as quickly (which is no small thing; I am quite comfortable now, but would be terribly housing-stressed without it). Those big headline house price numbers are in dollars that must be measured against the prices of anything else those dollars will be spent on.

      I made it to the far shore of Medicare which is another big help. These are islands in a sea of surging pries.

      • Augustus Frost says:

        The end of this mania (the biggest ever) means a combination of crashing asset prices and more rapidly rising consumer prices versus 1981-2020.

        It’s the opposite of the “great moderation”.

        It also means much higher interest rates, much stricter credit standards and lower credit availability, and much lower living standards for most people.

    • David Hall says:

      Russia has 17% inflation. They had to import food, other than wheat and buckwheat.

      • 728huey says:

        More like steal food from Ukraine and try to feed their own people and sell the remainder on the black market.

  6. 2banana says:

    Let me translate:

    The only way to reign in inflation now is much higher interest rates, a severe recession and mass unemployment.

    Prepare accordingly…

    “This is where inflation is getting entrenched and will be hard and painful to dislodge…”

    • DR DOOM says:

      Its time to start soaking them dried beans and re- learn the lost skill of eating chicken necks.

      • COWG says:

        I have been seeing a lot of chickens walking around shrugging… :)

      • polecat says:

        “It’s time to purloin a fed chickenshite .. and start soaking it in them dried beans, lentils, chickpeas, or what have you available … and re- learn the lost skill of eating the richies!

        There. Fify

      • 728huey says:

        Judging by all the comments here and in the mainstream media, inflation is going to crash pretty soon. All I hear is doom and gloom about how prices are never going to stop going up, which means expect the opposite to happen pretty soon. Likewise, it was obvious last summer when all the media reported on average people becoming cryptocurrency and NFT millionaires that the market was about to crash big time, which it has.

        • Wolf Richter says:

          Inflation isn’t like stocks. There are no rallies or sell-offs in inflation. Inflation is driven by a complex mix of factors that feed on themselves. High inflation begets more inflation.

        • JeffD says:

          It’s the negative spread between prime rate and CPI. Make that positive, and inflation will moderate. Leave it negative, and inflation will snowball. It’s as simple as that.

    • David Hall says:

      Looks like Venezuela. Empty store shelves, massive inflation, people leaving the country to look for work elsewhere.

      President Clinton balanced the Federal budget and had 2.5% inflation, the lowest since the 1960’s.

      • josap says:

        Jobs are plentiful. The store shelves are mostly full, eggs are back in the store now.

        Things cost more and will cost more until inflation is under control.

        • COWG says:

          “ Things cost more and will cost more until inflation is under control.”

          You have to define control…

          Remember the Feds idea of control is 2% PCE which will equate to 3-4% CPI-W…

          Todays CPI-w print at 9.3% …

          If you use the Feds idea of control, transparency and a soft landing, you will have lost 20% or more of your spendable income due to the Feds (lack of) action by the end of the year…

          And you will not get it back…

          Remember, inflation is not a one time calculation applied to a base each time, it’s stacked layer upon layer…

          If the Fed declares a 2% inflation under control in 2 years, the average American will have lost appx 40% of their purchasing ability by then…

          As Augustus Frost is fond of saying, the majority of people will be poorer and have a lower standard of living…

          You simply cannot take a 40% pay cut due to inflation and expect to live the same in the future…

          Employers are pushing back against employees, so I doubt wage gains are going to help…

          It hasn’t gotten real yet because the average American doesn’t know who Ali Baba Powell and his band of thieves are…

        • drifterprof says:

          Ali Baba found out how to steal from the forty thieves’ cave full of stolen treasures. They were not his band of thieves. They would have killed him.

      • Gomp says:

        Gingrich balanced the budgets. Clinton had no choice but to sign it. Veto proof. Clinton was not as responsible as you portray.

        • Apple says:

          Overturning a veto requires 2/3rds of both Houses. That would never have happened.

        • Kurtismayfield says:

          God the misinformation has to stop.

          The revenue changes under Clinton/Gingrich Congress were the big difference. Yes the Federal budget spending only went up 9%, but revenues went up 35% from the dot com booms and changes to taxes.

          If you look for graphs you will find this info.

      • Einhal says:

        This particular trope is really getting old. For starters, a president doesn’t create a budget one way or the other. All he can do is sign or veto the budget presented to him by Congress. This is true because the line-item veto was declared unconstitutional.

        Beyond that, the budget wasn’t really balanced in the mid-1990s. What happened was the combination of the baby boom generation being at their peak earning years plus the rising influence of technology and globalization meant that total income was high, meaning a large amount of “surplus” paid in Social Security funds. This meant that the Treasury didn’t have to “sell” bonds, as the excess by law had to be invested in treasuries.

        But the budget itself, in terms of general income tax revenues (along with excise taxes and some smaller sources of revenue) versus spending, was still at a deficit.

        • Augustus Frost says:

          Correct

        • Ryan S says:

          That’s not exactly correct. The budget process starts in the executive branch the year before the budget is to go into effect. The White House Office of Management and Budget develops a budget based on requests submitted by Federal agencies. The president submits his budget proposal to Congress early the next year. Then Congress, which the Constitution puts in charge of spending and borrowing, starts its work. In this way, the President directly influences the budget Congress ultimately passes.

    • phleep says:

      Last go-round (2020), social peace was bought with funny money. Now the funny money gambit will not work, as prices will run away from the printing presses. There is no more grain left in the silo for that. The credit card is maxed. Watch for trouble to start this summer. At least we are in a productive, rich country (relatively); food riots will happen abroad. But free stuff riots will break out among the (fantasizing) entitled, here.

  7. Rick Vincent says:

    Are we getting to the point where only a 1982 style recession with double-digit interest and unemployment rates are going to break this fever? I hope not, but so far the rate hikes to date don’t seem to the the right prescription.

    • Twinkytwonk says:

      I’m not sure how an interest rate of 0.5% once every couple of months can stop inflation that is going up at least twice the amount🤔 but then I only have a PhD in biology and not economics.

      On a shopping trip today i saw one person try to do a runner with a trolley full of food and then at the check out I’m seeing people having to put things back because they don’t have enough money! I have never seen anything like this and I was about in the 70s.

      Inflation is not really mentioned on the MSM much here and any price rises are attributed to the ” cost of living crisis” and of course Putin.

      • El Katz says:

        Two of Scottsdale’s finest were taking a guy into custody for stealing food. Apparently, he was hitting store after store and they finally caught up with him.

        What’s even funnier is that the perp was babbling relentlessly about this and that in his “defense”. I guess he never heard of a body camera.

        • Juicifer says:

          California’s the place in which to steal.

          One can load up on goods of all kinds, and as long as it’s under 950 USD total, it’s not a felony. The fine for first-time “under a Grand” thieves is “up to 1000 USD,” so really, what have you got to lose? 50 bucks?

          (Just don’t be part of an “organized ring” of thieves…that was happening so much that even the Democrats had to amend their own law so that if you are, it’s still considered a felony.)

          Plus, there are scores of sympathetic DAs in CA who will simply refuse to press charges on anyone stealing food, or for anything else. Can’t tar criminals with a criminal record, after all…that would put them on the “wrong path” in life, give them the wrong impression about “society”!

        • Wolf Richter says:

          Juicifer,

          Quit this ignorant BS. You’re talking about organized retail crime. That guy that was in the viral video of cleaning out the Walgreens was arrested a few days later and served 16 months in jail for grand theft. Your buddies didn’t tell you that, because it wouldn’t go with your idiotic narrative. All kinds of people get arrested and convicted, including the people in the fencing operations. They get tried for organized-crime related felonies. Millions of dollars of stolen merchandise has been recovered. But that doesn’t fit your ignorant narrative, does it? Spread this BS somewhere else.

      • KPL says:

        “I only have a PhD in biology and not economics”

        Given the job that guys with PhD in economics have done, may be you have the right qualifications.

        • SomethingStinks says:

          Wolf, whats the source of this information you posted in response to Juicifer talking about theft in CA. The no felony $950 and under is an actual law, not something made up. I would like to see it because when I was in San Francisco last June, most of the stores were locked. The one’s that were open had cops/security at the doors. That usually does not happen unless there is rampant crime. MSM, mostly Fox has been putting these incidents on the front page at every occasion, so would like to see your source.

        • Wolf Richter says:

          SomethingStinks,

          You could just google it. But since you don’t want to find out on your own since it doesn’t fit your narrative, here it is:

          https://www.sfchronicle.com/crime/article/Man-in-viral-San-Francisco-Walgreens-shoplifting-17057408.php

          There are lots of other reports on other guilty verdicts and prison sentences. In front of our place, a guy, who was part of a car-break-in ring, got arrested… he was trying to elude police, ran a red light at our intersection and collided with another car, and then tried to escape on foot. Seconds later he was surrounded by a dozen police officers, guns drawn. This BS that commenters post here about SF not punishing criminals is just right-winger porn to be enjoyed in the privacy of your own home. Don’t spread it here.

          In terms of retail stores being closed, well, DUH, brick and mortar retail has melted down since 2017, and I’ve reported on it since 2017, and if you’ve ever read anything here you would have known this, and there are a gazillion suburban zombie malls to document it, and I have written about it a gazillion times, including the bankruptcies and costs to CMBS holders. So yes, many SF retail locations are shuttered too because brick and mortar retail has been obviated by ecommerce, if you haven’t figured this out yet, since you’re apparently never reading anything on this site.

        • Earthman says:

          Economics PhD = Doctorate of Dismal Science

    • Cas127 says:

      The rate hikes (only 2.5 months old) have dropped new mortgage applications by 21%.

      Higher interest rates will work.

      Too bad DC spent 20 years ignoring the obvious and persistently courting cancerous inflation.

    • The Real Tony says:

      That’s because the Fed funds rate is supposed to be higher than the true or real inflation rate not lower and they understate the inflation rate.

      • Nathan Dumbrowski says:

        They tinkered with every known knob and lever. For good measure they added a bunch of new levers. They repressed rates to near zero. They helicoptered money to everybody (almost). Somehow this caused an issue and problems. Go figure.

        There is no going back on what they did or the current events. As others have said the best we can do is be prepared and protect your financial house. Buy what you need not what you want

    • Augustus Frost says:

      What’s your timeline?

      The only prediction I make is that, regardless of specifics, the vast majority of Americans are destined to become poorer or a lot poorer, no matter what headline GDP or other macro indicators show.

      That’s what is happening now from a combination of declining (soon to be crashing) asset markets and consumer price inflation. It’s a reversal of what’s mostly happened since 1982. This even though GDP has been expanding and unemployment is very low.

      Up to the pandemic, the policy response to any spot of economic bother was always more “printing”, government spending, and tax cuts. Most credit expansion went into asset prices, not goods and services. Now that this has reversed, this “formula” won’t work. The government and economics profession have no back-up plan because there isn’t one available.

      The prior “formula” was based upon the fraud of something for nothing.

      • andy says:

        One of the commenters (swamp creature) predicts we go the way of Brazil. I prefer we go the way of Japan (for all the beatiful women), but nobody listens.

        • Escierto says:

          We will probably go the way of Argentina with our own Peronistas. In 1900 Argentina was one of the richest countries in the world. With every bad decision they got poorer and poorer. That’s our destiny.

      • phleep says:

        It is politically impossible to do what is required for sound public finance (tax to pay for stuff). This actually pre-dated and was involved in the Revolution forming the USA: nobody wants to pay taxes.

        The less honest alternatives are 1) borrow, supposedly to tax some day to pay down, or 2) just print. “Just print” was the chosen option, and politically extremely popular. Both parties were openly loudly backing it during the pandemic, and Congress and Powell played along. But it is “taxed” back one way or another: THAT is what is happening now. We are taxed with inflation. “No free lunch” is the closest thing economics has to a respectable law of nature.

    • FinTechie says:

      A recession would be a very good thing to clear out the malinvestment that has diverted investment capital to the likes of Doordash, Peleton, and Zoom to name just a few of the cast of (tech) thousands.

      • Augustus Frost says:

        A recession is just the first installment to clear out the distortions. Ultimately, there will be a multi-decade bear market with numerous recessions and recoveries as in the 70’s but far worse.

