Fed Stops Dillydallying. So OK, Maybe No Softish Landing. Markets on their Own

This is fast moving now, but the Fed is still pouring fuel on the fire.

By Wolf Richter for WOLF STREET.

Struggling to re-establish its shredded and ridiculed credibility as inflation fighter, the Fed today concluded the most hawkish Fed meeting in decades. Following the CPI report last week that apparently had blown all doorknobs off inside the Fed’s Eccles Building, everything got moved higher by a bunch: Actual policy rates, projected policy rates by the end of 2022 and 2023, projected inflation rates, and projected unemployment rates. The only thing that got lowered was the projection of economic growth.

The FOMC voted to hike all policy rates by 75 basis points, the most hawkish move since 1994, with only one dissenting vote (by Esther George, who wanted a 50 basis point hike):

  • Federal funds rate target range, to 1.50% – 1.75%.
  • Interest it pays the banks on reserves, to 1.65%.
  • Interest it charges on overnight Repos, to 1.75%.
  • Interest it pays on overnight Reverse Repos (RRPs), to 1.55%.
  • Primary credit rate it charges banks, to 1.75%.

“Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common,” Fed Chair Jerome Powell said in his statement at the press conference. But he said that at the next meeting in July, another 75-basis point hike might be on the table.

And the Fed will be “looking for compelling evidence” that inflation is moving down before “declaring victory”, Powell said. This phrase, “compelling evidence,” has been cropping up a lot recently among Fed governors. They’re looking for more than just a little squiggle in the line before backing off.

Expects much higher policy rates, much faster.

This is now fast-moving. Today’s “dot plot” in the Economic Materials showed that all 18 FOMC members who participated in the meeting, expected the Fed to raise its federal funds rate to at least 3% by the end of 2022, with 13 members expecting higher rates. The median projection jumped to 3.4%.

The Fed would have to raise its policy rates by another 1.75 percentage points to get to the median projection of 3.4% by the end of this year.

The median projection for the policy rate at the end of 2023 rose to 3.8%. For 2024, it dipped to 3.4%.

These 3-4% policy rates were unthinkably and impossibly high just a few months ago. It was something the Fed would never ever and could never ever do because of whatever. Now they’re on the table.

Quantitative Tightening (QT) has kicked off.

QT has started this month. The plan was laid out in May. The Fed confirmed today that it is proceeding according to plan. During the phase-in period of June through August, the Fed caps the amount of securities that can roll off the balance sheet at $47.5 billion per month ($30 billion in Treasury securities, $17.5 billion in MBS). Starting in September, the caps will double to a total of $95 billion a month.

If not enough Treasury notes and bonds mature during the month to hit the cap, the Fed will make up the difference by allowing short-term Treasury bills to mature without replacement. In other words, the cap is essentially a fixed amount that will come off the balance sheet.

The Fed will not sell securities outright at this point, but will allow them to mature without replacement. Most of the reductions for MBS will come from the pass-through principal payments that are forwarded to MBS holders when mortgages are paid off (when the house is sold or the mortgage is refinanced) or are paid down through regular mortgage payments.

Still pouring fuel on the fire.

With the Fed’s target range for the federal funds rate at 1.50% to 1.75%, the effective federal funds rate (EFFR) will be around 1.6% going forward.

But CPI inflation is now 8.6%, and the “real” EFFR is now a negative 7%, which represents the amount by which the Fed has fallen behind inflation. Its slowness in reacting to inflation is unprecedented in modern times:

Kiss that “Labor Shortage” goodbye.

Higher interest rates are supposed to slow demand, which is supposed to remove some fuel from raging inflation. As a consequence of the reduced demand, unemployment is expected to tick up.

The Fed raised its projections for unemployment rates, with the median projection rising from 3.7% at the end of 2022, to 3.9% at the end of 2023, and to 4.1% at the end of 2024.

This is the first time in this cycle that the Fed is projecting that unemployment will increase as a result of its crackdown on inflation. In the May meeting’s statement, the Fed still expected its magic to bring inflation down to its target of 2%, while the labor market would remain strong. That line went out the window in today’s statement.

And Powell confirmed in the press conference that the Fed is unlikely to be able to get inflation back to 2% without deliberately slowing the economy and raising unemployment.

Rising unemployment would obviously end the “labor shortage” and untangle some of the inflationary and supply-chain issues that came with it.

Expects higher inflation rates.

The Fed has been ridiculously far behind reality over the past 15 months in its projection were inflation rates would be. But it has been raising them, and today it nudged them up further. Its median projection for the PCE inflation rate rose to 5.2% by the end of 2022. But it’s still hoping that by the end of 2023, PCE inflation will be down to 2.6%, and that by the end of 2024 it will be down to 2.2%.

But this projection too could go out the window as “participants continue to see risks to inflation as weighted to the upside,” Powell said at the press conference.

Expects economic slowdown: Avoiding a recession “not going to be easy.”

The idea is to slow demand growth by some amount, just enough to bring down inflation, but not enough to trigger a recession. But achieving that soft landing under current conditions “is not getting easier” Powell said.

“What is becoming clearer is that many factors that we don’t control are going to play a very significant role in deciding whether that’s possible or not,” he said. “It is not going to be easy.”

“The events of the last few months have raised the degree of difficulty” of getting that soft landing, he said. “There is a much bigger chance now that it will depend on factors that we don’t control. Fluctuations and spikes in commodity prices could wind up taking that option out of our hands.”

He thereby acknowledged implicitly that the risk of a recession would be the price to pay for bringing this raging inflation back down.

Expects markets to figure out their own landing.

After past sell-downs of 20% or so of the S&P 500 Index, the Fed would start putting phrases into its communications that indicated some sort of pivot. This was the Fed put. But that too has gone out the window. The S&P 500 Index is down 21% from its high, and the Nasdaq is down 31%, and yet there was nothing in any of this that indicated that the Fed is worried.

On the contrary. The market sell-off, if sustained, and sustained price declines in the housing market, could do some of the heavy lifting for the Fed, so that the Fed might not have to raise its policy rates toward the rate of inflation, or even above the rate of inflation — above the red line in the EFFR-CPI chart — to knock down inflation, which would be a real rug-pull for the economy. Seems markets are going to have to figure out how to stand on their own two feet amid rising interest rates and QT.

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  297 comments for “Fed Stops Dillydallying. So OK, Maybe No Softish Landing. Markets on their Own

  1. Tom10 says:

    What a 1 to 2 punch.
    Powell and the bidas touch.

    • Raj says:

      Fed can fool all the people some of the time and some of the people all the time. Fed was trying to fool all the people all the time.

      End Result: Complete loss of credibility!

    • VintageVNvet says:

      more like ”the bidet touch”,,, eh?
      same place, ”BEHIND” and still full of poop though, so def need more higher interest rates sooner to accomplish any needed cleaning out

  2. Jay says:

    “These 3-4% policy rates were unthinkably and impossibly high just a few months ago.”

    Then the Fed is totally clueless. A monkey could have determined the FFR would need to be above 3% by the end of the year, while any backseat economist knows it should already be at 4%.

    “But it’s still hoping that by the end of 2023, PCE inflation will be down to 2.6%, and that by the end of 2024 it will be down to 2.2%.”

    Sounds a lot like that “transitory” thinking we heard a lot about last year. June inflation will most certainly tick up to 9%. Maybe by then, the Fed will have to consider a 100 basis point increase. Or who knows, they’ll pull out the bazooka and go ahead and raise rates to 4%. With inflation approaching double digits, I don’t see how in the world the FFR shouldn’t be at 5% today with 100 basis point increases on tape for the remaining meetings.

    • Wisdom Seeker says:

      We need a serious discussion about how inflation is actually defeated – which parts of the CPI can we slow down – but this is only just entering the Overton Window.

      1) Housing prices have to come down (~30% of CPI) no matter what. That requires higher interest rates to shock the market (done…) and a bit of time for the data to catch up to the market and for the Fed to recognize it. In the Great Recession that process took about a year.

      2) Energy prices – these are going to be hard to stop, because demand massively outstrips supply… and supply requires infrastructure that takes a long time to build, but isn’t even being started because of global warming concerns. Toss in Russia/Europe, Saudi Arabia, etc. and there’s not much help here.

      3) Food prices – dependent on energy prices. The wiggle room for consumers is in “food away from home”, which is more of a luxury choice and has higher wastage too… but restaurants don’t have enough margin to cut prices meaningfully and stay in business, unless they can pay lower wages?

      4) Employment – there’s a lot of chatter about layoffs in marginal businesses, but still a ton of job openings in the more-stable parts of the economy. I see more job-churn but I don’t think we see a meaningful rise in unemployment for a while yet. In the meantime wages are going to continue to go up, and that will keep driving up prices for many services. It could be a year or more before unemployment dents wages and spending enough to slow demand in a way that slows the inflation enough for the Fed to notice and react.

      5) Vehicles – Maybe? Huge pent-up demand due to the ongoing supply chain issues (geopolitical trade wars), but consumers have revolted against high prices on gas-guzzlers. Work-from-home doesn’t seem to be increasing further? Interest rates will help a bit to cool demand on the margins, maybe enough to put a dent in CPI for vehicles?

      6) What else is a meaningful fraction of CPI and how can the Fed bring it down?

      Basically I think this is going to take while longer, since housing costs need to come way down for any “inflation-killing” policy to work. Interest rates will have to come up more “just to be sure”, and given the lags in the way data gets reported and digested into policy changes, a Fed overshoot is inevitable.

      • Greg says:

        So, banana-republic Jerome is going to continue to rob you for years via inflation!

        • Greg says:

          Why aren’t the bond rating agencies downgrading American and Western sovereign debt to junk status as they are doing an inflationary default! Oh yeah… they under threat of dismemberment!!!! Oh well they can still do a number on Turkey and Argentina!

        • Augustus Frost says:

          Bond ratings are a lagging indicator. Not even worth using in anyone’s financial decisions.

          The credit and currency markets will tell you when someone is in trouble. Look at market interest rates, FX rates, credit spreads, credit default spreads, etc.

        • kam says:

          Interest rates set by edict (the Fed) and money/credit creation (the Fed) was always designed to steal from the poor to enrich the Rich. Today’s billionaires, politicians and government employees will not be paying today’s debts – it is saddled on the unborn.

      • GC says:

        My clients, all big tech across healthcare, it, industrial automation have started their spending and hiring freezes. Deals in the pipeline are drying up. Those “open positions” are gone. Adjust accordingly.

      • Augustus Frost says:

        The bluntest instrument to reduce aggregate demand is cutting government spending.