        The problem is the ability of the country to go through it without falling apart, as the social and economic fundamentals are mediocre to absolutely awful.

        It only looks better or a lot better because of above trend government deficit spending and FRB monetary policy. Same story in all major economies, any one of which could have an “unexpected” supposed Black Swan event causing serious “blowback” somewhere or everywhere else.

        • Einhal says:

          The cultural rot is the biggest. Contrast bucolic 1950s small town America to today, and you’ll see why the social and economic fabric are being torn apart.

        • Apple says:

          In 1950 I bet they complained about how much better society was back in 1910. It’s generational. Each generation reminisces their childhood was the perfect idealistic time.

        • Augustus Frost says:

          Apple,

          Look at the data yourself.

          Virtually completely fake economy in the 21st century from a combination of QE and exploding national debt which supposedly doesn’t matter.

          What did it get the US?

          The weakest statistical economic performance in the history of the country and stagnant median income and net worth, that’s what.

          Take away one or both and what do you think would have and will be the result? The consequences aren’t just economic either and that was my primary point.

          And no, it’s not sustainable because there is never something for nothing. The only reason anyone can possibly believe otherwise is because somehow someway, this is “America” and the reality which applies throughout time and geography to everyone else supposedly doesn’t apply to the US. That’s ridiculous.

          Every society is always less than perfect or with problems. The difference is that up to the late 60’s at least, US economic prosperity wasn’t artificial and Balkanized.

        • El Katz says:

          @Apple:

          Based on my recollection of conversations with my parents and grandparents, you are absolutely INcorrect.

          My mother, as a little girl, standing in line at the butcher to get a soup bone. Standing in line to get stale bread from the bakery. My grandmother taking in wash (no machines – hand done on a washboard and pressed with an iron heated on a stove). My maternal grandfather had also died in the 1929 flu epidemic. They lived in an immigrant ghetto. Her step father was less than nice to her because she wasn’t his biological daughter.

          My father slept in an attic under newspapers as a teenager after he “escaped” from an orphanage. His mother died in the influenza epidemic in Chicago in 1929. His father lost his business in the market crash. He (father) fled to Texas leaving his children behind as his new wife didn’t want them, which is how they ended up in an orphanage. My father never spoke of him. We attempted to do a genealogy tree and he stopped her cold. In his words, “My life began when I met your mother.”

          My wife’s grandmother was an indentured servant. She emigrated from Eastern Europe, through Ellis Island, and worked as a nanny in Milwaukee until her husband bought out her contract. He shoveled coal into a blast furnace located in a steel mill in order to earn the money to do so.

          Yeah. Good times!

    • Saltcreep says:

      Hey Rick, my own outlook is that it might be a bit different now.

      In the 80s we had highly productive oil sources still coming online at a rate good enough to more or less keep pace with population increases, so workers still had real bargaining power. As the current situation develops I suspect wages will not be able follow prices to the same degree, so I imagine prices too will likely be kept more in check. We should, I believe, expect a more rapid decline in our material living standards (a necessary thing, I would contend…).

      Probably, at some not too distant point, central banks will start to furiously backpedal on tightening as and when credit markets begin to show serious stress, but maybe this will be the cycle that breaks their abilities to go straight back to lower rates and more asset purchases? Or maybe not…

  8. dishonest says:

    One finds one’s self curious about the outcome of November’s election.

    Perhaps one party will benefit at the expense of the other party.

    • Escierto says:

      Lol! I am expecting one party to lose at least 50 house seats and 10 senate seats. Not that it will make a difference mind you.

      • Augustus Frost says:

        No, it won’t, except at the margin.

      • curiouscat says:

        The Republicans should be happy Trump lost otherwise they’da been stuck with this pigs’ breakfast.

        • Escierto says:

          Got that right. The whole house of cards was ready to tumble – it was just a question of when. The Democrats will be a minority for at least a decade after this.

        • Apple says:

          LMFAO!

        • Einhal says:

          Depends what you mean. The March 2021 $2 trillion boondoggle certainly didn’t help, but the seeds for a lot of this inflation were set the year before, and to some extent, the decade before. So yes, the Republicans would have been stuck with a lot of it, but not necessarily all of it.

      • Jackson Y says:

        They’re tweedledee & tweedledum. After the Democrats’ historic reckless spending, the GOP’s big party priority if they regain full control in 2024, as they’ve stated in interviews, is extending the Trump tax cuts which are due to sunset.

        Tax cuts, like economic impact payments, stimulate the economy by increasing consumer demand, making inflation worse.

        The only reliable way to crush runaway inflation is with austerity policies that reduce demand: raising taxes, cutting spending, shrinking welfare programs…and needless to say, they’re deeply unpopular, so politicians won’t even try.

        This country needs a balanced budget constitutional amendment that prevents whichever party is power from going overboard with spending.

        • TXRancher says:

          Gosh. You need to read Nathan Lewis “The Magic Formula”. Austerity is exactly the wrong thing to do to fight inflation. Governments answer is always swinging between austerity and stimulus. Nathan Lewis says the formula is low taxes and stable money.

        • Paul Baer says:

          My hero.

        • Gomp says:

          Can’t remember but how long did this country exist without any income taxes? Raising taxes is never the answer.

        • Augustus Frost says:

          TXRancher,

          There has been no government budget austerity in the US my entire life. Any claim to the contrary is a farce.

        • Cem says:

          Overspending from the Dems?

          I forgot, who started the multi decade multi trillion $ war in the Middle East?

          Oh yeah those tax cuts really did a bang up job of preventing financial ruin, look at where we’re at now.

          Welfare outside of SS and Medicare accounts for like 5% of the budget..

          Maybe cut the defense budget a bit? We have the best geographic defense imaginable being 50% of our borders are oceans.

          The dems have problems that are just as bad and run just as deep but what you covered ain’t it..

        • Anthony A. says:

          Cem, who started the one in Viet Nam that I was in? Lost a lot of friends in that mess.

        • VintageVNvet says:

          this for AA:
          USA involvement in VN started after the NVN cadres wiped out the elite French paratroopers at ”Dien Bien Phu” ( Or some such spelling) in the early 1950s, and De Gaulle suckered the Dulles brothers ( CIA and State Depts ) into convincing Ike to take over there.
          Subsequent war was a continuation of the policy of maintaining a ”blooded cadre” of USA fighters, a policy based on the clear experience of WW2, when we were SO far behind 20+ years after WW1.
          Heard this in the late 1960s from a former DOD muckty muck who had become totally anti-war.
          Course, VN did get ”a little out of hand” without MacArthur or someone similar, eh?

      • Enlightened Libertarian says:

        When [if ever] the Deep State comes up for election instead if appointment we might see some change.
        If you have never been in a fight with those D.S. guys you have no idea how much power they have.
        Get on their bad side and they can [slowly, legally] destroy you. They grind you down until you run out of money to fight.
        Been there, done that.

        • Gomp says:

          +1000

        • NBay says:

          Sounds like a good story. We’d all love to hear it. PLEASE! And if you now have that $20M you claim to, you couldn’t have been “ground down” too much. Or did you have $50M before the grinding began?

    • Dan Romig says:

      Everyone in the United States of America:
      “And if I am elected
      I promise the formation of a new party
      A third party, the Wild Party!
      I know we have problems
      We have problems on the North, South, East and West
      Everybody has problems
      And personally, I don’t care.”
      -Alice Cooper

      It took a while, but the Two Rules of Money are getting their due, and payback is a bitch; for what the Fed and the world’s central banks have been doing for the last fourteen years.

      The one I watch, the 3 Year Treasury, just closed up 22 basis points to 3.21% today.

      Rule 1: Money must have value.
      Yes indeed …

      Rule 2: Future Money must have more value than current Money.
      Nope, not yet. The 30 Year Treasury just closed at 3.20%.

    • andy says:

      I’ve read somewhere it is a 100% certainty that UniParty wins in November.

  9. Jackson Y says:

    Inflation cannot peak until oil peaks. WTI is down marginally today but still above $120/barrel. And the May CPI report was calculated when it was around $109.

    There’s one more month of “easy” comps on the CPI (June 2021 was +0.93% headline CPI month-over-month), then the next three are 0.48%, 0.21%, 0.27%. We could potentially see headline readings above 9% by this autumn.

    • Jackson Y says:

      What do you think are the implications for fiscal & monetary policy going forward? Even as lawmakers & central bankers continue to publicly deflect & deny responsibility for the current inflation crisis, I think it’ll be hard to imagine policymakers NOT getting some cold feet on stimulus checks, “open-ended” QE, “average inflation targeting,” etc. the next time around.

  10. John Apostolatos says:

    False hope because everyone hopes the Fed will not let their 401k, homes, cryptos, or stocks go down in value and continue to print. So “inflation has peaked” is the latest narrative.

    American hedge fund manager Stanley Druckenmiller believes that “we’re six months into a bear market,” adding that it’s very likely that the current bear market “has a ways to run,” he said Thursday at the 2022 Sohn Investment Conference.

    Last year, the investor criticized the Fed’s bank policy, citing a “raging mania” in every market.
    “That period was incredibly costly because a lot of assets were purchased during that period that a lot of people moving out the risk curve will lose a lot of money on,” said Druckenmiller then.

    • Raj says:

      Now I see the method in Fed’s madness. It dropped rate from 1.5% to 0% in a day and took more than 6 months to go from 0% to 0.75%, only after arguing for 6 months that “Inflation is transitory”!

      The slow rate hikes gives wall street time to spin up bear market rallies to suck in “Buy the Dip” retain investors who then can hold the bag for big institutions. Was this the Fed’s true mandate : “Make the rich richer and the poor poorer.”?

      • Anthony A. says:

        You just figured this out?

      • Propheticus says:

        Raj,

        “to suck in “Buy the Dip” retain investors who then can hold the bag for big institutions.”

        Short sellers need those retain bag holders for borrowing purposes. Sadly, most retain bag holders don’t even realize their stock has bent lent out as their unrealized losses accumulate.

  11. Miatadon says:

    I am left thinking our government has lost the ability to protect us. I remember when there was raging inflation in 1972, and Nixon imposed a wage and price freeze. And he was a conservative Republican! I can’t even imagine our federal government doing anything nearly as decisive as that now, whether it’s Democrats of Republicans.

    • 2banana says:

      The Nixon wage and price freeze was a disaster.

      • Miatadon says:

        It it showed the government was aware and able to act decisively. My landlord back then raised my rent, and he had to put it back the way it was.

        • Augustus Frost says:

          It was politically motivated or at best proof of economic cluelessness.

          The FRB has been engaging in price controls (interest rate suppression and QE) distorting the risk pricing for the last 20 years.

          If you claim it has been a success, you sure have a different definition than I do.

          Price controls on interest rates don’t create a shortage because there is no theoretical limit to the supply. It only creates an asset mania and a credit bubble which is now the worst ever.

          With tangible goods or services, it will create worse shortages than we have now, far worse.

        • 2banana says:

          Government acting decisively = stealing from one somebody

          But, you loved it. You got to receive the stolen loot of someone else’s property/resources.

          No complaints when it is done to you this time.

        • FinTechie says:

          Price controls have a 100% record of failure, both in the USA and elsewhere.

        • Einhal says:

          I mean, sending in soldiers to gun down every retiree would “show that the government was aware and able to act decisively,” but that hardly makes it a good idea.

    • Phil says:

      Heh heh you triggered some landlords

    • phleep says:

      The Nixon wage and price freeze was political window-dressing that worked about as well as President Ford’s “Whip Inflation Now” (WIN) lapel buttons. Nixon had manipulated his sycophant Fed chair Burns to gin up inflation, to win in ’72.

      The USA federal government has been manipulating asset prices, supply and demand since the 1930s. Only now when the end game is being tested, with the whole Rube Goldberg tangle of regulations and agencies, might there have to be some sort of event that resets the whole mechanism. WW2 was such a mechanism: it simplified the impossible tangle that Europe had become.