        No, I don’t think it is going to happen and most people don’t even want it, not for their pet programs.

        • kam says:

          Government Employees never see a Recession. The fattest leeches are the important (bought) voting block. It is everyone else that pays the tab, until there is no one else left to pay.

      • Bob M. says:

        Sound money is the only real answer. But sound money “robs” the state of its power, so there’s no way the real solution will get implemented any time soon.

        • kam says:

          Sound Money?
          MMT is based on “Maff is so hard”.
          Like arsenic, excess money and credit doesn’t kill the real, beating heart of an economy until many years of internal destruction later.
          Excess money/credit destroys true price discovery, which kills an economy. Including many viable businesses that didn’t have the political channel to the feeding trough.

      • historicus says:

        We dont just need 2% inflation now…we need a rollback of the 8% spike. The citizenry and small businesses cant handle a baked in 8% gain like this…

      • Jay says:

        In one short word, it’s called a “recession”.

        The only question is, on a 10 point scale, is it a 3, 5, or 8 that really does the job?

        Keep in mind Joe Biden is still in office for another 2.5 years. About 60-70% of the current inflation is a direct result of his policies.

      • If the inflation issue is really supply chain and the Fed kills growth then the supply chain issues will never resolve.

      • Bobber says:

        Good point, but I don’t think we’ll see a rate hike overshoot from this Fed leadership. They are dovish to the core. Currently they have their hawk costumes on.

        But I don’t think they are dumb enough to restart QE and reduce rates for a long time. What I predict is a reduction of the rate hike path in the not too distant future. They’ll have convincing evidence that inflation is decreasing in the next few months.

      • NBay says:

        A DAMNED good article and some good thoughts by Wisdom Seeker. Things have indeed been set in motion.

        Greg, as they would say on South Park, “You are so 2020”. It’s time to quit cursing and wish the Fed good luck. Unfortunately an awful lot of your type have been media and preacher created.

        A LOT of HELP and GUTS from our two Political Corporations wouldn’t hurt either.

        PLEASE Google “Barry Goldwater Religion” quote…….that was some REAL good future predicting. Starts with “Mark my words”.

        • NBay says:

          That’s my hopeful side…..it IS getting harder, though, as a Comprehensive Green New Industry should have been started long ago, along with a Constitutional max net wealth, banning lobbyists, and reigning in Corporations in other ways.

    • DawnsEarlyLight says:

      They need to tack on 700 more basis points onto the FFR!

      • The Real Tony says:

        Today the real or true inflation rate is already in double digits. Back in 1980 they didn’t lie about the inflation rate they told you the true or real inflation rate.

        • Jay says:

          Agreed 100%. If rent & housing were accurately captured, CPI would be at least 12%.

        • rankinfile says:

          The Baby Boomers weren’t on Social Security and Medicare in the 80s

        • DawnsEarlyLight says:


          True that on Baby Boomers. The first Medicare beneficiaries were Ex-President Truman and his wife on July 30, 1965. The first Social Security recipient was Ida May Fuller on January 31, 1940.

    • Bobby Boucher says:

      Do you all think they are that stupid or this is all done intentionally? I think everyone knows that putting rates at 0% and handing out money would lead to a boat load of inflation.

    • Seen it all before, Bob says:

      Well, with inflation at 8.6%, I’ve loaded up a measly 10K in 9.6% I Bonds that will only hold that rate for 6 months.

      To me, this is sanity.

      Meanwhile, my savings account just pays 0.3% in a 8.6% inflationary environment. My bonds are paying 3% and have lost value if I want to sell them. Fortunately, my stocks have lost ONLY about 20% but the average dividends are rising to about 2-3%.

      This is not your father’s inflation in the 1980’s when he purchased 30 year Treasuries paying 13% and held them for 30 years (2010) during mostly a 2-3% inflationary environment.

      My father did not experience a massive stock and housing bubble.

      There are 2 ways to eliminate a bubble:

      1) Pop the bubble causing a recession with job loss (The Fed wants this. wages are creeping too high), and/or a housing bust (The Fed has to control this). If it is too steep and fast, 2008 will repeat itself with millions of homeowners handing back the keys to the banks (or to the government Fannie or Freddie).
      2) Let inflation rage. If the stock market dips 20% and inflation at 10% over 3 years eliminates 50% of the value of stocks, they will become a bargain again and sanity will be restored. Similarly if housing dips 10% and inflation takes 30%, a 40% effective drop will be achieved with no foreclosure pain on the banks (who are the Fed)

      When 10 year or 30 year treasuries top 9%, I am going all-in on treasuries. I’ll let them crank out interest for the rest of my life.
      Just like my father did. I don’t think that will happen but one can dream.

  3. Peanut Gallery says:

    Wolf did you change the font on the website?

    • Bob says:

      Their understanding of economics is flawed. Four hundred PhDs on the payroll and no common sense. Nothing they have said as come to pass so you can be sure they are wrong again.

      • Raj says:

        They are just too selfish. The only reason they are raising rates now is because we had started hyper-inflating and their loot would lose value amid the political change it would bring.

      • Cream says:

        They do as they’re told

    • Cas127 says:

      I think he changed it about a week ago.

    • Wolf Richter says:

      Peanut Gallery,

      Do you ❤ it?

      I changed the font of the text a few days ago, which triggered a rebellion in the comments, so I changed it back to the old font.

      I changed the font of the headlines because the old beautiful font was causing problems with loading in some browsers, and I have not changed it back, and it stays.

      I also changed the color of the headlines to black. And now when you hover over the headlines on the front page, they turn blue. Which is very fancy.

      The site now loads faster with fewer problems. And Google is happy.

      • Shells says:

        Im a fan, Wolf. This is an increasingly awesome site. Very grateful.

      • Mark_2 says:

        @Wolf Richter
        Any chance for an update so we could get email notifications of reply to a thread and/or subscribing to a thread and getting notified of a new post?

        Maybe one or more of the Wolf Street regulars has an IT resource they could loan you?

        At any rate the articles and boards are an excellent balance to the other so called “news” out there!

        • Wolf Richter says:

          I disabled that function years ago because it triggered endless arguments by a some commenters which ruined the comments.

          You can just search for your screen name on any article. This will pull up all your comments and their replies (Ctr F in any browser).

        • cb says:

          @ Wolf –

          Too bad there’s not a function to send all arguments to a side board, with a vote up or vote down feature. Some arguments need to be had, for clarification purposes and the identification fact versus fiction or myths.

      • Seen it all before, Bob says:

        I think the new font is more readable. I love it!

        Fonts are like GUIs and product documentation. Youcan never make everyone happy.

    • Poor like you says:

      I actually preferred the previous style. Just my preference.

    • MiTurn says:

      I didn’t notice. But this gets me into trouble with my wife, too.

      • rankinfile says:

        Ask her if she’s put on weight.

      • Clete says:

        Yeah, I ate one of those too: “Do you like my new hair color?”

        I swear it was the same, just refreshed. Dead man walking.

  4. Depth Charge says:

    I can’t imagine having a job where you are rewarded for failure. Such is the case with the FED.

    • Phoenix_Ikki says:

      You basically just described the entire Senate and Congress, along with majority of Corp America leadership..

      • Alec says:


      • Raj says:

        Long back, one of my uncles told me that he had not seen a single person, who held a top post in a government, and has not made deals with the Devil!

        I did not believe him, still searching for exceptions.

        • Mark_2 says:

          And this scales. I present my HOA!

        • Augustus Frost says:

          Most people believe in two standards of conduct, one for the private citizen and another for the public official.

          I’m not talking about in the context most think either. Most of the time, most people are in favor of this dual standard when the government is doing something they like.

          Most people believe in 1+1 = 3 political math.

          It’s another major indicator of substantial social decay.

      • rankinfile says:

        What failure Corporate America leadership?
        They managed to destroy unions,outsource jobs for increased profit,and enriched shareholders.

        and destroyed American lifestyle as it was once known in the process

    • 2banana says:

      Any school system in any major city?

      • Pavel says:

        I was going to make that exact point.

        BTW Lew Rockwell over at LRC the other day had a long-ish and interesting thought experiment about what might happen if public education were simply eliminated. There would be some initial pain — he suggests — but in the long run students and society would benefit. As it stands, bright kids in public schools are dragged down and many kids are learning nothing useful, all at great cost.

        • Harrold says:

          Yes, making America dumber is the answer.

        • curiouscat says:

          I’ve done my own thought experiment and asked who benefits from having a lousy education system. Only one I could think of is the political class.

        • NBay says:

          It’s not just the answer, it’s the program. Or just train them in a presently Corporate/dynastic needed specialty…..and nothing much else.
          And that program is also quite lucrative, asK Betsy De Vos.
          You can also profit from private “let them all go to hell” schools, Victorville has some, and they can’t switch back….although class action lawsuits against them might fly in CA and a few other places not totally run by old landowners and corps.

    • unamused says:

      The Fed hasn’t failed. They have succeeded spectacularly.

      You seem to be going by their mission statement, which says they’re going to keep inflation low, employment high, and promote ‘economic growth’. It’s true purpose is to help maintain a regime of economic domination and extraction for the benefit of the FIC, whose machinations have been documented in detail by historians, economists, and politicians since the 19th century.

      It’s not exactly a secret.

      “I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.”

      Thomas Jefferson

      “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”

      John Emerich Edward Dalberg-Acton, 1st Baron Acton

      “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

      Henry Ford

      “The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.”

      Quigley, Carroll. ‘Tragedy and Hope: A History of the World in Our Time’. New York: Macmillan, 1966. Print.

      • notdeadyet says:

        “We are not to be hypocritical judges, yet we must be able to discern the swine, lest we cast our pearls before them.”

        Yeshua. “On the Mount”. 31C.E.

        (but nice try, Unamused)

      • Harry Houndstooth says:


        Great Post !

        If you can’t beat them, join them. The simple truth is that debt is slavery.

        I teach youth that the goal of saving money is to lend it. Start early. Your education is in relationships and collateral.

        Little has changed, especially since the fourth estate, newspapers, has collapsed .

        Banking, insurance and real estate. These are the three estates which have consistently delivered family wealth. Lend money, self insure, and buy real estate low and sell before the peak with seller financing. Humans who are counting on their current leveraged real estate holdings to sustain them are going to get wiped out as prices crash. They simply do not see it coming. Markets do not care what you paid for your asset. The fact that we are at a peak in costs to develop property does not insure that this peak price will last. On the contrary, a free market opens opportunity to buy well below replacement value.

        This advice is so timeless that it should be added to Solomon’s proverbs.