    • Kerry says:

      “I am left thinking our government has lost the ability to protect us.” This kind of thinking has gotten us to this point. Never give up Freedom for supposed “security”…

  12. Xaver says:

    Sometimes it feels like the years of gaining economic knowledge were not in vain.

    I had some doubts during the last years.

  13. But what it be after interest rate increases almost every month through December?

    9 percent mortgages?

    • KGC says:

      It wouldn’t be the first time. They were double digits in the 80’s.

      • COWG says:

        The scenario then was an inverse relationship between housing prices vs interest rates… Lower rates meant higher housing prices and vice versa…

        While generally housing was going up slowly, we were only talking about a few percentage points for each over a period of time…

        This held mostly true until the early 2000s bubble and then The Fed blew everything out of the water with severe prejudice and the lack of inflation which they thought justified their actions…

        • phleep says:

          I think we have to go back further to see what may become of large-scale housing solutions: the Middle Ages. People who were free-holders (small landowners) after serving in Roman Legions (awarded some of the land they helped take or hold), became indebted and lost their freeholds. They gathered in regimented communal living structures like monasteries.

          I see government buying real estate and creating dense subsidized housing. Maybe the overseers will be AI social credit systems.

      • The Colorado Kid says:

        I bought a house when I was in grad school in the early 80s in Boulder. 16% interest, but the house was a new custom build and cost only 65k. Sold it a couple of years later for 85k and felt like a rich person.

        • Enlightened Libertarian says:

          Phil,
          Where are you going find a place to rent when every landlord says “F**k this shit, I quit.”?
          As right now every landlord in the country has a right sell his property and walk away.
          I can see a lot of apartments converted to condos and sold, with no new apartments getting built to replace them.
          Better save your money and buy a tent.

    • curiouscat says:

      The interest was 7.5% for my modest little home in 1972. Of course bank savings interest rates were a bit higher that 0.1% too.

      • Anthony A. says:

        When I moved to California in 1981 for a job, my little bungalow in Thousand Oaks was mortgaged at 18%. A few years later, I refinanced at 10% and thought I hit a home run!

    • JWB says:

      Some of us in the trenches think 8% for a 30 year fixed full am conforming no points by end of year. This sentiment since talking together about it last month. If you’ve been in the trenches like many if us have since the mid 1980’s, such a mortgage interest rate is child’s play.

  14. Prophecticus says:

    Lots of downside gaps in today’s market action which will need to be filled, at least partially. The SPAC market usually, but not always, rallies into a three-day holiday weekend and that’ll be next weekend in observance of Juneteenth National Independence Day. I find it quite interesting that the SPX is approaching its recent low but the VIX is nowhere near its recent high. The markets are well-behaved, at least thus far.

    • Wolf Richter says:

      Yes. And there is not a single drop of blood in the streets. I just went out and checked. People are just strolling around leisurely, enjoying the sun, sipping on iced espressos, and discussing the next rally. We’re years from a bottom.

      • Phoenix_Ikki says:

        Ignorance of what is to come is a bliss until it isn’t anymore..I am sure there are still plenty waiting to pile back into the market or still actively searching for that next house to buy thinking this is just a temp gully..as a collective we might not have invented willful ignorance but think we have perfected it.

        They might or might not be right but for the latter I hope they have a huge appetite for risks and a huge safety cushion to land on

        • Augustus Frost says:

          Maybe right temporarily but longer term.

          Psychologically, part of the reason the majority believes this is because admitting otherwise means they will be poorer or a lot poorer in the future with (noticeably) lower living standards.

          Surveys indicate the majority asked claim to believe this in the abstract but it’s different when it’s happening to them.

        • Nathan Dumbrowski says:

          PI
          I am noticing perhaps for the first time that the Leadership keeps saying things that turn out to be outright lies or woeful ignorance. I think the President, FED and Treasury believe that they can convince people through words but the actions on the street are different. People are paying more for everything, mortgage rates are skyrocketing, inflation isn’t a six month problem, the war in Europe is going to cost American tax payers a great deal in the short term.

          Just because they say it does not make it so. Last one yesterday was Yellen saying “I know people are very upset and rightly so about inflation, but there’s nothing to suggest that a … recession is in the works.”

      • Harvey Mushman says:

        Well there is some blood on streets.

        About two months ago I mentioned how two of my former co-workers are working for Bird Scooters (stock symbol BRDS). I mentioned how their stock YTD was down something like 85%. Well now its down 90% YTD, and a few days ago they announced that they are laying off 23% of their work force.

        • Phoenix_Ikki says:

          Pardon the punt but I think BIRD just gave your old co-workers the bird while the executive team probably still doing just fine..

          As I learned from many past jobs, you need to be diligent about your employer and just to at least assess if the business is even a viable or profitable venture. Comp/salary might be good but if you’re out of a job in 6 months to a year…

        • phleep says:

          Remember all those free-range bicycles a couple years ago, strewn all over the place? Went the way of the dodo bird.

      • Propheticus says:

        “We’re years from a bottom.”

        Prepare for the day of “weeping and gnashing of teeth,” that day when the SP500 pierces the March 2009 bottom — 666.

      • Franz Beckenbauer says:

        “For in the days before the flood, people were eating and drinking, marrying and giving in marriage, up to the day Noah entered the ark”

        Matthew, 24:38

        • NBay says:

          Thought the Gospels were all about Jesus’ and his “New Deal”. How come Matt threw in that Old Testament “Wrath of God” stuff?

        • NBay says:

          Guess I was wrong in an earlier post where I said “Nobody picked up on that S&P low”. Hope I didn’t go to Bible School AND big people’s church for 10 years for nothing.

    • KPL says:

      Pavlov’s conditioning still not worn off. BTFD, the Fed to the rescue, the Fed will ultimately bail out the system (if it cracks it just might) etc.
      May be a couple of psychologists on the Fed board will teach them about conditioning – about dropping rates at the drop of a hat, by everything if market goes south, keep the printing press busy, act like god riding to the market’s every time it sneezes etc…

      The public will wake up all at once.

  15. KGC says:

    On June 8th, 2022, Fortune had the balls to praise the Fed’s “ultra-hawkish approach” to controlling inflation, because they expect raising the rate to a whopping 3% over the next year is going to solve everything. Where do they get these guys?

    Everyone, from China to Brussels, is pussyfooting around the word “stagflation” when they really need to start looking at the coming world wide depression.

    This is not a problem that’s going to go away in 4-5 months, this is a multi-year disaster that’s been building for a decade.

    Turkey, Italy, and Spain; those are going to look like Argentina, and the EU’s not going to have to worry about admitting Ukraine, they’re going to have to figure out how to solve a problem that’s going to make Greece look like a minor bankruptcy.

    • SoCalBeachDude says:

      From a lunatic asylum.

      • Augustus Frost says:

        Hardly. The EU and Eurozone is held together by bailing wire and chewing gum.

        • BuySome says:

          I believe The Dude was actually answering the query of “Where do they get these guys?”, not challenging the stated bad smoke situation for Eurdopia.

        • Gomp says:

          Hey. Love your posts. So just trying to help. Baling wire as in baling hay.

  16. JeffD says:

    The sitting FOMC members are out of their depth. Way out of their depth. It’s been painfully clear for almost two years now.

  17. SoCalBeachDude says:

    Will Monday be RED MONDAY on Wall Street and the global exchanges? This could be the RED SWAN EVENT we’ve been laughing about and eagerly anticipating for the past 20 years!

    • Gomp says:

      Bloody Black Swan?

    • Seattle Guy says:

      SoCalBeachDude – Yes….Bad close to the indexes on Friday …we may gap down Monday to follow Friday’s drop. Europe did not do well either….
      Summer of pain …fall for THE Fall.

      Meanwhile, Russia cut its interest rates as its inflation is dropping. How is that even possible?? Cheap Fuel and plenty of food and no imports??

  18. Scott says:

    Whatever happened to the Fed increasing interest rates between meetings based on new data?

    • KGC says:

      That was transitory.

    • JeffD says:

      Only to *cut* rates. Get with the program.

    • Wolf Richter says:

      This CPI report would surely be the material for a Sunday teleconference of the FOMC, with a 50-basis point hike announced Sunday night. But that’s not gonna happen. They’re going to go methodically, with everything being telegraphed well in advance, and it’s going to take years, and rates will be far higher for years.

      • Pea Sea says:

        Don’t they have a meeting in just a few days anyway? An emergency meeting to do a rate hike that they’re going to do next week anyway would just get them accused of pointlessly grandstanding.

      • Gomp says:

        But doesn’t that get them further Behinder?

      • Wes says:

        Maybe the FOMC is going to try and break the 9% CPI rate of 1980’s. They’re going for a new record!

  19. Ghassan says:

    Did you see the average mortgage rate jumping 30 bases point to 5.85% while the 10 year only jumped 15 point!

    • Ghassan says:

      I mean the 10 year treasury moved only 15 bases point…. Even the FHA is 5.50% now.

    • Augustus Frost says:

      The yield curve “blew out” at the short and middle of the curve. Long bond barely moved.

  20. Capitalist says:

    I am thinking now the administration will bow before Saudi and Russia to get energy prices down. Fed will raise rates and bring a recession. What I wonder is will that kill inflation or will inflation again rise up when Fed cuts rates or starts QE in recession? If the new normal rate is 3-5%, will it make it difficult for Govt to pay the interest?

    • Mike says:

      Buying more oil won’t fix the Gas/Diesel problem. The bottleneck constraint is refining capacity. The US is lower now than in 2019. And expected to drop lower throughout 2023. The leaders of companies that refine predict there will be no new refineries in the US due to the govt policy saying gas/diesel is bad, and the decades needed to recoup investments in a new refinery.

      NatGas could be brought down if Europe starts buying gas from Russia again, and the US stops sending LNG to Europe. But that’s not a US Decision – Europe needs to decide to buy Russian NatGas. The US Govt won’t stop the LNG shipments to Europe. Just won’t happen.

      • Lysander says:

        How much has refinery capacity declined over the past five years? I’m not sold on that explanation. LNG exports are going to grow whatever happens with Russia

        BTW, declines in technology have the hedonics problem.

      • Einhal says:

        Correct. That explains precisely why gas is at a record, but oil is not even close to it.

  21. Propheticus says:

    As I’m sure most readers are already aware, RRPs have been logging all-time new highs this week with the latest overnight balance at $2,162.885 billion. Wolf has pointed out on many occasions that QT will soak up this excess liquidity. My question is: Where will the counterparties find new debt securities once the those sold by the Fed have matured? If the answer is in new treasury securities, won’t that require even more money printing?

    • Wolf Richter says:

      QT removes liquidity with the indirect effect that over time it will take cash out of money market funds, and the funds will shrink and have less cash to invest, and so they buy fewer T-bills, and they don’t have the excess cash to collect interest with from the Fed via the RRPs. There will be less cash chasing after more Treasury securities, meaning demand falls and yields rise.

      • Propheticus says:

        Thanks Wolf.

        The part of your reply that I am struggling with is:

        “QT removes liquidity with the indirect effect that over time it will take cash out of money market funds…”

        Aren’t money market funds, in essence, “other people’s money?” If true, it would seem to me, then, that money market funds could only shrink if said investors choose to move their money elsewhere. Anyway, far beyond my pay grade, I’ll chew the fat for a while. Thanks again.

        Guess we can anticipate the interest rate on RRPs to increase next week by a minimum of 50 basis points.

        • Wolf Richter says:

          QT incinerates “other people’s money.” That’s exactly what it does. I wouldn’t have thought of using the term, but you did, and you nailed it :-]

          QT is not something theoretical. It’s real. It destroys money, just like QE created money, yes, “other people’s money.”

        • JJ says:

          Propheticus,
          It may be helpful to remember the Fed only does QT by not re-investing in securities to replace those that mature.
          Entities pay money to the Fed to satisfy obligations, only the Fed doesn’t re-introduce ‘money’ to replace those held obligations with new ones.
          Maybe a simpler way to look at it is…
          A Monopoly game where the Fed is the bank. The bank is paying out whenever favorable Chance and Community Chest cards are played. Unfavorable cards return money to the bank.
          QT would be like removing more and more favorable cards and leaving the unfavorable cards intact, to constrict the pile of funny money in circulation.

        • Propheticus says:

          Wolf and JJ,

          I’m still thackamuffled but as previously stated, it is above my pay grade. But I do understand that QT is every bit as real as QE and will be interested to see how this shitshow plays out in the coming months and years. Then again, perhaps not.

        • Johnny5 says:

          Propheticus,

          Maybe a hypothetical example with numbers would help:

          Let’s say the Treasury issues 100B in new securities each month. The Fed has 50B in treasury securities that mature each month. The Fed currently wants to maintain the existing level of its balance sheet, so it replenishes those 50B in maturing treasuries with 50B new purchases each month. That leaves 50B in new issues that the “market” has to absorb. This is funded by the market from a variety of sources, such as rolling over its own maturing treasuries, selling stocks, etc.

          Let’s say now the Fed decides to reduce its balance sheet by allowing its maturing treasury securities to fall off its balance sheet and not be replaced with new purchases (engaging in QT). So, each month 50B in treasuries falls of its balance sheet. That means 100B in treasuries must now be absorbed by the market instead of just 50B. This additional 50B has to be funded, and this is where the money from the Money Market Funds comes into play (the same money used to fund the 2T in RRPs). That money is earning about 1% right now and it is ultra liquid. That money would likely be the first source for funding this 50B in new treasuries each month – for the right price. This is net new supply to the market. New supply + same demand = lower price (higher interest rate). So, yields on these newly issued treasuries will need to rise enough to suck money from the Money Market Funds (and reduce RRPs). This movement of money from the liquid Money Market Funds to less liquid treasury notes and bonds effectively reduces liquidity in the economy.

          At least that’s how I understand it.

        • Propheticus says:

          Johnny5,

          Having read your post, I have seen the light! And I know Wolf has written and commented regarding the effects QT will have on the money supply.

          So, if I may summarize:

          As the Fed engages in balance sheet reduction, new treasuries will have to be funded with existing money and by the markets, not the Fed. And with balance sheet reduction, money is incinerated.

          But now, another question:

          If the money supply is shrinking due to QT, where does the money come from to pay the interest on newly-issued treasury securities?

        • Nathan Dumbrowski says:

          What if next time instead of B’s the do QE with T’s? Pandora and her box will never be closed.

  22. Doug says:

    Let’s be real. If inflation was the Fed’s #1 priority, the Fed Funds Rate would be way above 1.0 by now. I just hope next week the Fed takes action and not just continues talking. We need to be rug pulled now. Low and middle income families are getting destroyed.

    • JJ says:

      Doug,
      Taking any surprising action next week would only entail a 75bp hike. Forecasters are giving it a 21% chance, up from 4% before the CPI release today.

      Slow, slow, slow, I know.

    • josap says:

      Low and lower-middle class will get hammered by inflation or recession. The middle class will have a hard time but survive.

      The upper-middle class will see their retirement funds disappear.

      Happens every time.

    • Michael says:

      Inflation is their number one priority. However it’s not their goal to protect you from it. Their goal is to support government spending so lots of inflation is just fine. Remember they are going to “run the economy hot”? Welcome to “hot”

      They are going to delay until something seriously breaks. The idea that a .5% interest raise will address 8.6% inflation is beyond moronic

  23. Enlightened Libertarian says:

    Didn’t all that inflation take place after he left office in 2014?
    His term was February 2006 to January 2014.

  24. Marco says:

    Where does it seriously break first within the financial system Wolf ?

    • Wolf Richter says:

      It already broke: inflation. This is it, this is the big one we’ve been waiting for all along. The black swan, if you will. It’s already causing huge damage all around. And will continue to do so. It just doesn’t happen in one shock-and-awe move over the weekend, like Lehman.

      • DougP says:

        You mean it doesn’t go to heck in a straight line?

        • Raj says:

          Don’t you see the value of dollar going to Heck in a straight line in the second chart. The best you can hope is that the second derivative becomes positive intermittently (aka a small intermittent decrease in Inflation).

      • Trucker Guy says:

        I’m no finance guru and seeing all the markets nearing their new low and inflation up yet again… Something does give me a gut feeling that this is the real fall now.

        I think I can also finally say the housing market has peaked and the shift has occurred.

        But you never can time the market. We may have a 1% chance we have another heady year or two left of beating this rotting corpse that vaguely looks like a horse.

        • tom10 says:

          Housing market has peaked in my little slice of flyover.
          Have had two zoning offices contact us this week to see
          if we still had jobs coming in. Their permits have fallen off a cliff. Not going to be good time to be the new hire.
          Our backlog of work…even with high cancellation rate…
          will keep us busy into the fall.

          If the markets truly understand/and pricing in the pain that is yet to come this fall/winter it may be the “real fall”.

          Energy & food prices are only going to move in one direction.
          Hopefully a long and nice fall this year. Short & wet and farmers having to dry corn…..will make for some hard decisions.

      • Peachy says:

        Do you think this may be why Palantir bought $50 mil in gold last August?

      • SoCalBeachDude says:

        So-called ‘inflation’ is just a big SO WHAT…

        DM: Consumer sentiment plunges to an all-time low due to soaring gas prices and supply shortages – even as Janet Yellen dismisses economic pessimism as ‘amazing’ given the strong job market…

        Consumer sentiment in the US has plunged to an all-time low amid soaring inflation, even as Treasury Secretary Janet Yellen expresses puzzlement at Americans’ dim view on the economy.

        • Wolf Richter says:

          SoCalBeachDude,

          You have apparently no idea how silly the juxtaposition is of your fist line and the MW quote. Don’t you see the contradiction?

      • David Hall says:

        How long before they start calling for interest rate cuts and stimulus?

        We are no longer on the gold standard. Nixon took us off the gold standard before he resigned due to the Watergate burglary scandal. Someone in the Whitehouse ordered the burglary. He tried to cover it up.

        Watch the M2 curve.

        • Wolf Richter says:

          Who’s “they”?

          “They” — Wall Street crybabies, ZH, and others — have been calling for rate cuts for months, before the Fed even started raising rates. They’ll be calling all along the way.

    • Gomp says:

      It’s possible to have a whole family of Black Swans.

  25. Timothy J McLean says:

    I haven’t heard much from the MMT supporters in 2022.

    • COWG says:

      Haven’t heard from our resident gold bugs either…

      Gold jumped a couple of years ago but relatively flat the last couple of years with 15% inflation…

      Maybe it’s time for it to move…

      • sunny129 says:

        Gold won’t move much. when the US$ is strong(relative other currencies) and during rate hikes! It peaked $2500 around mid 80s and hasn’t recovered so far! Trading with options, more profitable.

      • Escierto says:

        All the gold bugs either died or found Jesus in crypto. No one cares about gold anymore except old guys watching Gold Rush every Friday on Discovery!

        • Augustus Frost says:

          If your post was accurate, it wouldn’t be selling at $1800+.

          The market value of gold bars, bullion coins, and jewelry (held outside the US as a store of value) is a lot bigger than the size of the crypto market.

          I expect gold to lose a lot of relative value longer term since it
          is historically overpriced now.

          Crypto OTOH is literally nothing. Of the estimated 19,000, a few like BTC and Ether might survive at scale (at a low fraction of current value) but since this whole “asset class” only exists as an outcome of the biggest mania ever, most are heading to zero.

        • Saltcreep says:

          Urrm, Escierto, I’d suggest it is what has been before: A low volatility currency substitute that safeguards purchasing power over longer time periods and can act in a non correlated way when other markets make big moves.

      • Wisdom Seeker says:

        All the gold bugs are in Japan now.

        Yen isn’t doing so well.

        Gold priced in yen is hitting record highs.

        The gold bugs will move to Europe next.

  26. Neil says:

    I keep thinking about a few couples I know in or near retirement who bought massive luxury RV’s for their retirement years. (Cost of RV’s were well over $100K.) Their plan is to live off their stock investments and careen aimlessly and carefree from place to place throughout the country in their RV’s.
    But these RV’s mostly get around 8 miles per gallon, and now many RV parks are charging $100 daily parking fees. What could possibly go wrong in this scenario?

    • Bobber says:

      They might be spending their retirement years in the Walmart parking lot, where you can park your RV overnight for free.

      When traveling through Montana a few years back, I needed to park somewhere to rest for a few hours. I pulled into a Walmart parking lot and there must have been 20 RVs there.

  27. sunny129 says:

    ‘Fed is going to have a field day with its rate hikes’

    Fed is way behind, too late and too little. Can’t afford to ‘shock’ the mkt. right?
    There is a LAG time, when the Fed starts raising rate and the response of inflation to them. It may be several months, may be even over a year, like in 90s under Volcker (1979 – mid 1981). This inflation erupting after 40 yrs of deflation, won’t be that easy. The evidence of peak inflation will be obvious only on hid sight just the beginning of a recession! Piper has to be paid, first!

    • josap says:

      The only deflation I’ve seen is wage deflation relative to price inflation for decades.

    • The Real Tony says:

      Today interest rates are so far below the real inflation rate that any effect will be miniscule unless interest rates are higher than the real inflation rate.

    • Jan de Jong says:

      It took 5 years of 6% real rates to conquer inflation under Volcker. Well longer than several months. We shall see.

      • sunny129 says:

        Inflation under Volcker contained between 1979 and mid 1981.

        I was here when 10 y yield was 14% but inflation galloping above 15%
        Volcker raised the rate (continuously) to 20% by the time it got contained! ( Been in the since ’82, gone thru more than 1 bear)

        Mr. Powell is NO Mr. Paul Volcker!
        GFC was just a trail run!

  28. josap says:

    The economy is a nail. The Fed only has a hammer.

    The nail can be pulled out or hammered in.

    Taxes could be raised or lowered, per income tier, but I don’t think it will happen this time. Maybe the wealthy will get more free money with the next administration or congress.

    • Escierto says:

      After the elections we will be looking at more tax cuts for the rich and corporations. Gotta make sure those who own the US government get a good return on their investment!

    • Dazed And Confused says:

      As a Texan I’m generally against raising taxes but there’s one federal tax bill that I could support in this case.

      Call it the SPARPAR (Stupid Pointless American Rescue Plan Act Reversal) – basically any person or entity (corporate, government, NGO etc.) that received any money from the inflationary $2T fiscal stimulus bill passed in March 2021 should have to pay back all the money they received in any form to the Treasury – no limits and no exceptions.

      Since the inflation was partially caused by unnecessary fiscal stimulus it makes sense that it can be killed doing the exact opposite and this is the fairest way to do it because it exactly reverses the failed policy and so is not redistributive.

  29. fred flintstone says:

    Jay P……..well……since this inflation is draining consumers……should we not begin a QE to offset that reduction in demand……after all…..deflation is a big threat.

  30. The Falcon says:

    It’s a slow motion train wreck. You can look away and then look again in 3 months or 6 months and the train is still not even completely off the rails. Yes it’s coming off and it’s going to end up in that ravine down yonder in a pile of twisted metal and bodies. The smartest of the smart will be quietly dropping off the back end into the soft grassy field. The smug, self-satisfied and deluded will ride the train to its unfortunate end.

    Now go out there and have a wonderful weekend!

  31. MiTurn says:

    Let’s not forget property taxes. I just received my county’s latest assessment. For their purposes they raised my property’s “net taxable property value” 87% higher than last year.

    Tax increase notice, of course, soon to follow.

    All because of the buying pressure by out-of-state newcomers. And this is supposed to be a good thing?

    • DawnsEarlyLight says:

      Long live WFH! /s

    • phleep says:

      Gotta finally say something for California. Limits on property tax hikes were voted in by ballot initiative. Higher income taxes here mean lower property taxes. We who got into real estate at a good time are (for now) not being thrown into the street when newcomers and new developments show up. Newcomers pay.

      • Transaction taxes should replace income taxes.

        Much stronger inflation inhibiting dynamic.

      • Dazed And Confused says:

        Yes – indeed.
        Californian policy is anti-growth and anti-immigrant.
        No wonder Californian population is in decline despite all its natural advantages.