        Forced sales in real estate (such as divorces) will drive the market down as bids disappear.

        • VintageVNvet says:

          buy RE and NEVER sell it is what the old old money did and does HH
          just look at the real ”rich” folks, some of whom own most of London, etc.,
          and others of whom own most of the farm lands, etc., etc.
          and BTW, one almost never sees the names of those old money families because they do not own stuff in their personal names, etc.

        • Dave Kunkel says:

          My uncle who died very rich a few years ago started buying Long Beach real estate in the 50’s with the $25,000 he inherited from his father.

          Hi motto was, “Buy cheap and keep.”

        • VintageVNvet says:

          Same here DK,,, but earlier:
          Uncle had a delivery biz in the 30s all over Pacific Coast, and spotted RE and bought for dimes or less on the dollar.
          He and his wife made the stuff to deliver, and they and their children did die rich, but they all also lived relatively modestly though owning many millions of RE, etc.

        • Mariah says:

          If debt is slavery, why do you seek to enslave others by lending to them? Unless you think you’re better 😏

      • historicus says:

        Fed’s actual mission statement is

        “Pursuing maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;” (from St Louis Fed)

        It is the disregard for the 3rd mandate, the “moderate” (not extreme) long rates” that led the Fed to pummel long rates and “Force” (their word) the investor to take “more risk”. How’d that work out?
        In so doing, they intentionally altered traditional risk return ratios, price to earnings calculations, and other metrics of reasonable investing. And here we are.

        • NBay says:

          “And here WE are”

          The Okie Logger response would be, “Who is WE? You have a mouse in your pocket?

      • Mark_2 says:

        I’ve enjoyed/learned from the comments you have posted – that I have read.

        Seems to me the only way of correcting corrupt centralized authorities is to create small groups of self-governing communities where people know one another or at least OF one another. Add regional layers of centralized authorities on top of these as needed.

        We have a culture that creates divisions between people because we’re easier to control that way. This starts with minor dysfunction which seems reasonable then compounds over generations, etc.
        This the short version anyway! [cite: Junger: Tribe, Freedom & Huxley: BNWRevisited]

        • Augustus Frost says:

          Maybe, but only by radically shrinking the size of government.

          Look at history, there has never been an expansionist activist government that isn’t ultimately controlled by elites.

          You’re trying to find some middle ground around it and it’s never going to happen.

          The other solution is to split the US into dozens or even hundreds of countries so that each one can be more accountable and governed consistently with the worldview of the population.

          The country is too divided because there is no common culture and worldview. I’ve read comparisons to countries like Denmark or Sweeden. Those are countries with small homogenous populations which presumably mostly see the world the same way.

          Nothing even close to that describes the US and it’s too late for that.

        • Mark_2 says:

          @Augustus Frost
          (I hope you see this, there was no “Reply” button to your post)

          “Maybe, but only by radically shrinking the size of government.”

          Ok. :-)

          I agree that there would have to be a “common culture” amongst the smallish communities and one that would dictate etiquette on how the groups interact and exchange members regardless what rules they have for themselves. Also, educating these small groups on the benefit from being part of a large country.

          As for rule by the elites, this is inevitable and not necessarily a bad thing as long as there are checks and balances. If they have more stature in the greater society and a little more bling we commoners won’t care much as long as we’re able to feed ourselves and are part of a socially cohesive community. Sure we’re grouse about them and some of them will ‘roll their eyes’ at us but that will be an acceptable(necessary?) tension.

        • unamused says:

          “Seems to me the only way of correcting corrupt centralized authorities is to create small groups of self-governing communities where people know one another or at least OF one another.”

          Welcome to my world, Mark.

      • NBay says:

        Unfortunately, the group (with paid for programming by oligarchs) that are being trained to hate their own government, uses the same phrases, and screams “end the FED” or “audit the FED”. We have several of those here. Probably one of Wolf’s greater contributions is teaching people the FED is just BARELY quasi-government….it’s the bank corp’s super-lobby with their OWN “government” building in DC and a shitload of power.

        My lobbyist uncle’s wet dream!
        Although he had free run of the Pentagon, Capitol, and not a lot of problems getting in the Whitehouse, just no official title, powers, or office there….e.g., unelected. But owning a Senator and a few Congressmen makes for a pretty powerful home office.

        Compared to the FED, the P/O is private industry.

        • NBay says:

          Constitutional Max Net WEALTH, with militarized bounty hunter style IRS.
          Every game has BOUNDARIES, Capitalism should also….and they are all fast disappearing and “legally”.

          Keep these “invisible hands” in a fair range if you want to play it, it is more democratic and that’s supposedly the effort that is being made in this country, yes?

          Maybe we could get a Green Party and partially (or totally) gut both the existing pair…..one thing almost EVERYONE agrees on is that it’s been the “lesser of evils” choice for a long time.

        • NBay says:

          On the P/O, I meant totally Gov’t, as in ELECTED.

          Awwww..shit…..just ignore it…stupid remark, anyway…..piss poor effort at sensationalism………

    • Max says:

      Post office for 50 years

    • Scott says:

      Any Democrat in a policy decision role.

    • kam says:

      The Fed has been very successful, along with Washington, District of Corruption, at destroying the heart of the American economy.

    • historicus says:

      “It is absurd to put important decision making in the hands of those who pay no price for being wrong.” T Sowell.
      Inflation protected pensions will be their reward. Yellen must have at least 3 (UofC, Fed, Treasury).

  5. RH says:

    As inflation rages at over 8%, the “Federal” Reserve bankster owned cartel is charging banksters now: “Primary credit rate it charges banks, to 1.75%.” Some cynical people, like me, might conclude the “Fed” is giving its bankster owners gifts each year of about more than 6% out of billions or more likely, trillions of dollars that it lends to them as it secretly lent them trillions of dollars after their issues in 2008-2015. While on the subject of parasites, I must give kudos to the CCP, which is doing to China all that I expected and more. Keep it up, please! Watching news about China now is one of the real bright spots in my life; its better than SNL.

    • Wolf Richter says:

      Nonsense. Who is still spreading this BS out there? Primary Credit is barely used. Banks can borrow more cheaply in the repo market and in the federal funds market.

      Just look up the data on the Fed’s balance sheet. Primary Credit on the balance sheet of Jun 8: $1.19 billion. Which isn’t even a rounding error on the Fed’s $8.9 trillion balance sheet.

      • James Charles says:

        “YouTube is loaded with stock market bears. – YouTube . . .
        3:12 drop in reserve assets on the books of
        3:14 the banks
        3:15 and that’s allow the banks to create
        3:19 more loans not less loans . . . “ ?

        • The Real Tony says:

          Youtube has been loaded with bears since 2009. The markets were rigged and manipulated and did the opposite of what they should have done which is fall after a dead cat bounce in 2009. It was/is factual information but the bankers and Fed must watch a lot of youtube videos.

      • kam says:

        Nonetheless, Wolf, the Trillions that feed WallStreet Banks, were birthed by the Fed. And that alone, represses interest rates.

    • Cream says:

      completely agree

  6. 2banana says:

    That’s like pouring gasoline and lighter fluid on a raging fire and saying that the cup of water also poured on it will help.

    “But CPI inflation is now 8.6%, and the “real” EFFR is now a negative 7%, which represents the amount by which the Fed has fallen behind inflation. Its slowness in reacting to inflation is unprecedented in modern times:”

    • Depth Charge says:

      Right. And all of these fake narratives purporting “inflation has peaked” and talking about how a couple chintzy rate hikes will snuff it out soon are insulting to the intelligence of people not devoid of common sense. The fact of the matter is that the FED is so hopelessly behind that it will take years to slow it down.

      • cas127 says:

        Well, I’m a pessimist…but even pessimists can have hope :)

        Look at the large percentage hit the monstrously engorged equity mkts took even after just 2 or 3 months of unZIRP.

        Basically, everybody and their dog knew it was only near zero rates holding the hyperactive valuations up – once the Fed took some *small* *actual* steps away from its twenty years madness – a non-trivial amount of air was let out of equity valuations (residential valuations soon to follow).

        Many other prices are likely to follow, as the “eternal ZIRP summer” mindset has been squelched.

        Those living a lie on borrowed time frequently know it intimately – they always have one eye on the door, because they know their financial survival depends on being the first out of it. This means asset values can fall very fast…with spending soon to follow.

        And banks’ appetite for inflation-goosing, risky lending? When they are now being much better paid by the Fed for idled reserves?

        And this time (unlike 2018) real world inflation might be terrifying the Fed/DC into intestinal fortitude (continued rate hikes/at least no rapid retreat).

      • Kenny Logins says:

        I think they’re going fast enough to get us into a recession with a very hard landing.

        That’ll be inflation dealt with.

        It’s moving fast enough in my view.

        • MiTurn says:

          Good, it’ll crash housing prices. I have to pay a tax on assessed value, which has doubled in the past year. I would like that assessment to be halved again.

          Not all of us see our houses as investments, but as homes.

      • NBay says:

        “Common sense is a collection of prejudices, usually accumulated by about age 18”
        -Albert Einstein

    • Not Sure says:

      I think they’re going to lean hard on QT to do a lot of the heavy lifting. The Fed didn’t have a $9T collection of anti-dollars in the 70s/80s, but this time they do. It’s arguable that they may not have to lift the fed funds rate very high with QT. Remember that QT kills a lot of cash burning fake businesses and the fake jobs they provide, which in turn kills revenue for non-fake businesses as well. QT drives up yields on Treasuries which have a much bigger impact on the economy than the FFR since yields drive the cost of of loans from mortgages to commercial debt. Reducing employment and making debt more expensive destroys demand.

      The measly .75% hike is just a diversionary tactic to grab your attention while they sneak a full blown recession in behind your back via QT. When the smoke clears, the big boys will have swooped in to buy up the rubble of the middle class at bargain prices. Rinse and repeat every decade or so until there’s no middle class left.

      • JJ says:

        To Not Sure:

        The pace at which QT constricts will be painfully slow compared to the whopping $4 trillion addition during 2020/COVID.
        It would take nearly four years to reverse that dollar amount given the $47.5 billion graduated to $95 billion per month schedule.

        The slow QT administration will be more like boiling a frog, it seems.

      • Tom S. says:

        Agree, the addition of long bonds to the balance sheet is where things really got out of hand. Exerting force up and down the yield curve is sure to have unintended consequences as the force gets removed.
        In a free market people can use the price of debt over time as a barometer and make investments accordingly. Why would anyone invest in long term projects (say, refineries) when a room full of bankers are playing God with the markets? Noone knows up from down anymore. Cost of capital can change on the whim of a few “governors”. Risk aversion is at least starting to become a thing again, which is healthy.