  32. Jeff says:

    Honestly I really enjoy reading your articles. Statistically backed facts that aren’t targeted to increase real estate and/or stock prices and trick average people into thinking everything is ok, just keep spending. Thanks for taking the time everyday.

    • phleep says:

      This is the most legit source I have ever seen.

      • Gooberville Smack says:

        I read and watch all kinds of crap all the time. Some of it is ok.. but Wolfstreet is the only information source I ever recommend to anyone.

  33. RickV says:

    Looking back at the history of interest rates during Volker’s era. He raised the Fed Funds interest rate to 19% in December 1980 and January 1981, a full 7% over the prevailing inflation rate at the time of 12%. He maintained rates roughly 7% over the inflation rate until October 1984 before finally relenting almost four years later. Applying Volker’s methodology today, with inflation at 8.6%, would require a Fed Funds rate of 15.5% (coming down as the inflation rate dropped) through March of 2026. Today’s real interest rate at -8% verses a maximum -5% real rate during the 70s, is why the Fed needs to get on this now with minimum 75 basis point hikes at every meeting until a positive real rate of interest is achieved. Of course, this would cause one hellacious recession. Such is the Feds dilemma.

    • Kenny Logouts says:

      The 70s inflation was driven by an overheating economy.

      In 2018 when FRB tried to normalise FFR look what happened.

      Then they cut FFR, and look what happened.

      Today’s economy is dependent on stimulus to support markets and zombie businesses.

      1970s economy didn’t need stimulus.

      Thus I’d argue that these tiny changes we see to FFR relative to the rate of inflation, never mind QE which had lost it’s economic multiplier effect years ago, will actually be magnified.

      I’m thinking Wolf is about to be tested on “nothing goes to heck in a straight line”

      This economy is full of zombie businesses, full of zombie participants, all gleefully expecting FRB to bail them out again, somehow.

      I think the shift in sentiment will take everyone by surprise when it happens!

  34. Who can answer this math problem for me?

    My mortgage is fixed at 3%. Inflation now 8.6% and rising.
    So how much of my mortgage principal is inflated away each year, if we assume these numbers are constant?

    Is it 5.6%?

    Actual question here. I think we should all get comfortable with this math

    • Augustus Frost says:

      You are asking the wrong question.

      How much is your income going up each year, as that’s what reduces your debt burden, not inflation. You’re not paying your mortgage with inflation.

      Second, you didn’t ask but I will ask it for you.
      Where can you get a better return elsewhere, after tax?

      Due to the 2017 tax changes, higher standard deduction means a much higher proportion get no benefit from itemizing deductions which is even more true with a rock bottom interest rate.

      For a large percentage, they need around 4.5% pre-tax risk free return on their money to beat paying down the principal balance.

      It’s easy putting money elsewhere when stocks are rising 10%+ per year. If the mania is actually over, most will find themselves losing money instead.

    • Halibut says:

      I think it’s trickier than that because the 8.6 will not be constant over x years. It will remain high for now, and maybe go higher, but what are we talking about? Another 10 years on the morgage? 25 years?

      That said, the math looks to be in your favor for a while. Nevertheless, I personally don’t like risk. Debt is always a risk. So, I wouldn’t get overly happy with any loan. I would focus on paying it off.

      Others will disagree, but that’s the way I see debt.

      • Halibut says:

        Let me throw another curve ball here. My house is paid for. Now, assuming I could borrow against it at 3% (I know I couldn’t, but hang with me) I would refuse the offer. Again, others would disagree (maybe strongly), but there’s my 2c.

        • Enlightened Libertarian says:

          The question about debt is “How strong is your income stream?”
          If you have strong secure yearly income then borrowing money at 3% for 30 years and then paying it back with worthless future dollars can be a very good bet.

        • Halibut says:

          EL —

          Your point is mathematically valid and well taken.

          My position is just more oriented to gut feeling. Like that gut feeling when you actually sign the papers with a banker.

          Somewhere deep in your gut, you have some regret (no matter what) before you even put down the pen.

          That’s “risk” talking to you. Maybe it’s worth taking the risk. Maybe it ain’t.

          It just seems like the more I listen to my gut, the better luck I have.

        • Gooberville Smack says:

          I’m with you. Not gambling or taking any risk with my paid off house. If I want to play the casinos that money is coming from somewhere else.

    • Gomp says:

      The answer is entirely dependent on if and when you sell. Interest rates up, values down. Just like Bonds.

    • Jake Bodhi says:

      Inflation helps landlords more than primary homeowners. Inflation allows them to raise rents giving them inflated money to pay off the mortgage balance that inflation hasn’t touched.

      • Johnny5 says:

        Not necessarily. To play off of the point Augustus Frost made above, people don’t pay their rent with inflation. They pay their rent from their income. And if their income isn’t keeping up with the growth in their expenses, they have to cut their expenses (or go into debt). That could include reducing the portion of their budget dedicated to shelter expenses (by downsizing).

        Over the long run, I don’t think shelter expenses can exceed the growth in wages. If you accept that proposition, that has serious implications for the current run up in house prices and rent growth.

        • Augustus Frost says:

          Yes, correct.

          I read many posts (and articles) about inflation helping this or that. Rent is one but is actually no different than anything else. Just because someone “needs” or needs something doesn’t mean they can afford it.

          In the case of housing, Americans will just have to get used to downsizing and “doubling up” just like most people do elsewhere.

          No one has a birthright to live in their own dwelling, much less the one they think they deserve.

        • Wolf Richter says:

          Homeowners will have to get used to lower prices. But once you get the knack of it, it’s ok.

  35. Double D says:

    The U.S. economy is in the final stages of terminal decline. The massive money printing only masking over the severe structural problems of a slow growth world. That slow growth (along with the printing of tens of trillions of debt) has now turned to virtually No Growth. Stagflation for use of a better word. If people think inflation is bad now just wait.

    Powell’s head should be turning like the exorcist, but I tend to think the elitists have had all of this panned for a very long time. They knew the end game was here 14 years ago. What to do to continue to line their pockets while the rest of the peasants fight for scraps. Viola! They hatched the perfect scheme, but they also realized that scheme needed an endgame. That endgame has finally arrived.

    Enter the Covid pandemic. Ukraine. Uncontrolled inflation. Few complained. A few died but the scraps were pretty good while it lasted. Now , just figuring out how to survive with your health and some kind of retirement is a major accomplishment underlined with serious land mines ahead.

    The little Troll “Yellen” (with her head wobbling uncontrollably) saying in front of Congress “I’m really sorry I got that wrong”. We’re sorry too. It was just another lie from a self-aggrandized shill.

  36. Censor the Truth says:

    Wolfstreet censor these kind of posts:

    [REST DELETED BY WOLF]

    • Wolf Richter says:

      I just deleted your prior two posts of today as well. They passed and were already published when I saw this comment. But after this, they got deleted. You don’t get it, do you? If you want to comment here, learn the rules and stick to them.

  37. SocalJimObjects says:

    But the Fed already tied their own hands by saying they won’t raise 75 bps.

    Honestly they need to raise 200 bps now to get this under control.

    • Old Ghost says:

      If the USA had a functional government, they could raise taxes on the higher incomes, and claw back some of that “excess paper fiat” people here complain about.

      Funny that no one mentions rationing. During WW2 the US printed lots of money. But wage & price controls along with rationing kept that under control.

      Sadly, the USA today does not have a functional central gov.

      So today the burden of saving the banks & mega rich falls on on the FEDERAL RESERVE. And make no mistake, they are the ones who will be made whole no matter what.

      • SocalJimObjects says:

        Raising taxes on the higher incomes will not lower prices at the pump. The inflation is broad based.

        • Old Ghost says:

          The vast majority of the posters here seem to believe only the Federal Reserve can stop inflation, and only by raising interest rates. But there is always more than one way to skin a cat.

          Taxing the morbidly wealthy takes fiats out of circulation — they can’t be used to build more $500 million yachts (or bid up real estate prices). It also helps balance the gov budget (which should please the deficit hawks).

          Rationing gas would reduce demand. Which should, in free market theory, reduce the price. But in the USA the term “free market” is mostly just word salad to disguise some scheme to screw over the Muppets.

          The number one reason for the Federal Reserve’s existence is to rescue with public funds any of the private banks that might get in trouble.

        • Augustus Frost says:

          I can infer that the reason it’s supposedly preferable is because 1) it’s supposed to be less painful or pain free by avoiding the upcoming unavoidable recession or depression. Or 2) So that the government can distribute this fake wealth to the general population as bread and circus social programs, another form of something for nothing.

          Good luck with either, even if one of these crack-pot tax proposals ever passes.

        • Sams says:

          If the US government raised taxes and used the money to pay down their debt, would not that take money out of circulation and lower inflation?

    • jm says:

      IIRC, what Powell said was that 75 basis points was “not on the table at this time”, at the time he was speaking. A subtle and important difference.

    • Kenny Logins says:

      Won’t the big stonking recession get inflation under control?

      When you’re buying food, shelter and heat only, demand will be miles below supply.

      Rinse repeat.

  38. Michael Engel says:

    1) US CPI is up, so is the USD. In order to move higher, USD weekly must close > May 9 2022 high @104.62. High inflation along with global SPX panic. Breaching May 9 high isn’t good enough
    2) RE isn’t local. USD/ smurf countries fx osc like a moon around USD. Smurf currencies might rise and fall around the rising USD since Dec 2008.
    3) During the dotcom bust USD reached 120-121. It plunged 70
    in Dec 2008, to nadir.
    4) If u sold your smurf country house in 2009 u got plenty dollars for your house, twice as much as today, because RE is NOT local.
    5) In 2022 global RE is booming, but in real terms, in USD, smurf houses are worth about half. The locals, like Chinese buyers, are losing money…
    6) USD/ smurf currencies osc up and down around the rising dollar since nadir, between : 70 to 104, or up 50%.
    7) If madam ECB raise the deposit rate, along with other smurf countries central banks, the dollar will be challenged and fall. Serf countries RE, in real terms will rise, temporarily… until the next panic.

  39. Michael Engel says:

    8) High inflation along with QQQ panic will not last forever.

  40. Phil says:

    If the Fed is serious about taming inflation, how about a 1% increase at the next meeting instead of these little drips and drabs? I could care less about the stock market.

    • JJ says:

      Phil, since the Fed is trying to keep everything as orderly and methodical as possible, the best course of action to be more aggressive seems to be telegraphing regular 75 bp increases later this year.
      Gradually increasing the rate of change itself seems the only real way to thread the needle here.

      • BuySome says:

        Like Kevin Bacon yelling “Keep Calm” to the parade crowd after the Deathmobile has done crashed into the grandstand. The Dean sounds like he’s landed on his noggin’ while Carmine Powell has his inflationary thumb stuck up Janet Wormer’s a-hole and won’t remove it. It’s a hell of a price to pay for pulling tricky double secret probation on the mass of animals buying beer on their student loans. Expect a guy named Blutarski might just get seated in the Senate chamber soon wearing a pirate costume and driving a stolen car.

  41. historicus says:

    Very detailed and valuable article.
    When will these questions be asked?

    1. Why does the Fed have ANY inflation target after near 9% inflation? We just hit 4 years worth of their 2% target in one year! Shouldnt the target be negative after this jump?

    2. Is it acceptable to concede the 8.6% jump in prices are baked in now, or should the Fed work for price rollbacks? Will the Fed encourage rollbacks, welcome them?

    3. Coming YOY readings are likely to show decreasing increases in CPI. The narrative will be “victory” in the war on inflation. Will anyone point out the increases are cummulative…stacked upon each other and compounded?

    • JJ says:

      Deflation is a terrible thing for debtors, and the cumulative debt loads built up in recent decades here and abroad are so massive that long-term deflation would also be catastrophic.
      Best possible hope is some sort of disinflation back to the Goldilocks 2% level.

      • historicus says:

        Who has ever seen deflation? And a retrace of an inflation spike is NOT deflation…IMO

        • phleep says:

          > Who has ever seen deflation?

          Funny thing, the Fed sure mobilizes THEN. Like, panic, crazytown style. As in 2009, as in March 2020. But inflation? Yawn, we’ll get around to it . . .