        • BrianC says:

          The ugly truth of it is the mechanism by which QE (and thus QT) exerts it’s influence. And that is simple: asset prices. If qt doesn’t end for 9 yrs, that’s 9 yrs of sailing into the wind for asset prices.

        • NBay says:

          The best Financial Engineers all have yachts and tacking is second nature with wind, and merely more fuel with power.

      • Wisdom Seeker says:

        Strongly disagree. The Fed’s QT plan isn’t serious at all, if it’s supposed to stop inflation. The plan to drain that $9T balance sheet has a max speed of just $1T/year, and even that doesn’t kick into full gear for a few more months. That’s a long time to leave inflation festering – there will be riots in DC long before QT does anything significant to anything other than shadow banks’ balance sheets.

        • Tom S. says:

          Yes, QT hasn’t really gotten going in my opinion because it’s a last resort. They don’t want to lose control of the plumbing.

        • Not Sure says:

          WS, but you can’t deny that a little jawboning about QT, and the simple absence of QE has already gone a long way… Stock indices already down 20%-30% erasing 2021’s gains, tech companies starting to choke, home sales hit a wall with inventory now growing fast, and the 10 year yield has more than doubled since January. Imagine what a little actual QT will do.

          This inflation has been caused by monetary policy and the economy has become absolutely dependent on QE. Anybody with half a brain knew that the outcome of ZIRP and QE was going to be inflation, it just turned out to be mostly geared toward asset & stock prices and has only now spilled into CPI more aggressively. After over a decade of dependance, the patient is so hooked that even talking about taking the drug away slowly is already causing withdrawal symptoms.

          The Fed has only taken a few tiny baby steps and the system is already creaking and groaning. If the Fed moved any faster, there would soon be riots in DC and everywhere else too.

        • Wisdom Seeker says:

          @Not Sure – yes, but I think the main cause of market changes so far wasn’t QT, it was the jawboning about raising rates (and then actually raising them a little faster than the initial jawboning suggested). That has reset market expectations and cranked up the yield curve… we now have >3% rates for all bonds >1 years, 6% mortgage rates, TIPS yields that are actually positive, etc.

    • historicus says:

      Curious that the Fed still speaks of ANY inflation target (2%)
      4 years of their “target” has been packed into one year of inflation (8%)…
      Shouldnt they encourage some “rollback” of that spike? Shouldnt the new “target” be 0% or negative? Or is it their position that the 8% is “baked in” and never to be retraced?
      If it is, then the curtain has been pulled back on what they are really rooting for.

      • InLimbo says:

        Agree with your comment on the “2% inflation goal by the Fed”.
        Inflation goal should be 1/2%.

        How does inflation help? Assets go up. Which means the buyer needs to come up with more money….for the same asset. GDP numbers go up, tax receipts go up, but it’s just a game. A coke used to cost a nickel or dime. Now over a buck for the same product. And this helps how?

    • The Real Tony says:

      Remember they’ve redefined inflation so many times to skew it lower the real inflation rate that the average person endures is higher than their stated rate.

  7. Phoenix_Ikki says:

    As much as the contempt/disdain I have for Powell, to hear that Esther George only wanted .50 rate hike..F$$$ her. I know it’s asking a lot to ask an arsonist to try to put out a fire they started but do a better job pretending please.

    As you said with even a .75 rate hike, it’s still pouring fuel on the fire, if he wants to put in a reputation as a real inflation fighter he would’ve gone up somewhere closer to what Gundach suggested close to 3pts, although the mayheim and carnage that would cause, but if you want reverse wealth effect to happen fast, can’t go turtle pace and expect result.

    My remaining fear is that, what happens when unemployment gets uncomfortably high and inflation is starting to roll over a bit but still higher than 2%, will King pivot, pivot again?

    • Cas127 says:

      Well, once that happens, Biden will surely be tossing
      the Fed/Bankers Cabal ™ in with the Oil Industry in the Ye Olde Designated Villains/Fall Guys bin at DNC/MSM HQ (after the Fed/DC spent the last 20 years energetically fondling each other).

      The Dem dinner party circuit is about to turn into the Donner Party.

      • NBay says:

        It still makes you food……or did you think you were actually along for the ride with the other bunch of our oligarch/corporate controlled political corps?
        I’d say you have a slightly better chance with the Dems….slightly

    • azbc says:

      Or what about getting us to an interest rate that actually is positive in real terms? We would’ve needed an eight-point hike for that, but at least the Fed truly would have stopped pouring gas on the fire!

      (Granted, that 750-point drop the Dow took today would’ve been 17,000, but still…)

  8. Cytotoxic says:

    This whole miserable few years might just be worth it if it puts an end to the ‘fed put’, let alone excessively easy monetary policy.

  9. TimmyOToole says:

    Wolf how much farther down do you expect stock market to go and also for the housing market ?

    • Wolf Richter says:

      I’m looking at long-term charts of markets that had a huge gigantic bubble, such as we had. I’m looking at China, Japan, Spain, Italy, even Germany’s DAXK (not the DAX which is a total return index), etc. And I’m thinking, this is going to take a very very long time to get back to the high, and I have no idea how deep it will go first, and how long it will take to hit bottom.

      • 2banana says:

        The Japanese stock market has yet to reach new highs…30+ years later.

        • MF says:

          Japan seems to be the harbinger for the rest of the economies in the West. They seem to be ahead of the rest of us by about 10-20 years for financial, demographic and social trends.

        • The Real Tony says:

          That’s because they were the first to have an aging society where the people over 60 start to outnumber the people under 60. Their zero interest rate policy has done nothing but destroy all the retirees so every retiree stayed broke or went broke after they retired. Fewer people have money to buy anything with. It can only get worse as the birthrate keeps falling and more and more people over 60 outnumber more people under 60.

        • historicus says:

          the BOJ started this ZIRP nonsense about the yr 2000
          I recall Krugman was an advisor..
          that is my recollection

        • Harrold says:

          Japanese have a very low birth rate and do not allow immigration.

        • NBay says:

          You sure it wasn’t Friedman?
          Those Central Bank Prize winners can get a bit confusing.

      • Augustus Frost says:

        Depends upon the timeline and which bear market someone has in mind. The one lasting the next five minutes or the one lasting multiple decades.

        US stock market is roughly as overvalued as dot.com peak (same mania) with more speculation and far worse fundamentals. Only competitor for being more overvalued in 1989 Japan.

        Few would have guessed that when the Dow peaked on February 9, 1966, that it would be 23% lower 16 1/2 years later and about 75% adjusted for price changes. The fundamentals in early 1966 where leaps and bounds better than now.

        Fundamentals look disproportionately good at peaks for a reason. That the fundamentals are already relatively widely acknowledged as being mediocre to bad is a hint of what’s coming later.

        Just wait years later when the bear market has ground on for years. There will be counter cycles with rallies, but the fundamentals will be acknowledged as noticeably worse.

  10. Marbles says:

    I’m one of those savers who’s been fishing close to shore in Treasuries since 2008. Can’t wait to cast out further in the future. It’s about time.

  11. Not Sure says:

    Isn’t a recession sort of a prerequisite toward lowering inflation? How is anything but a hard landing possible?

    A soft landing would be a slightly softer housing market while leaving major stock indices around their current 20%-30% drop without a major drop in employment. That isn’t going to take much heat off of inflation. Demand needs to cool waaay down AND the wages (jobs) that support spending need be choked off as well.

    Honest question… Has high inflation ever been corrected without a recession?

    • Miller says:

      “Isn’t a recession sort of a prerequisite toward lowering inflation? How is anything but a hard landing possible?”

      Very very well stated. Perhaps mild inflation could be corrected with a soft landing. But massive and surging inflation like this, feeding on itself, with a massive housing bubble and uncontrolled asset bubbles in other areas–all fed by short-sighted Fed policy on interest rates and QE? The only way to cure it is with a deeper recession and hard landing. That’s because the “wealth” from those bubbles was fake wealth, unconnected from economic fundamentals, and the inflation fuel from it requires a correction. The recession, temporary and manageable, is just the term we use for that necessary correction. And JPow and Federal Reserve, while moving in right direction, need to be much more aggressive to bring about the correction, as Paul Volcker realized. Tepid moves lead to runaway inflation that becomes uncontrollable, and unlike a temporary recession, to collapse of the dollar, society, its institutions and confidence.

      • Cookdoggie says:

        Agree, and I don’t think the Fed really believes in a soft landing anymore either. Lots of phrases from them this time about how other factors outside of their control might make it impossible. They’re already setting the stage to skirt blame.

        • NewGuy says:

          And it’s unbelievable that Powell, who is responsible for this inflation, just got re-elected for another term to fix it. We truly do have a bunch of morons running this country.

    • Wisdom Seeker says:

      Re “Has high inflation ever been corrected without a recession?”

      Answer: No.

      The mechanics of how inflation is actually defeated – which parts of the CPI can we slow down – are only just entering the Overton Window.

      1) Housing prices have to come down (~30% of CPI) no matter what. That requires higher interest rates to shock the market (done…) and a bit of time for the data to catch up to the market and for the Fed to recognize it. In the Great Recession that process took about a year.

      2) Energy prices – these are going to be hard to stop, because demand massively outstrips supply, demand is inelastic, and supply requires infrastructure that takes a long time to build, but isn’t even being started because of global warming concerns. No help here.

      3) Food prices – dependent on energy prices. The wiggle room for consumers is in “food away from home”, which is more of a luxury choice, but restaurants don’t have enough margin to cut prices meaningfully and stay in business. Unless they can pay lower wages?

      4) Vehicles – huge pent-up demand due to the ongoing supply chain issues (geopolitical trade wars). Interest rates will help a bit but on vehicle loans, interest isn’t as big a factor as it is for housing.

      5) Employment – there’s a lot of chatter about layoffs in marginal businesses, but still a ton of job openings in the more-stable parts of the economy. I don’t think we see meaningful unemployment for a while yet, and in the meantime wages are going to continue to go up, and that drives services prices. It could be a year before unemployment dents wages and spending enough to slow demand in a way that slows the inflation enough for the Fed to notice and react.

      6) What else is a meaningful fraction of CPI and how can the Fed bring it down?

      Basically I think this is going to take while longer, and housing costs need to come way down for any “inflation-killing” policy to work out.

  12. Rando says:

    Great post! I firmly believe housing is equated to inflation more than the Fed rate. I recognize that mortgage rates are tied directly to Fed funds rate, but the Fed funds rate has already been raised. Housing expenses are still at record peaks just as inflation has continued rising. When housing starts to fall I believe inflation will follow. But so will the markets.

    • SoCalBeachDude says:

      Mortgage interest rates have nothing whatsoever to do with the advisory interbank overnight Federal Funds Rate, but are keyed off the yield (interest rate) on 10 year US Treasuries.

  13. Wes says:

    Mr. Richter, it seems like they’re trying to restore their credibility. The Fed has no control over the supply side, except for the supply of money.

    • Wolf Richter says:

      The Fed has lots of impact on DEMAND, and that’s the goal. When you lower demand by making borrowing more expensive, suddenly you have over-supply, and to meet this lowered demand, prices might not be able to rise, or they might have to come down, which ends inflation. This is specifically addressed in the article.

  14. Up North says:

    sorry, a bit unclear:
    …not WW2 being a war on the West: rather thinking about the current conflict in Eastern Europe.

  15. Socal Rhino says:

    So, the plan I guess is to crater real estate?

    • Phoenix_Ikki says:

      Perhaps and if they want any shred of credibility, they better go faster to tank that market. Even 20 to 30% down they will just barely back to 2019 level and house price is extremely sticky but have the biggest impact on wealth effect.

      The housing cheerleaders and shills are getting more rampant with their why housing won’t decline narrative. The biggest shills of them all Lawrence Yun is now telling people to go consider ARM..so the desperation or seeing writings on the wall is there.

      • Socal Rhino says:

        My thought was, beyond wealth effect, shelter costs unlike energy and fertilizer costs can be reduced by fed action.

      • Lone Coyote says:

        Saw a CNN article the other day advising people to get ARMs to fight inflation. Seems grossly irresponsible to advise that in an environment of rising rates, but I guess that’s why I don’t have a job at CNN.

    • SocalJohn says:

      It is interesting that he basically ended the q&a by telling prospective homebuyers to wait. I didn’t like his suggestion therein that the punch bowl would return, but I do find it interesting that he essentially told people to avoid the market right now. At least that is how I interpreted his words. Please feel free to disagree with me… I’m never confident in my interpretation of the swamp monsters.

      • Bobber says:

        I interpreted it the same way. He basically told potential first-time home buyers to wait it out until inflation is under control and home affordability is better.

        In a different thread, SeattleTechie put up a link for two comparable homes by the same builder in the same neighborhood outside of Seattle. One appears to have sold a couple weeks ago for $1.6M, but now the builder is asking $1.2M for the same thing, a few weeks later. How would you like to be the person who lost $400k market value in a few weeks? That’s a high price to pay for FOMO and impatience. I think Powell is warning people that these things are going to be happening more and more.

        Anybody that wants to buy a new home should realize builders are starting to panic, and prices could be dropping fast.

        • Wisdom Seeker says:

          In China when developers cut prices like that and put a lot of recent buyers underwater, they riot inside the developers’ offices and demand equal treatment, their money back, etc…

        • Lynn says:

          WS, In the US as the housing prices and homeless increase the peasants start sharpening their pitchforks and buying matches.

          Well you can’t please everybody so you’ve got to save yourself..

          I imagine they have bullet proof glass and metal detectors at any existing FED public interfaces nowadays..

        • Confused says:

          Years ago, a friend and his wife were buying a house from a builder. My friend negotiated a most favored nation clause that would earn him a refund if the builder cut its prices within a specified period of time.

        • georgist says:

          Because housing costs are a function of available credit.
          They are not a function of build cost.
          They are not a function of “worth”.
          Many readers on this site should learn this lesson well.
          Tax the unimproved value of land!

        • c_heale says:

          That’s not a high price to pay if he has sufficient income. A high price is losing the house because he can’t pay the mortgage. For most people a house is somewhere to live, not money.

      • The Real Tony says:

        He said that to get housing prices to fall faster.

    • David Hall says:

      You need rents to go down if you want to lower CPI. Housing is not in the basket of purchases monitored by the Fed. Landlords have been raising rents in my area. U.S. rental vacancies are low. New car prices are rising. Some auto parts are back ordered delaying auto repairs. Fertilizer shortages may cause food prices to rise. Nitrogen fertilizer is made from natural gas; that went up in price. A British nitrogen fertilizer plant shut down. Potash fertilizer exports were reduced by sanctions.

    • Augustus Frost says:

      Immediate plan as with any bureaucracy is to deflect political “blowback”.

      Second factor is to maintain or restore their credibility, as it’s only human to dislike being unpopular especially by your peer group (Wall St and the economics profession).

      Third factor is longer term, supporting the USD which is the basis of the FRB’s institutional power. It’s not at risk now but will be if the DXY approaches 70, the 2008 low.

  16. Wes says:

    Good article.

  17. JeffD says:

    As a ratio of CPI, a 0.75% hike would place it on the far lower end of historical norms. The 0.75% hike in 1994 was About 29% of CPI. The current 0.75% hike is about 4.2% of CPI.

    • JeffD says:

      Whoops. Messed up my arithmetic. Fat finger. My bad. The current 0.75% hike is 8.7%, which puts in in the “reasonable” category.

      • SpencerG says:

        This time the Fed has an overstuffed balance sheet that they can use as well to fight inflation.

  18. Tony says:

    Great article. In a nutshell, you have to crack some eggs to make an omelette it would seem. Sad that they admit that unemployment has to trickle upward.

    Now we know what monetary policy can do. What can fiscal policy do now to help lower inflation?

    • TheRealMRDyno says:

      I think it can do a ton, based on the over inflated salaries and pensions delivered to government workers.

      Maybe cut those by half, and see what happens.

      I don’t think many of those people have an equivalent alternative in the private sector.

    • Augustus Frost says:

      “What can fiscal policy do now to help lower inflation?”

      Cut government spending noticeably, something which isn’t going to happen. If anything, it will be increased to attempt to mitigate tighter monetary policy.

  19. Hardigatti says:

    Re QT, for every Fed-held treasury bond that matures/rolls off, the US Treasury will have to come up with the cash, right?

    The treasury bonds are like anti-dollars. So, once QT is in full swing, where will the US Treasury get the $720B (12x$60B) in cash a year. Of course, the US Treasury will try to sell more treasury bonds to cover that, but with the Fed out of the game who will buy them? Sounds like a problem to me.

    • Propheticus says:


      “So, once QT is in full swing, where will the US Treasury get the $720B (12x$60B) in cash a year.”

      I asked this question a few articles ago and Wolf’s answer was, and I quote:
      “Taxes, fees, and borrowing.” Same as always.

      • rojogrande says:

        Wolf also says (though I’m not sure if it was in response to your question), that with respect to borrowing higher yields solve the problem. That makes perfect sense to me.

      • Harvey Mushman says:

        The way I understood it was that the $720B would come from investors. To get the investors to buy treasuries the yield would need to increase. The money to pay for the higher yields would come from “Taxes, Fees, and borrowing”.

    • Wolf Richter says:

      QT doesn’t change anything for the Treasury in terms of cash. The US Treasury doesn’t care who holds its Treasury securities, whether it’s the Fed or me. But it changes everything for the markets in terms of cash.

  20. Old School says:

    Are we being played? Larry Summers and Steve Hanke both seasoned economists predicted the excessive inflation. Both said it is simple arithmetic. I can’t believe the Fed is so stupid with all their PhDs so it must have been intentional policy to run up inflation rate. Truth is:

    1. Fed is not bothered by negative real rates.
    2. Fed does not like to discuss gold as it is a worthy competitor to their fiat money system.

    • SpencerG says:

      First off, the Fed has fine economists… but even economists can engage in “herd mentality.” The reason that people point to Summers and Hanke this time is because they were outliers in the economic community. Same as “permabear” Nouriel Roubini fifteen years ago before the Great Recession.

      Secondly, the Fed is more constrained by politics than people want to believe. Even Volcker had to back down in April of 1980 when Carter forced his hand. As soon as the election was over in November 1980 he restored the Fed Funds Rate to almost 20% and began the final assault on double digit inflation that he became famous for.

      In this case, Powell needed to get his renomination completed… which only happened on May 12, 2022. AND (to a lesser degree) the Fed needed the fiscal policy to stop pouring gas on the fire… which only happened when Sen. Manchin yanked the punch bowl from the party in December.

    • Escierto says:

      Gold? The powers that be along with their lackeys make sure that the price of gold is suppressed. How? By constantly selling gold contracts for gold which does not exist – paper gold which they conjure out of thin air.

      • Augustus Frost says:

        Wrong, for every seller of “paper” gold (or silver) there is a buyer. Short interest does not automatically suppress the price.

        Moreover, most buyers of the “paper” metal don’t want physical, or else they would (try to) buy it.

        Look at gold’s relative value, now and historically. It isn’t cheap, it’s expensive and relatively overpriced.

        That’s not what metal advocates want to hear but there you have it.

  21. Mark Rohrbacher says:

    I agree. Peter Zeihan has been talking about this breakdown of the “International Order” for years now. COVID and the Ukraine war have just accelerated the process.

  22. HODL-gucci says:

    What a week!
    JPOW has a backbone after all
    SAILOR lays himself off for bit-dog margin
    FOUCHEE forgot his mask and gets the Coronas
    and it is only Wednesday …

  23. Pete says:

    US industry coped with the shockingly-unexpected, disastrous flu pandemic that we hadn’t encountered in a hundred years and hadn’t expected in a million years(!!!); and so now US business and free market capitalism will again cope with the aftermath as long as Joe Manchin & Kristen Cinema hold the power of the purse. The US economy will somehow unwind this massive debt and get thru this . Buy-Buy-Buy…PJS

    • Wisdom Seeker says:

      Manchin and Sinema will only be swing voters until the end of the year. The November election will change the political balance in Congress.

    • GC says:

      Right. And millions of people will lose their jobs, homes and livelihood in the process. But who cares? They are just a point on the dot plot right to the Fed. JP casually states unemployment needs to go up a point and is not questioned about it. So maybe 3MM people lose their jobs. Oh well. Adjust accordingly.

    • OutsideThe Box says:


      Do you mean the one that killed over one million Americans ?

    • Augustus Frost says:

      You’re either being sarcastic or have no idea what you are talking about.

      The debt will not be unwound without an economic depression, a real one with noticeably falling living standards for the majority.

  24. Yancey Ward says:

    I don’t think they will ever get to 3% before starting QE again.

    • Depth Charge says:

      You want to bet? QE may be done forever. It is a massive failure.