        • jm says:

          IIRC, from 1800 to 1900, prices in the U..S. dropped 50%, despite the counter-deflationary effect of huge gold discoveries increasing the supply of gold then underpinning the currency. Remember from our American history class that William Jennings Bryan speech with “Though shalt not crucify mankind on a cross of gold”? Deflation was bankrupting huge numbers of farmers because they couldn’t pay their mortgages due to continually falling crop prices. Same for other businesses operating with borrowed money. When the money supply cannot be expanded in proportion to the expansion of the economy, due to being pinned to a fixed quantity of scarce metal, prices must fall as the economy expands and productivity increases. Today we still see this in areas where technology learning curves drive down manufacturing costs. I feel great pain as I clean out my accumulation of obsolete computer hardware: How can I throw out that 6GB SCSI hard drive that cost me $600 circa 1998!?!? But beside me on my desk I have three USB-connected backup drives with 4TB total capacity that cost me less. And less in 2022 dollars! Down from $100 per GB circa 1998 to about 2 cents per GB today in 1998 dollars.

  42. DR DOOM says:

    These inflation post comments are not complete until Depth Charge drops a full ash can spread on the Fed.

  43. james wordsworth says:

    Although it is already late, the best approach now would be a very quick rise in rates. Instead of waiting for a year for the effects to trickle through, slam on the brakes now and let the “shock” do the job quickly. It will be painful in the short term but it will be far less painful long term.

    As an aside, is Japan about to finally succumb to gravity? The yen at close to 135 … headed to 250? 500? Fiscally the country is a basket case. Demographically it is a basket case. When someone actually says out loud that the emperor is not wearing any clothes, the decline will be epic.

    Second aside … rising rates will make the practice of corps selling bonds to buy back stock, harder to pull off … and this has been one of the underpinnings of the market the last few years.

    • phleep says:

      > When someone actually says out loud that the emperor is not wearing any clothes, the decline will be epic.

      This is the era when a lot of waiting for the other foot to fall, might finally end. The biggest foot is faltering at the core of the empire: inflation in the USA. If that goes down fairly hard, lots of ripples go out. And they join other ripples like Ukraine, and whatever will now become of Europe.

    • jm says:

      Most Japanese are living very decent lives. The quality of housing is steadily improving. The variety and quality of ready-to-eat food in the grocery stores — at very reasonable prices — is astounding. Public transportation is clean, convenient, and safe. People are working, doing things for each other. That’s what an economy is really about — or at least should be about.

  44. How low can the dollar go says:

    So my thought is we aren’t even close to the end of this whole inflation game not because of all the graphs and charts and insights of Wolf, but because of Lego. I just bought Lego set 41715 for my kids and I to enjoy, and the picture on the box shows the Lego character paying 100 for a an ice cream cone!!! They know something we don’t.

    • BuySome says:

      Didn’t they produce the infamous drug deal exchange a few years back and had to pull it off the market, creating a mad rush to aquire yet another rare bean baby-pet rock-hot wheels-cabbage patch-blister bubble-baseball card variant. Better not unwrap it…could be a bobble head retirement bonanza!😸😸

    • Wolf Richter says:

      How low can the dollar go,

      Here’s the photo you sent me, showing the $100 bill for an ice-cream cone:

      • DawnsEarlyLight says:

        If that’s a krone, then it could be for that $14 super 5 scoop cone! Or it could be in California! Both believable.

        • Cold in the Midwest says:

          Lego has released an updated photo following yesterday’s inflation report. Ice cream cones are now $120.

      • BuySome says:

        Well this finally might explain why these brickheads think 2010’s alien space pimp “Brick Daddy” needed to get some working girls….anyone who can spend $100 on an ice cream cone must be working the John’s! Good thing we have the fine people at Lego to teach kids all about the ways to earn easy cash and toss money around..for a minute I was worried we might actually be headed into a deep abyss of immorality funded by a sick government.

      • SoCalBeachDude says:

        THE VALUE OF THE US DOLLAR CONTINUES TO RISE IS NOW OVER 104 ON THE DXY AND IS HEADED MUCH HIGHER.

        • Wolf Richter says:

          SoCalBeachDude,

          Despite the very impressive ALLCAPS BOLD, you’re confusing exchange rate (against another currency or currency basket) with purchasing power.

  45. Depth Charge says:

    Jerome Powell needs to be relieved of his duties IMMEDIATELY. And Janet Yellen needs to be FIRED as well. These people are abject failures and vile human beings. And the same can be said for all of Congress. We have the most miserably corrupt “leaders” the country has ever seen. And Weimar Boy Powell will probably uncork another puny rate hike and mumble something about “inflation peaking” or “supply chains” when he has dropped the ball at every turn, yet continues doing the same thing over, and over, and over……

    • historicus says:

      “Procrastination is irresponsible and likely deceit.” D Bonhoeffer

      and I think we have both from Powell

    • Swamp Creature says:

      DC

      Its not just Powell. The entire federal government, Executive Branch, Congress, & Fed are run by complete morons who lack a 3th grade knowledge of basic economics. Nothing good can happen when such low life’s are in charge. They are so dumb, that they don’t even know what the problem is no less how to solve it. Everything they are doing is wrong and making things worse.

    • jm says:

      Janet Yellen is most emphatically _not_ a vile human being (nor is Powell). Read her bio on Wikipedia. And Google up “yahoo yellens humility on inflation”. She’s brilliant, hard-working, and genuinely cares about people. Being human, and forced to make decisions about matters on which no one can have more than very incomplete and imperfect knowledge, she has not perfectly foreseen the future, and has perhaps made some errors.

      Although she supported Bernanke in implementing QE to keep the wheels from coming off the financial system after the 2008 crisis, when she was Fed Chair, she was backing out the QE and gradually raising rates. And Powell, too, was on board with that. From “The Lords of Easy Money: How the Federal Reserve Broke the American Economy (pp. 226-227)”:

      ‘In closed-door meetings, Powell continued to cast doubt on the efficacy of quantitative easing. “I think we’ve never looked at asset purchases as other than a second-best tool,” he said during the FOMC meeting in September 2015. “I think that’s been the way it’s been talked about since the very beginning—uncertain as to its effect, uncertain as to bad effects, and certainly uncertain as to political economy characteristics,” he said. But a review of his comments, … indicate that Powell was softening his arguments and his warnings. … As Powell’s rhetoric appeared to cool, the Fed was starting to take concrete actions that addressed the risks he warned about earlier. Janet Yellen moved forward on the plan to hike interest rates and stop quantitative easing. She was pushing to normalize in a real way.”

      I recommend you read that book, and also “Fed Up” by Danielle DiMartino Booth. Although I am intensely angry at the Fed for reinflating the market bubble after 2008, as I didn’t think they’d make that mistake, and believe that in the long run the harm from the current, inevitable collapse in asset prices will be greater than the short-term benefit, that is a very moot issue. Remember that for years despite their QE efforts the economy was soft and inflation (as measured by economic orthodoxy, which doesn’t treat skyrocketing stock and bond prices as inflation) was less than 2%.

      The Fed deserves criticism, not vituperation.

      • Swamp Creature says:

        km

        They are, as DC said, vile human beings, not just incompetent. They have wrecked the country.

      • Cookdoggie says:

        Thanks for that post. This place gets a little pitch-forky at times and needs some sanity injections.

        • Depth Charge says:

          The only people who think it’s “pitch-forky” are reckless, gambling speculators praying for more FED put.

      • Depth Charge says:

        We will agree to disagree. These people are the epitome of evil, and deserve the harshest criticism possible.

    • NBay says:

      There was some debate here a while back over whether you were male or female…you might want to clear that up. Also you evidently missed my post about DolchstoBlegende….you might want to pick a more correct historical insult. Zimbabwe appears popular lately……
      And no, I haven’t forgiven you for saying I am like a “pesky ex-wife”.

      • Depth Charge says:

        I think your drug-induced haze is getting the best of you again.

        • NBay says:

          Yeah, I do have a tough time turning everything into simple black and white….the grey haze…….

  46. 8_mile_road says:

    I have a question, and hopefully it doesn’t sound stupid to readers:
    Is everything cheaper during an economic depression / recession?

    Last recession was in 2008. I was in college, so I didn’t pay too much attention about the prices. In year 2010-ish, I remember the commercial from Subway

    “Five, Five dollar, Five dollar footlong”

    Will it happen again?

    • drifterprof says:

      Prices could also increase in a recession, which is referred to as “stagflation”:

      “Stagflation refers to an economy that is experiencing a simultaneous increase in inflation and stagnation of economic output…first recognized during the 1970s when many developed economies experienced rapid inflation and high unemployment as a result of an oil shock.’

      “The prevailing economic theory at the time could not easily explain how stagflation could occur. Since the 1970s, rising price levels during periods of slow or negative economic growth have become somewhat of the norm rather than an exceptional situation.”
      (Investopedia)

    • COWG says:

      “ I have a question, and hopefully it doesn’t sound stupid to readers:
      Is everything cheaper during an economic depression / recession?”

      Actually, not stupid…

      Many, many things can become cheaper for you if you can negotiate…

      Especially, if you have cash…

  47. drifterprof says:

    Inflation in Thailand is about 4.5% year-on-year, and USD is up about 3.5% year-on-year against the Thai baht (THB).

    So, in converting USD to THB, I’ve lost about 1% buying power year-on-year for general expenses. But one can buy fresh produce and local market food (grilled fish, etc.) that has minimal price inflation. And like in the U.S., doing your own cooking avoids much of the inflation which is concentrated in pre-processed, prepared, and restaurant foods. Eggs (bought from local vendors) have actually gone down a little bit year-on-year.

    Also, in Thailand, one can save a lot in categorical areas such as medical services, which are often about 25 to 30 percent of U.S. costs. Another plus is no property tax, and no home insurance (cement walls, and cheap labor to rebuild if something goes wrong).

    Automobile fuel increases are hurting, like in the U.S., as is electricity (air conditioning). But overall, with a couple of years living costs converted to Thai baht, I have much less worry about inflation than living in the United States.

  48. Tyler says:

    I see a lot of gloating here in the comments. The market has not been living in reality for a long long time. So far I have seen more talk than action from the fed. Sure smells like this could be it, but I have thought that in the past only to see more majic tricks. Hope you all are right this time…. we shall soon find out.

  49. Franz Beckenbauer says:

    Gold is doing its job like it did in the last 5000 years. Bitcoin and the other gaming apps masquerading as money not so much. Patience is rewarded. Soon – very soon – you will see these kind of charts relating to the precious metals every day. BofA is short hundreds of million ounces of silver. 2008 it was Bear Stearns that went down in a leveraged silver short. The buck has been passed. 25-26$ an ounce will be the abyss. Silver will be doing the Nickel thing. Get your popcorn ready.

    Once the index funds start selling – because they are just robots buying on inflows selling on outflows – it’s over. That guy Michael Burry predicted that – again. Nobody listened – again. Then the algos will go nuts. That’s 70% of the market. Next week might do the trick already.

    For those who did not like gold at these prices, it’s too late. It’s unobtainium now. You have been warned. Karma is on you.

    • David Hall says:

      My gold in vault is sideways. My platinum in vault is going nowhere. The two vacant lots I bought last year in case of hyperinflation are up.

      • Old Ghost says:

        Since we are going down the slippery slope of gold, and price inflation of “real assets” like homes and farmland, this might be worth a mention.

        In Feb. 1960 my brand-Spanking new 3 bedroom ranch in fly-over county cost $16,500 (about 471 ounces of gold).

        When sold in 2019 it went for $169,000 (about 106 oz gold).

        So while it increased more than 10 fold in fiat dollars, the actual price in gold declined sharply.

        Stefan Zweig, writes in his autobiography that at the height of the 1923 German inflation US$100 could buy you a decent town house in Berlin. It might have been several hundred trillion German paper marks, but at the time US$100 was the equivalent of less than five ounces of gold.

        Any investor in real assets such as real estate and farmland must be prepared to look through a collapse of financial asset values and a currency crisis.

        Just food for thought. I thought that in 1960 the Italian lira was crap when I could exchange a single US$ for 624 lira. But today the US$ is almost a third of the way to that rate (in terms of gold). And the Italian lira does not even exist any more.

        • Franz Beckenbauer says:

          When i was in St. Petersburg/Russia a few years after the collapse of the USSR, the ruble was still there, but everybody wanted US dollars for barter or silver or gold for bigger transactions.

          That was a life-changing experience for me. As Goethe wrote, travelling educates you. People will find a way. It will be interesting, but best watched from a safe distance.

    • Tony says:

      oh, look! A gold enthusiast. A shiny rock collector. I’m sorry, sir, but you are at the whim of the govt regulation. They can deem gold illegal again. I respect that you want to try and predict the future with wishful thinking, but you aren’t taking into account politics.

      • Franz Beckenbauer says:

        Looking at the people in the “government” today-and that goes for most countries – they cannot even “regulate” their stupidity any more. That’s a non-issue. They won’t even know what hit them.

        After the CPI release, the music in the MBS market stopped. Just for a moment, but it stopped. Completely. It’s far too late to “regulate” anything.

        These doofuses have no clue.

      • Old Ghost says:

        The regulated electric and gas utility serving Wisconsin and Michigan have their public relations people going on the news to announce there may be roving blackouts this summer.

        Can someone please explain to me how their cryptos will work when the electric grid shuts down ? ? ? ?

  50. Crush the Peasants! says:

    75 to stay alive?

  51. marbles says:

    So, what do you do with a sizeable IRA? I’m told it’s impossible to open a Treasury Direct account in an IRA. I will not invest in stocks, except for XOM which I’ve had for over 40 years.

  52. Michael Engel says:

    1) During the dotcom boom speculators from all over the world
    were buying USD to spend on the rising Nasdaq.
    2) After the peak there was the first initial bust. The Nasdaq real plunge started in Aug 28 2000.
    3) DXY weekly was rising first due to the dotcom bubble, thereafter
    due to the panic, during the bust.
    4) DXY first lower high was in Jan 28 2002. Thereafter a plunge along with
    the Nasdaq plunge to nadir in 2008.
    5) If u sold a house in China in 2009 u got plenty dollars to buy a house
    in SF or Vancouver, Canada.
    6) The global smurf countries RE is booming, but in dollar terms they deflated, because USD was up 50% between 2008 and 2022. During the next panic, whenever it comes, smurf RE will further decline, first due to
    rising dollar, thereafter due to deflation.

  53. Michael Engel says:

    7) In 2010 we could have bought less from China and Vietnam with the weaker dollar, but today we can buy more, with the stronger dollar, and that’s exactly what we are doing, causing a global inflation.

  54. Michael Engel says:

    8) FX matter very little. What really matter is the rising dollar. The rising dollar is voice frequencies. FX is the high frequency that transmit our voice to the world.
    9) In Jan 28 2002 DXY was rising for 2 years after the the Nasdaq peak and 1.5 year after the Nasdaq highest low, after the last LPSY, that led to the plunge.
    10) NDX bottom was reached in 2002, but the dollar plunge cont until
    2008.

  55. Eferg says:

    Maybe it is just me, but the phrase: “Purchasing Power of the dollar goes WHOOSH” has a more positive connotation than a negative one.

    Wolf has recently coined some terms for stock price collapse that might be more appropriate. If those are not suitable, I nominate the term “ka-flush”.

    • Wolf Richter says:

      In my official unabridged Wolf Street dictionary, WHOOSH means “to go by fast with a loud rushing noise.” No indication of positive or negative.

      • NBay says:

        Whoosh just got used today by a financial writer at Yahoo in his article title. Think he said it’s a sucking sound.

  56. Brent says:

    When inflation is rampant only Lunatics will survive 😁

    I did not check my Merriam-Webster but IIRC “Lunatic” is an astronaut flying to the Moon steering spaceship with diamond hands.

    “Join the vibrant Terra ecosystem
    And #LUNAtic
    community.
    Terra’s ecosystem is booming.”

    This is neither “The Onion” nor “Babylon Bee”.This is not Ben Harrison cartoon.It is Terra 2.0 official website which appeared 3 days ago.

    As you probably know “stablecoin” Terra 1.0 plunged from $120 to 1 nano- (or even femto-) cent and died despite $60B resuscitation effort.

  57. dishonest says:

    Having a field day generally implys enthusiasm.
    The FED is only grudgingly being dragged into actions it abhors.

  58. DV says:

    Looks like we are going in stagflation scenario akin 1970s.

    Lots of dollars were printed then to finance Vietnam war. And at some point America’s trading partners said enough is enough, we are not going to finance your economy and your wars any longer. Arabs just strengthened this message with the oil embargo.

    This is what is happening today. Biden may complain of ‘Putin’s price hike’ or ‘Putin’s Tax’, but the reality is that too much money has been printed and the trading counterparts just want the price to reflect that monetary base shift. So, for oil, for instance, the bottom is no longer in 30 to 40 range, but in 50 to 60 range and the peak is probably somewhere around 200.

    • Swamp Creature says:

      “Looks like we are going in stagflation scenario akin 1970s.”

      I think we are already in stagflation worse than the 1970s.

    • NBay says:

      A very good post, IMHO, although I am far from financially literate…I got minors in Soc and Chem rather than Econ.

      BA Biology plus some “grad work”.
      I just choose to get my financial info here.

  59. Harvey Mushman says:

    I thought this post was really good. It’s a really good summary of QT (or at least one that I can understand). There was no REPLY button to keep it going, so I tacked it on here. Don’t know if I am breaking any rules of posting etiquette, if I am, 1000 apologies.

    Does somebody have an answer to the question at the end of the post?

    Thanks

    Propheticus
    Jun 11, 2022 at 11:05 am
    Johnny5,

    Having read your post, I have seen the light! And I know Wolf has written and commented regarding the effects QT will have on the money supply.

    So, if I may summarize:

    As the Fed engages in balance sheet reduction, new treasuries will have to be funded with existing money and by the markets, not the Fed. And with balance sheet reduction, money is incinerated.

    But now, another question:

    If the money supply is shrinking due to QT, where does the money come from to pay the interest on newly-issued treasury securities?

    • Wolf Richter says:

      1. There are $2.1 trillion in excess liquidity stuck in RRPs.

      2. There are about $18 trillion in deposits are commercial banks. Some of this is excess, as you can tell by the reserves account at the Fed, now at $3.3 trillion, much of which is excess liquidity. Banks have so much cash from deposits they don’t know what to do with it.

      3. After 12 years of money printing, there is a huge amount of liquidity everywhere that is trying to find a place to go, which is in part why we have this inflation.

      4. to now correct your question and then answer the corrected question directly: You’re really asking where does the GOVERNMENT GET THE MONEY to pay the interest… Answer: the same way the government gets all its money: taxes, fees, and borrowing. Nothing changed.

      • Propheticus says:

        ” Answer: the same way the government gets all its money: taxes, fees, and borrowing. Nothing changed.”

        When you put it like that the answer seems so obvious. Taxes and fees I understand, but how does the “GUVMINT” continue to borrow and pay interest when the money supply is either fixed or shrinking? And the cost of money is rising, rapidly.

        I do read the articles and this one is about the latest CPI print so I’ll leave it at that and stay tuned and watch all this unfold in real time. Thanks again, Wolf.

        • Wolf Richter says:

          Look, yield solves all problems. If the yield is high enough, there will be investors, including me, backing up the truck and buying Treasury securities. That’s what yield and markets are for. If demand slows, yield goes up until there is enough demand. It works just fine if you let it work.

        • Johnny5 says:

          I think this is how it works:

          Interest expense on treasury securities is just another form of government spending. Each year, when spending exceeds revenues (runs a budget deficit), the government is adding money to the economy. However, at the same time, the government issues debt in the amount of this deficit. The debt issuance effectively soaks up this net increase in the money supply.

          When the Fed purchases these treasury debt securities as part of QE, it is adding to the money supply (“monetizing debt”).

  60. Michael Engel says:

    The gov can fight inflation by :
    1) Raising interest rates faster.
    2) Suck more than $2 Trillions of liquidity from the banks, increasing RRP.
    3) A weaken dollar will limit our ability to buy stuff abroad, to import.
    4) Reduce tariffs on certain categories.

    • SoCalBeachDude says:

      The US Dollar is now over 104 on the DXY and will continue to strengthen as yields (interest rates) rise on US Treasuries making imported goods consistently cheaper over the rest of this year.

      • Michael Engel says:

        1) If Madam ECB surf on higher deposit rate DXY will decay. DXY BB #1 : Jan 26/27 2015, 95.85/ 93.955. Options.
        2) DXY down to BB #1 upper channel : after a round trip to : 93.
        3) DXY down to BB #1 support : after a round trip to : 87-88.
        4) DXY drop > BB #1 : after a round trip to : 76-80.
        5) In order to move higher DXY weekly must close > May 9 high.
        6) Higher interest rate might benefit IWM at the expense of the FANG.
        7) IWM : NDX rise is a good thing. Allocating dollars to smallness, away from MSFT, AAPL, GOOGl will send the dollar down.

    • unamused says:

      5) Taking money away from the general population to reduce demand and giving it to the billionaire class to increase supply.

      You never heard of serfs or slaves complaining about high prices, now did you?

  61. Thomas Pained says:

    I’m a travel nurse working in the ICU in north east Arizona. Inflation is real and sapping my profits on a daily basis. I make a pretty good income, but other coworkers don’t make as much. They are stating that if gas prices increase much more they will not be able to afford to go to work. Most drive trucks, so that expense is substantial to them. Last month my cost to fill up my Toyota Camry was $60.00. Now it cost $84.00. My breakfast burrito went from $2.99 to $3.99. My hotel room went from $330 a week for three nights to $460. The hospital renegotiated my contract to -$1,300/week.

    These costs really do take a bite out our income. This has not peaked at all.

    There are also very serious shortages in the hospital. Currently there is a shortage of contrast dyes for CT scans, CT surgeries (cardiac caths), and Interventional Radiology procedures. We are constantly short of Normal Saline flushes, many drugs are in short supply too. If you have home medications that are of importance I suggest to stock up on them NOW. This fall is when it will get very serious.

    There is also an extreme shortage of nurses, especially ICU nurses. In the ICU they are pushing heavily for nurses to take 3 or 4 patients that are in critical condition. On a Med/Surg floor they constantly give nurses 6 to 7 patients. God help those who enter the hospital.

    I worked the entire Covid pandemic in the ICU along with many others, and I can tell you we are burnt out. Many nurses are leaving. I, myself, would like to leave the profession.

    • Harvey Mushman says:

      I hope you don’t leave the profession. I sure hope I don’t have to go to the hospital anytime soon!

      Thank you for your service.

    • unamused says:

      The Medical Industrial Complex thanks you for your contribution to its record profits.

      Undoubtedly, the US healthcare system is bedeviled by greed, with drug companies, device manufacturers, hospital organizations, physician groups, and insurers scrambling to grab hold of a slice of the more than $3 trillion the US spends on medical care each year, according to Forbes, which assures you that greed is not the problem. No indeed. It’s the way greedy people have gamed the system to serve their greed.

      Now if you had gone into the business of bleeding people dry (so to speak) you wouldn’t have these problems.

    • Brent says:

      RN->NP

      Thats the only way to go.

      If you work at the hospital you are a Pyramid Builder.Where Money rolls uphill and Sh..t rolls downhill.CEO’s of hospital chains are pulling $50-60M per year, hospital CEO’s are making $10-15M…

      As a RN you are closer to the bottom.Even where celestial MD’s end multiple layers of administrators begin.

      And all of those hospitals are tax-free non-profits, displaying pics of St Luke or St Vincent, in other words – Saints taking care of the Sick & Infirm.

      F… them all.And f… health insurance too.

      If I need something I print out relevant pages from Cecil-Goldman Handbook of Medicine 36th edition (3,500 pages of Medical Wisdom in total) then visit my beloved NP. She can write prescriptions too, should the necessity arise.And I pay cash.

      If I will ever need medical tests I can send blood and other samples directly to the laboratory bypassing the f… hospital.Because hospital will do exactly the same then slap 5000% markup on the price of tests.