      • JeffD says:

        So does QE actually work for the real economy, or is it all just smoke and mirrors for funneling wealth to the already wealthy? Has there ever been a a Wolfstreet article dedicated to this topic? Why would we ever bring QE back if the direct effects on the economy are just to increase risk levels?

        • COWG says:

          QE did exactly what it was designed to do…

          The only unintended consequence was the ones they gave it to, kept it….

        • The Real Tony says:

          QE would have worked well in the baby boom era but as the birthrate keeps falling today it helps younger people at the expense of older people meaning things would probably get worse under quantitative easing due to the falling birthrate and less younger people and more older people or retirees. Going forward in time it probably would hurt more people than it helps.

        • Augustus Frost says:

          QE will never work well in any era because there is never something for nothing, ever.

          It’s somewhat equivalent to being a little pregnant.

          The only reason (literally) it appeared to work for over 10 years is because of maniac psychology which collectively led so many to believe such a dumb idea would actually work.

          It’s complete economic quackery, just like MMT.

      • Yancey Ward says:

        Just because it is a failure doesn’t mean they won’t try it again.

        • Depth Charge says:

          I agree with the sentiment about doubling and tripling down on failure – that is the MO of these despicable vultures – however the veil has been lifted on their “wealth effect,” and too many have started criticizing it, including billionaires who benefited. It’s been an embarrassment of riches for a select few, with the rest of us paying for it.

        • COWG says:

          “ Just because it is a failure doesn’t mean they won’t try it again.”

          They already did…

          The first iteration ended at the end of 2018… Then Trump removed Powell’s spine and he collapsed then restarted it…

  25. Propheticus says:

    Wolf, so for the time being, there will be no selling of treasury securities as has been the plan. A couple of questions for you:

    1. Why the caps? What is the Fed afraid of? There’s all that excess liquidity out there so why not remove the caps? The economy is “robust.” Is it that hidden leverage that you’ve pointed out in your stock market margin article that they’re afraid of? Perhaps they don’t want to peel the onion back too fast for fear that something might blow up that they’re not aware until is does?

    2. When a treasury bill, note, or bond matures and rolls off the asset side of the balance sheet (principal payment is not reinvested), what is incinerated on the liability side of the balance sheet? Is it the Federal Reserve Notes?


    • Wolf Richter says:

      1. I don’t think the caps are needed, but the Fed wants this to be smooth. The Treasury maturities are predictable and are disclosed and everyone knows how much matures every month. Some months it’s a huge amount, and some months it’s a smaller amount, so caps block the spikes you would get during the huge months.

      With MBS, the whole thing is very unpredictable and no one knows how much they will shrink the next month through these pass-through principal payments. This is dependent on rates. If rates get cut, this turns into a tsunami that reached $120 billion a month in 2020, which could be destabilizing. Hence the caps.

      2. When a Treasury security matures, the Fed gets cash from the government for the face value. At the Fed, this cash just disappears. It gets “destroyed,” just like it was “created” during QE. On the liability side, you will see the “reserves” account go down, and the Treasury General Account (the government’s checking account), and even the overnight reverse repo account. And there will be some shifts between these accounts, and we have already seen some of it, from reserves (down) to RRPs (up).

      • Propheticus says:


        Another question for you, regarding the treasury security cap:

        If, for a given month, when the cap is met and the Fed receives principal payments in excess of the cap, it sounds like the Fed will reinvest those principal payments into more treasuries. If true, why? Why not let the market (not the Fed) be the purchaser of treasuries going forward?

        Thanks again.

  26. Cookdoggie says:

    I would like to see the dot plots as forecasted by Wolf Street commenters.

    “The Fed raised its projections for unemployment rates, with the median projection rising from 3.7% at the end of 2022, to 3.9% at the end of 2023, and to 4.1% at the end of 2024.”

    I agree with that progression on unemployment but instead of 2022, 2023 and 2024 substitute August, October and December. Everything has happened so fast and yet going forward everything will suddenly react very slowly? That’s not how balloons deflate when they are popped.

    • SpencerG says:

      There are so many excess jobs out there that unemployment will go up slowly even as millions of “jobs” are “eliminated.” People will either hunker down in whatever job they have right now or they will continue to be able to get a replacement job for a while. I agree with you that unemployment will happen faster than they think… 3.7% to 4.1% isn’t much of a rise at all… but it will be in the middle of 2023 when we get to that level.

  27. Prairies says:

    I am glad I just stocked up on more popcorn to watch this show. All I hear is the McDees theme song “I’m lovin it.”

    There is finally a cost to borrow and the greedy pigs at the trough are ready for slaughter. Maybe the price of bacon will come down with so much about to be added to the supply side.

    • JeffD says:

      Unless the government starts issuing ration tickets, I think you will see food prices increase for at least another nine months, possibly at an even faster rate than before.

      • MiTurn says:

        Go long on vittles. People say “you’re hoarding!” I say that I’m beating inflation as best I can.

        Unlike bonds, some stocks you can eat.

  28. HollywoodDog says:

    Having just remarked on May 4 that a 75-basis point hike was not a possibility, Jerome Powell is completely without credibility at this point.

    Things are going to get tight: we’ve had more than 20 years of good living thanks to easy money. But we’ve just seen the limits of that. It’s either inflation or contraction from this point forward.

    Tough economic times require firm leadership. And that’s not our current Fed Chair. He will need to be removed before confidence can be restored.

    • Harvey Mushman says:

      “Having just remarked on May 4 that a 75-basis point hike was not a possibility, Jerome Powell is completely without credibility at this point.”

      I can forgive him for this. To me, it’s really not a big deal. What is a big deal (to me) is when he caved in to Trump’s bashing in 2019 and started lowering interest rates again.

      • rojogrande says:

        I agree with you on this. Two CPI reports came out since May 4, with the most recent one during the quiet period before the Fed’s June meeting. Powell has said they need to be nimble as new data becomes available and this was just such an occasion.

        That said, I don’t know why Powell seemingly took a 75-basis point hike off the table on May 4. Why box yourself in? Was it worth a one day rally that reversed the next day?

    • SpencerG says:

      Powell is not going to be removed… he was just reappointed. I advise you not to underestimate him. He knows that his place in history rests on breaking the back of inflation in the next four years.

  29. John says:

    They are not stupid, they are guilty and Fed should be held accountable. This Inflation happened by design, as the Fed in August, 2020 adopted , surprisingly against his mandate, a brand new pro-inflationary bias policy which was announced in Jackson Hole, to allow the inflation to run hot above target in a negative real interest rate environment.

  30. SocalJimObjects says:

    “with only one dissenting vote (by Esther George, who wanted a 50 basis point hike)”

    Esther George obviously wanted to become the first Fed Chairwoman.

  31. LK says:

    So when can I expect my savings account to start offering an interest rate over the Fed Funds Rate?

    • Wolf Richter says:


      Never. Because it already has your cash. You’re a captive customer of your bank. It’s not going to pay you anything on your cash.

      Shop around for a CD at your broker or any broker. This is where banks want to attract NEW cash, and so they sell their CDs through brokers – hence the term “brokered CD.” Even your bank may offer CDs through various brokers paying 2.5% or more for a 1-year CD in order to attract new money. Rates on brokered CDs have jumped. You’ve got to start shopping around if you want your savings to earn anything. This is now happening again. But your own bank will screw you for as long as it can, until too many customers start yanking their cash out.

  32. medialAxis says:

    “An economy that lives by inflation, dies by inflation”, Peter Schiff. Can’t help loving the man, even though I’m a hodler.

  33. Jan de Jong says:

    Rocks and hard places – I think the best show wiĺl be Europe and Japan.

    • Anthony says:

      Jan de Jong

      ECB and Japan more likely

      • Tolkapiam says:

        Too low a interest rate for too long juiced the asset markets & resulted in inflation.
        Energy prices induced stagflation on common man’s consumption essential items can be resolved fast.
        But for that the mititary hegemonists in the current us/uk,/nato have to make peace/ lift sanctions on Venezuela/Iran /Russia . Oil will drop 20$ just on an announcement. Saudi’s don’t like their arch enemy Iran to enjoy the spolis of high oil. They will crash oil price with huge supply. But the administration is talking of windfall profit tax on Energy companies.Environment racket has to be lifted to build refiniries in usa.

        • Escierto says:

          Environment racket? You mean the climate change that is already making parts of the globe uninhabitable? Here in Texas we are having unprecedented heat – the hottest summer ever. Actually it’s only going to get worse -as Homer said to Bart, this will be the coolest summer of your life!

        • COWG says:


          “Texas we are having unprecedented heat – the hottest summer ever“

          Unprecedented, not really…

          In OKC, July 8-21, 1978, everyday was 100F or higher… except one… that one was a massive cool down to 98F…

          Absolute misery…

          Other days were also above 105F but not consecutive like the above…

        • Escierto says:

          COWG, that’s nothing. We have that every summer here. Three weeks of 100+ temperatures is normal in July and August. What is not normal is experiencing this in June. By the end of this summer we will have experienced 100+ degree days for 90 days.

        • TXRancher says:

          DFW. Texas
          Consecutive days at or above 100 deg
          1 42 Jun 23 – Aug 3, 1980
          2 40 Jul 2 – Aug 10, 2011

          Number days at or above 100 deg for year
          1 71 2011
          2 69 1980

        • NBay says:

          There are life forms that can adapt to most everything. What do you think made DNA amplification (aka PCR machines) so damned cheap and popular, anyway?

          Humans, and most mammals….ahhh…..not too capable of doing that. But you are all going to heaven anyway, so WTF does it matter?

          BTW Tex, you missed your calling, you should have been a climate scientist…..they’d still let you wear boots and a Lone Ranger hat.

        • NBay says:

          And let you drink Jax and Pearl when it’s hot……they had that at Ft Polk in 67, don’t know if they are still around…..or if it will be quite as cold.

        • SK01 says:

          The radiative properties of atmospheric gases has been studied by scientists for at least 170 years. It is well-established chemistry and physics, not religion, politics, or pseudo-science.

          Greenhouse gases like carbon dioxide, methane, nitrous oxide, etc. block some of Earth’s outgoing infrared radiation, causing some to re-radiate back to Earth. This traps extra heat in the atmosphere, making the planet warmer. (Most of the CO2 and the heat has been absorbed by the oceans thus far.)

          Rising levels of greenhouse gases are primarily caused by the burning of fossil fuels, but also to a lesser extent, natural and man-made changes in the land (agriculture, destruction of forests, wildfires, melting permafrost, etc)

          Average global surface temperature is only going to get warmer, that much is clear, how much warmer, not so much.

        • Happy1 says:


          And yet your “uninhabitable” TX is attracting people from other states more than almost any other state. Climate change is real, but the elite government and media response to said climate change (10 foot change in sea level, American south uninhabitable) is pure unadulterated BS as manifest by where people actually moving (ie betting their life on) and what real estate prices are doing in coastal FL and SC (ie people betting money on). Call me when people aren’t moving to TX and coastal FL because of climate change.

  34. Anthony says:

    And all this, just before a real nasty looking black swan arrives

  35. SocalJimObjects says:

    The Swiss National Bank just hiked their interest rate from -0.75% to -0.25%. And no, the minus sign isn’t a typo.

  36. Franz Beckenbauer says:

    The Fed is now paying 1,5% risk-free interest in Reverse Repos to everyone with a heartbeat and some extra cash in hand. That goes for foreign players, too.

    This will kill the money markets. It has to. And right quick.

    RRP will be going to 3,4,5 trillion quickly now. There will still be people telling you this is “normal”. It’s not.

    Got gold ?

    • Wolf Richter says:

      Franz Beckenbauer,

      “…paying … to everyone with a heartbeat ”

      BS. Why do you keep posting these lies here. You’re just wasting my time. Only approved counterparties can participate in the RRPs: Treasury money market funds, banks, and the Government Sponsored Enterprises (such as Federal Home Loan Banks). Look up the list at the New York Fed. Every single counterparty is listed.

    • SoCalBeachDude says:

      Gold is a junk fungible highly volatile speculative commodity.

    • NBay says:

      Behold, I cometh (right?) quickly. No wonder he never married.

  37. Mike R says:

    Did Powell actually use the words “soft landing” ???

    Ok, Jerome, we all know you are gonna lose your job, but now is not the time to practice for your next job as stand up comedian.

    Wonder what part of the word recession he doesn’t understand we are already in, and what part of the word depression has anything to do with ‘soft landing’ ?

    It’s an embarrassment to live in a country where leaders and so called heads of your banking system, actually think every citizen is that stupid, as to believe all their lies.

    Americans are way too passive, and sadly too many generations have passed such that we have forgotten about when it’s time to bring out the pitchforks and take care of some business with these evil “leaders.” Maybe a deep and long market crash will wake up enough citizens to act toward making these evil and destructive leaders accountable for their intentionally bad behaviors.

  38. George W says:

    Where is Bernake, the student of the Great Depression, to explain all that we see.

    Yellen from hell, needs to go to jail as well.

    • George W says:

      Transitory life sentences for Fed officials?

      • SoCalBeachDude says:

        The Federal Reserve is doing a wonderful and very honest job, and the members of the Board are very underpaid for their fine services.

  39. nsa says:

    Reinstall the Taylor Rule to attempt to rein in the FRB grifters.
    ffr = p + 0.5y + 0.5 (p – 2) + 2 where p is the inflation rate, and y is the % deviation of actual GDP to desired GDP. Plug in the numbers for a shocker. At least the Taylor Rule would require even more blatant jiggering of the laughable y and p input numbers to get their desired ffr.

  40. Not important says:

    It’s too little too late, won’t matter now.

  41. Cobalt Programmer says:

    You know why Roman bridges are still standing? They make builders to stand under them during opening ceremony. Hand over the same median salary to every FED member, no insider trading, no credit. They must survive for years with the money. This will keep the value of our money.
    There will be soft landing only if the markets listen to FED. If they still raise up even if the FED raises rates, there will be no soft landing.

  42. AB says:

    Commentary on the Fed is being emotively framed as a fight against inflation. In a broader context, it is a lost fight against deflation.

    This is not to deny the existence of commodity inflation, priced in reserve currency. It is evident.

    Every action taken by the Fed is a distorting event. Whether the distortions have a positive or negative effect on society is subjective.

    The Fed has been wrestling deflation for 20 years. All the Fed has done, and is able to do, is distort prices for extended periods and manipulate the timeframe of the business cycle. Its longstanding efforts to deny a floor in asset prices are breaking down.

    The situation we find ourselves in today is one in which the USD and the credit markets can no longer be manipulated to support the fight against deflation.

    For the period ahead, the Fed will only have the capacity to mimic or follow the market. It may take some time for the market to fully exert itself. It will seem vengeful and dramatic when it does, but it will in fact be a perfectly normal reversion/unwind.

    The Fed has checked out. Follow the ECB and BoJ. They haven’t.

    • sunny129 says:

      ‘The Fed has been wrestling deflation for 20 years’
      Deflation started after Volcker contained the inflation in mid ’81.
      That is over FORTY YEARS! Now, it is erupting like a volcano! This is in response to ALL the ‘easy-peasy’ monetary policies ( ZRP, QEs, stimuli++!) endorsed by politicians both parties, Wall ST, large global investment banks++ in creating this 3rd largest ‘everything’ bubble. Party went on 13 yrs, virtually non stop! Global debt went from 5.1T to 31.5 Trillions since ’08!

      Now comes the bill/invoice of that party. Suddenly people suddenly realized, how wreck less this Fed has been. They kept the punch bowel, too long, music and dancing went on & on, and hardly any one complained. Just front run Fed’s policies ad pat one’s self ‘ what great investors, we all are, right?

      Well the UGLY ‘other side’ of euphoria and animal spirits has begun.
      Piper is waiting to collect!

      • Wolf Richter says:


        “Deflation started after Volcker contained the inflation in mid ’81. That is over FORTY YEARS!”

        You need to stop saying this. It’s among the biggest lines of BS anyone here has concocted, and you keep repeating it.

        It could be that this is just a problem with the word. Maybe you’re trying to say “disinflation,” meaning declining inflation, say, from CPI inflation of 15% to CPI inflation of 2%. You could use “disinflation” for that.

        But “deflation” to describe the past 40 years is just nuts.

        “Deflation” means declining prices… things get cheaper. And that hasn’t been the case at all.

        “Disinflation” means things get more expensive, but more slowly than before.

        • cb says:

          @ Wolf –

          “Disinflation” is a confusing propaganda word that is favored by the con artists at the FED. I urge all to use plain English ………. and use the term “slowing inflation” if a slowdown in inflation is what you wish to convey.

        • cb says:

          and remember, the bastards always want inflation

          it is part of their business plan of a debt slave economy

          theft from the production of debt slaves and theft from savers

          Banksters, their FED and bought politicians – the ultimate parasites, doing “God’s work” some of them say

    • cb says:

      AB said: “The Fed has been wrestling deflation for 20 years.”

      another might say that they have been fomenting inflation ………..

      for longer than 20 years

  43. phleep says:

    Scenario1: unemployment rises, prices drop, but in a tolerable range for most people: “soft landing.” My view: likelihood fair, but not great. The damage has been too long, too deep. Won’t just spring out of this turmoil, across the economy. There will be lots of individual disruption.

    Scenario 2: inflation continues unabated, economy stays hot: My view: unlikely now that Powell has taken up the cudgel, but if Powell blinks, maybe. But it will be from a lower baseline if we have elevated interest for awhile. Political pressures to blink or carry on will heighten from both sides. Likelihood: medium.

    Scenario 3: WTF drop-off (continues these crazy oscillations since 2020), sharp recession. Unknown how deep or long it goes, but as I said, a lot of damage has happened since Bernanke’s put came in. Likelihood: fairly strong.

    Scenario 4: everything gets more expensive out of a brew of higher interest costs and lingering inflation, there’s stagflation, as the choppy swirling markets sort i all out. Likelihood, IMO: fair to strong.

    • Nathan Dumbrowski says:

      Agreed. The team running all the simulators on outcomes isn’t built to handle the 2022 cycle. They will be creating new scenarios for this. At work recently they demonstrated a tool to test 10+ chaos scenarios. They find they have to add new ones as needed. I would imagine that inflation, war and ZIRP are now a new module

  44. Crush the Peasants! says:

    Feddies dead
    That’s what I said
    Let the man rap a plan said he’d see him home
    But his hope was a rope and he should’ve known

  45. Peachy says:

    Does anyone know if inflation tends to tick up in summer months? I find it hard to believe consumers are going to be spending less right as summer is hitting, especially since, in my own personal experience, a lot of people have been seeing 2022 as the year they feel comfortable enough with covid to finally go out and have a vacation.

    • phleep says:

      The dumb money will party, dance, frolic, borrow and spend itself into an interesting fall season.

  46. Winston says:

    When government is involved (Congress/Treasury/Fed), always expect the worst. I’ve said here long ago that inflation wasn’t likely to be “transitory” and was highly doubtful about a “soft landing” this time.

    Found elsewhere:

    The Fed does not know and neither does anyone else where the balance point is; by wildly expanding their balance sheet in the name of “QE” they’ve emitted trillions of credit into the economy, and exactly how much of it has to be withdrawn through running off said balance sheet along with rate increases before the inflationary ardor cools is not known — nor can it be known. This was a “grand experiment” that should have led The Fed to being kneecapped more than ten years ago but of course nobody in Congress (which has the power to do so any time it would like) was interested in doing it — including people like Ron Paul — because doing so meant the asset price inflation they were all loving would immediately reverse back to where it was and that would have been “bad.”

    So now we have a much worse situation. Asset prices, especially those of nothing more than hot air, always go up first and most in an inflationary spiral because there is no base against which to value them. The “promise” of another stock buyback or blowing billons of dollars worth of electricity solving math problems to “mine” something that has less value than piss (you can at least turn urine into fertilizer) has levitated such assets, and the “feelz” from same has driven things like Real Estate to ridiculous levels.

    That’s all going to come back out folks — it is simply a matter of when. The recent PPI report makes clear that irrespective of what The Fed does it will be 12 months or more before inflation subsides and for every month they fail to get the excess liquidity out of the system that’s another month of the insanity we will have to endure. Note that PPI table showing nearly fifty percent unprocessed goods inflation. Not five, not ten, fifty and its been right around there for the last year.

  47. SoCalBeachDude says:

    Why isn’t everyone ‘relieved’ today that the Federal Reserve did something yesterday? They should have just gone on vacation for the Summer…

  48. Franz Beckenbauer says:

    Warren Buffett called Options “weapons of financial Mass Destruction”

    With the S&P Below 3.700 Friday could be a Case in Point.

    • phleep says:

      Lots of crypto credit structures and ecosystems are being swept away. One wave of margin calls washes through, exposing the next tranche of unbacked swimmers.

    • NBay says:

      That was Credit Default Swaps, Franz……and he used them.

  49. Danno says:

    Until the remove more of those trillions floating around the markets, we will still have non stop inflation…

    Pretty simple isn’t it?

    If you don’t have the cash, you can’t drive spending.