      Also I visit my favorite dentist about once in 3-4 years.Prices during the past 25 years budged upwards but not by much.2 months ago I paid $60 for the simple filling.6 years ago paid $150 for the root canal (2 visits).Materials are the same,space age technology is the same, but with the right approach and payment in cash prices differ by the factor of 10 😀

    • Gomp says:

      My brother, Vietnam Vet Ranger went to va hospital. He needs CT scan pronto. VA doesn’t do CT scans? WTF? surrounding hospitals said it would be 3 months because lack of dyes (made in china). Again, WTF?

      • 91B20 1stCav (AUS) says:

        Gomp-dunno which VA Hospital (sure it isn’t only a clinic?) you refer to. No referral to one that does, even if travel’s involved?

        (Just had an MRI, myself, at the Ft. Miley SFVA yesterday, dye included…learned that the expanded VA clinic now under construction in Santa Rosa will have its own MRI and Radiology facilities).

        hoping for better for your brother.

        may we all find a better day.

  62. Augustus Frost says:

    Maybe, but inflation is substantially psychological. It isn’t mechanical where pulling your recommended lever “A” causes outcome “B”. That’s essentially how much of conventional economic theory works.

    The reason much of conventional economic theory fails to describe real world behavior is because people aren’t robots always behaving as the models predict.

    That’s how we get supposed “Black Swans” which are supposedly a “surprise”.

    • unamused says:

      “Maybe, but inflation is substantially psychological.”

      And here I thought it might have something to do with rising prices.

      My mistake.

      • Tony says:

        It is. Look up loss aversion in economics. It’s high school economics. You are fear mongering.

        For example…..we went to the store last night….we saw red meat and pork were expensive….but also saw that chicken breast was crazy cheap and on sale.

        Another example…you could use travel/oil. Don’t travel as much. Use public transportation. There’s always options. Stop being so scared to use your brain.

        • unamused says:

          “You are fear mongering.”

          So for me to suppose that inflation has something to do with rising prices constitutes fearmongering.

          How naughty of me.

          Inflation is just in people’s heads and there really is no such thing as inflation. Give me a little time to memorize that. I’ll get the hang of it eventually.

        • Tony says:

          I literally just said chicken breast is cheaper and public transportation is way cheaper. Please read.

          Yes, prices go up….but deals are there if you look. Please stop being a pedant.

        • unamused says:

          “Please stop being a pedant.”

          Aww, you said please. Would you stop blithely strolling into the reductio ad absurdum if I said please?

        • unamused says:

          “I literally just said chicken breast is cheaper and public transportation is way cheaper.”

          And if that’s not cheap enough people can just stay home, live on dates on the calendar, and beg his lordship not to confiscate the entire crop again this year.

        • Gomp says:

          Googling Rural public transportation now.

        • NBay says:

          Let me save you the time Gomp. Are Gualala and Point Arena rural enough for ya? And damned slow road, that Hwy 1.
          I was raised there and can assure you it is VERY VERY RURAL….however we were all “coastal elites”….by location only.

          Also, Tony, you DO NOT want Unamused to use even 50% of his brain, trust me.

  63. DG says:

    Wolf, excellent post as always.

    Question, related to used vehicles: Do you think as peoples’ car leases come up for renewal and they face higher interest rates when they renew their leases, that many people will return their cars because it will be too expensive now, especially if we’re in a recession? If that happened, might we have a wave of returned used cars and inventory would jump and prices drop? I’m asking because I’m thinking about buying a used car in the next year, and I figured I should wait and see if this happens.

    • Wolf Richter says:

      This is the craziest market in terms of pricing that I’ve ever seen. But here are some thoughts.

      With leases, there is this: The buyout prices are determined at the beginning of the lease, and if you leased your vehicle two years ago, you may find that the buyout price is far lower than an equivalent used car, after the spike in prices. So you would buy the vehicle and either drive it, or sell it for a profit. So people in this situation would be crazy to return the vehicle and then buy a new or used vehicle, without having taken the profit.

      I don’t think that the high interest rates impact the decision whether or not to return the vehicle — but they do pressure sales volume and possibly prices. That decision whether or not to return the vehicle is impacted by the lease buyout price.

      Given the crazy spike in prices, and now the drop in sales volume, and the higher rates, it seems likely that prices will eventually have to come down. This may happen when inventory piles up. But inventory, while plentiful, hasn’t piled up for now, and dealers may not see the need to cut prices for now.

      I will have the used vehicle inventory data next week, so keep an eye out for the article.

      • DG says:

        Excellent.

      • RockHard says:

        To throw something on this, my friend talked about turning in a 3 year old lease. Payoff 19k, KBB says about 27k resale value. Lender tells dealer it’s $27k to payoff residual be damned. Like they’re forcing you to buy out. I can’t understand who would turn in a 3 year old lease right now

  64. Tony says:

    Core inflation has been falling. I’m not sure why you didn’t mention that. It has been slowing for the past two months.

    • unamused says:

      “Core inflation has been falling.”

      If people would just stop spending money on what they need to survive there wouldn’t be a problem.

      • Tony says:

        You are so dramatic.

        • Wolf Richter says:

          Tony,

          In terms of core CPI (last chart in the article):

          In the article, if you actually read it, you will find that I gave you:

          1. Total CPI
          2. Services CPI
          3. nondurable goods CPI (food, energy, supplies)
          4. durable goods CPI.
          5. core CPI

          Since you didn’t pay attention, you didn’t see that core CPI dipped because DURABLE GOODS CPI dropped a lot, and I showed in a chart how much nondurable goods dropped.

          So please, if you don’t pay attention, at least don’t let everyone know that you don’t pay attention.

        • unamused says:

          “core CPI dipped because DURABLE GOODS CPI dropped a lot”

          And durable goods cpi dropped because consumers have shifted spending to services, now that there are shortages in durable goods, like vehicles, appliances, and beer mugs. But overall inflation is still there. It’s just moving around, looking for the best place to get comfortable and hang out.

    • rojogrande says:

      Core CPI is addressed in the final section of the article.

      • Wolf Richter says:

        rojogrande,

        The correct term here is “RTGDFA all of it”

        :-]

      • Tony says:

        I never said core inflation wasn’t addressed. I simply said it being down two consecutive months isn’t being addressed. You can see if in the charge how the little red line is down if you zoom in.

        It’s like saying the S&P has been in bull market for 100 yrs without acknowledging the recent drop.

        • rojogrande says:

          Core inflation being down two consecutive months was addressed. Before the graph on core CPI the article specifically states: “Year-over-year, it rose 6.0%, the third-worst since 1982, behind March and April:”

          Obviously, that means core inflation was better in May than March and April. Of course it’s possible April could have have had worse core inflation than March, but the graph clearly shows otherwise. The two month improvement in core inflation was addressed, albeit by pointing out it is still the third worst reading since 1982.

  65. Jdog says:

    The CPI is a joke. It is just another government lie. Inflation for the average working American is closer to 20% than 8.6% because of what they spend the majority of their income on.

    The government is now absolutely incapable of telling the truth about anything….

    • Depth Charge says:

      I’ve lost count of how many items are up 40%+ in price. It is difficult to find items that have only increased 9%.

  66. JJ says:

    Hi Wolf.
    If you catch this post & you have time, can you please explain whether you believe noted financial guru Lyn Alden’s suspicions are correct that M2 money supply rarely contracts, and thus could mean any QT program won’t last long if historical patterns hold up?
    I’m betting it’s a 50/50 chance the fires of financial hell will burn too hot for Jerome to continue QT once the balance sheet goes down to $7-7.5 trillion (still way above pre-pandemic $4 trillion).
    Thanks if you have time, or anyone else wants to chime in I’d be happy to read that too.

    • JJ says:

      By the way, it’s worth noting that QT hasn’t even officially started yet in earnest, as the first securities beyond June’s pre-set limitations don’t mature until June 15th.

    • Wolf Richter says:

      Folks can believe whatever they want.

    • sunny129 says:

      JJ

      Stocks will keep on sliding down with repeated bounces(BEAR traps)

      Stocks are greatly influenced by LIQUIDITY and Investor SENTIMENTS.
      Rest is secondary including earnings! Have you ever experienced a protracted, secular BEAR before?
      Just Watch!

  67. What percentage of inflation is due to too much money supply and what percentage is due to attenuated supply of products due to snarled supply chains?

    • Wolf Richter says:

      Inflation is at least in part a psychological phenomenon. When people expect inflation and see inflation and act to front-run inflation, you will get more inflation. The only thing that stops inflation is a buyer’s strike, meaning a plunge in demand. This buyers’ strike can be imposed by much higher interest rates (and the subsequent market sell-off will also take a bunch of demand off the table).

      What kicked off this inflation was money printing (created this instant wealth) and the stimulus spending, all of which caused a huge burst in demand for goods, as documented on this site a gazillion times, and money just didn’t matter anymore. This inflation has now infected services, where it is really hard to dislodge.

      • Nathan Dumbrowski says:

        Sounds like the big Hotel chain has the same mindset…
        Despite high inflation, a softening economy, and fears of a recession, the hotel industry is not seeing any slowdown.

        It’s the exact opposite, with Hilton CEO Chris Nassetta predicting that the hotel chain will “have the biggest summer we’ve ever seen in our 103-year history this summer.”

        • sunny129 says:

          Just look at the charts of H, HLT and MAR

          They will tell you the whole story and not wishful thinking of CEOs!
          Checkout cruise lines. LA hotels and airlines (JETS)
          going
          All going down!
          GFC will look a trial run!
          Good luck to those who bought Calls on these, while the PUTS will reap profits!

      • Tony says:

        You are disregarding the 2nd type of inflation….which is demand pull inflation. Cost price push inflation (money printer) while closing down factories (demand pull inflation) Two types of inflation simultaneously.

  68. Damus says:

    I came in USA 10 years ago from Eastern Europe. The gas was over $4 then, still cheaper than home. I’ve seen inflation and hyper inflation as well. Hopefully the dollar will handle the situation now, otherwise the whole world goes to hell. Just wanted to mention one thing, it’s connected with the housing bubble as well – in my city nobody rents, we all own our homes, sometimes more than one. And we were all poor.

  69. If you double the money supply you have inflation, until you remove that money from the economy you will still have inflation, the FED knows this, so why were they saying it’s transitory?

  70. The Bob who cried Wolf says:

    California controls rent increases by capping the rent increase to CPI. Of course rents are holding back the actual cpi because it’s regulated by an index its part of. Rents on new to market places are easily 10-15% more than the year before.

    • Wolf Richter says:

      Some cities have long had their own rent control laws. In San Francisco, rent control only applies to multifamily apartment buildings that were built before 1978. All other units are exempt, which means that anything built after 1978 is exempt, any single-family house of any age for rent is exempt, and any condo for rent (lots) is exempt, etc.

      Then there is now a state-wide law that limits rent increases to 5% plus a local cost-of-living adjustment of no more than 5%, for a maximum increase of 10%.

      Rent control — city or state — applies only to apartments with tenants. Once the tenants leave, the apartment goes back on the market at whatever rent the landlord feels they can get. So the “asking rent” will always be free from rent control. Rent control kicks in after the 12-month lease expires, and if the tenant decides to stay.

      All this means that rent control has less impact on overall average rents than you might think.

  71. Nate says:

    Looking at the CPI by category, it’s remarkable how high energy and food are to everything else. Durables starting to tick down, which means inflation won’t be “transitory” even if China comes back on line. Plus, they’ve reportedly are seeing a bit of demand destruction as global firms are working on better diversifying their manufacturing.

    I guess our inflation going forward dictated by UKR war (impacts both food and energy) and OPEC declining to pump to make up for it? I’m surprised the Saudis are playing it this way because this is throwing a lot of encouragement to non-OPEC suppliers and EV, which were a concern in the past. Godsend for the Iranians, Venezuelan, and Russians.

  72. WolfGoat says:

    Truflation dot com has the CPI at 10.6% so I don’t necessarily believe that 8.6% number from the Gov’t. Sounds like we could be running 2% hotter than what is being reported.

    Wolf, it would be interesting to see how the Truflation number maps to the official CPI over time.

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