  50. drg1234 says:


    “QT doesn’t change anything for the US Treasury in terms of cash”

    “When a Treasury security matures, the Fed gets cash from the government for the face value. At the Fed, this cash just disappears.”

    I don’t how understand how both of these statements can be true at the same time.

    • Wolf Richter says:

      It does not matter to the GOVERNMENT whether the government pays me or pays the Fed when the bonds mature.

      But it matters to the MARKETS:

      — The Fed destroys that cash and buys nothing with it, and the cash just disappears, and stops chasing after assets, and it reduces demand for securities.

      — I take my cash and buy something else with it, and so the money continues to chase after assets. Even if I just put it in the bank, the bank buys something with it (such as Treasuries), or lends out, and this money continues to chase after assets.

  51. Phoenix_Ikki says:

    If this is starting unfold like dotcom crash, wonder if we will see a fierce rally this summer before tanking more later this year?

    • phleep says:

      We have seen optimistic nibbles but these have only lasted a day. Each little leg back down shakes the confidence. I can’t see a bottom yet, given the expectation of all the froth yet to be cleaned away. Let the bold tread there — I’ll wait! There’s no point trying to perfectly time a bottom.

    • sunny129 says:

      Phoenix Ikki

      “we will see a fierce rally this summer before tanking more later this year?”


      On what basis? QEs will be back and the inflation contained!? Or this is WISHFUL thinking for those newbies (under 45y) who have never under gone a secular BEAR mkt! This is NOT 2000 or the 2008 but a lot worse!

      Retail investors are in denial of so many realities erupting each week since March of this year. Today DJIA went under 30K!
      This is how ‘reversion to the mean starts’ along with fierce bounces (like yesterday – BEAR traps!) many are hoping, wishing and what NOT, ignoring the realities of persistent rate increase, increasing inflation rate and eventual increase in unemployment! IMHO we are already in recession!

      Whole sale of Equities by large sovereign (Country) funds like Sweden National Bank, Norway wealth fund, large foundations is going on. No buying on dips, but sell on rips for any reason!

      • Phoenix_Ikki says:

        I don’t disagree with you but more just wondering out loud if a rip roar bull trap rally similar to dotcom will give Sith lord Powell enough excuse to backoff QT, maybe not QE but just back off QT and pause on interest rate hike. We’re already so far behind on rate hike and QT any detour from the current course will only add insult to injury…

  52. Jdog says:

    .75% in a double digit inflation world is the very definition of dillydallying.
    Interest rates are going to need to go double digit to even begin to slow the ever increasing inflation. That or a very serious recession.

    Let’s not forget, it was the Feds incompetence that caused this mess to begin with. To assume they have this under control is a little naive.

    • Kurt Z says:

      Here’s how bad it got with low interest rates. Turned a while generation of oldsters into real estate barons.

      Live in Seattle also. Last year, My landlady was bidding on a house in the ruling class section of town, with sixteen other bidders. She is a banker and knows how to put together a good pitch, or so she thought…

      Turns she got the house because of three things according to the owner –

      She had a job.
      She was using it as her primary residence
      She was the only one under sixty

      Everyone else was a retiree reaching for yield with bank money / debt.

      Yield suppression makes so many things wrong

      • cb says:

        In an another society there might be some shame going around –

        established elders using their leg up to push housing prices, denying youngsters a shot at security, and contributing to a rentier economy

        but hey, I got mine
        and now I have some of yours
        serve me please
        ain’t life grand?

    • Wolf Richter says:

      Markets think it’s lightening fast, as you can tell.

  53. JeffD says:

    Prime rate is now 4.75%. Two more 0.75% hikes and prime rate will surpass core CPI, and inflation should start to moderate.

  54. DawnsEarlyLight says:

    Isn’t all the money over the last decade distributed to the masses, governments, and businesses still out there, circulating in through the system? How is all that liquidity that is causing all the demand reduced?

    • Kurt Z says:

      No, money flows to the top in a rentier / bankster society. Credit card spreads are the perfect example.

      Look at PPP and how corrupted that forgivable loan turned out. More than 80%ended up with the one per centers.

    • Propheticus says:

      Scroll up to see Wolf’s reply at 1:20 pm, June 16.

  55. Jackson Y says:

    The Federal Reserve has done a lot of wrong in the last 14 years … but Wolf, I’ve got to give them the benefit of the doubt here.

    They took decisive action & stopped coddling the markets. The financial excesses of the last 2 years are being drained away, one asset class at a time. Stocks have entered a bear market within 5 months, a historically rapid decline outside of flash crashes. Yes, they’re still behind the curve but are correcting their mistakes.

    This is in contrast to the Biden administration which continues to deny, deflect & leave others to clean up the mess they partially created.

    • sunny129 says:

      Jackson Y

      “The Federal Reserve has done a lot of wrong in the last 14 years..”


      Did you just realized that, this year!? When they murdered ( in open daylight) our good ole, genuine American Free Market capitalism on the March 0f ’09, replaced with CRONY/Predatory capitalism. It mainly favored the Wall ST and the top 10%!
      I learned my investing under the old rules, more respect towards fundamentals and productive economy. Then came the insane credit creation with crazy financialization our economy.

      The (global Banking) problems which brought us the GFC, were never addressed! They papered over them with credit creation and humongous debt(s) here and global wide, unlike any time in human history.

      This 3rd largest ‘everything’ bubble was looking for a PIN. It came the moment Russia invaded Ukraine on Feb 23rd! Then the cascading of events, started rolling on their own. Mkts finally had a say in all the crazy, insane credit creation and policies. Fed is out of control. They just react to events. Mr. Mkt is now in the driver’s seat!

      Karma is biting back and the piper is waiting to collect!

  56. JJ says:

    Hi Wolf,

    I have been Day Dreaming about how DC, The Fed and it’s member banks could game the following scenario to get rid of at least half of the US Government debt.

    It is likely out of order, but just consider it as part game plan, part underlying circumstances, I will leave it to your knowledge to decide if it is feasible, with it a given that they are sufficiently ruthless to do it.

    1) What is the grand total of US Dollar denominated debt in the world.

    2) How much money is sitting in FDIC savings account waiting for rate increases.

    3) The EU continues to stick to US mandated Russian sanctions

    4) An early onset cold Winter in Europe shuts down EU factories and spikes energy costs, and EU unemployment.

    5) DC, the Fed, and it’s member banks take a massive short position in the Euro denominated bonds and any other foreign currency that will collapse given the above.

    6) The Fed and member banks pretend to panic at some Inflation is spiking report and does an Emergency rate increase to slam the US Government bond prices.

    7) The collapse of the Euro etc. causes a rush into the US Dollar

    8) The Fed and member banks have the money ready to buy all the US Government debt they can for 50% off.

    9) At the same time, the Fed and member banks make a killing on their massive EU etc. currency and bond short positions.

    10 US Dollar comes out on top with the Government Debt cut by 50%

    You do not need to post this, think this financial screenplay over and respond at your leisure.



    • Wolf Richter says:

      This could be the plot of a page-turner novel. All you need is a hard-core character, something like a retired CIA officer that had been passed-over for a promotion to Chief of Station in Berlin, and soured on everything, and his wife ran away from him, but he is tough and gritty, and knows all the threads, and only he can save the world, but he has to do it before midnight.

      • DawnsEarlyLight says:

        Maybe Jack Ryan, Season 2?

      • JJ says:

        Ok, how about Victoria Nuland of “F the EU” fame?

        A female Super Villain that has her minions in the CBOT put their

        virtual hands in their pockets and a smirk on their faces as

        “NoBids”are found for US Treasury notes, and bonds after

        the”Emergency Rate Hike”

        Is the Creditanstalt bank of Vienna still around?

  57. Spencer Bradley Hall says:

    Interest rates are the price of credit. The price of money is the reciprocal of the price level. Thus, the level of interest rates can be misleading.

    FOMC schizophrenia: Do I stop because inflation is increasing? Or do I go because R-gDp is falling? is the direct outcome of the Keynesian macro-economic persuasion that maintains a commercial bank is a financial intermediary, serving as a conduit between savers and borrowers.

    Raising the remuneration rate on interbank demand deposits induces nonbank disintermediation, an outflow of funds or negative cash flow. It disengages the savings-investment process. It destroys velocity.

    So, if you raise policy rates to stop inflation, you decrease R-gDp relative to inflation.

  58. Vadertime says:

    Great article. Love the dark humor. The Fed has been behind this eight ball the entire time, starting with the “transitory” remarks they made regarding inflation. This was not an unexpected event and any 8th grader with a fundamental understanding of supply and demand curves could have figured this out. Let’s see, during the pandemic the administration poured trillions of stimulus dollars into the economy. Employers attempted to lure hourly workers back increasing minimum wages by 50% to 100%. The great resignation led to people jumping job to job for higher salaries. Supplies of goods and services, which had been depressed during the pandemic, were suddenly in short supply as the pandemic receded thanks to vaccinations and social distancing. Supply chains, which also had been curtailed during the pandemic, could not ramp up fast enough to meet demand. Suddenly everybody wants to drive, fly or travel in some form, which consumes fossil fuels – ergo, demand outstripping supply after refineries and oil companies had scaled back production during the pandemic. If folks don’t want to pay 5, 6 or 7 dollars a gallon for gas then stop driving and taking all those road trips. Secondly, rethink your decision to purchase all those gas-guzzling trucks and SUVs. Europeans have tiny cars that get a million miles a gallon, because they already pay upwards of 8 dollars a gallon over there. As for interest rates going up and all those first-time homebuyers wringing their hands over there inability to buy that 400k house of their dreams at 5.6% interest, I have no sympathy. I bought my first, tiny little cottage some 33 years ago for 110K and my interest rate on a 30 year mortgage was 10.5%, which my mortgage broker assured me was a great rate. I was a teenager in 70s and in my 20s in the 80s. Both decades say double digit inflation as well as stagflation. I’ve seen this movie before. My retirement target was 30 months from now. However, based on the dwindling value of my 401K plan, even with increased contributions starting last year, I may have to rethink retirement in Christmas of 2024. I am also getting really tired of the local and national news showing people complaining about filling up their vehicles with gas for 80, 90 or 100 dollars. In 2008, gas prices went above 4 dollars a gallon and unfortunately I owned a full-size pickup truck at the time. I was paying 80 dollars back in 2008 to fill my truck up 3/4 of the way. I don’t have any sympathy for these people whining and crying about gas prices. Stop driving so much. What is wrong with this country where people are making multiple, unnecessary trips during the day – like my neighbors next door with 2 mid-size SUVs going in and out of the driveway 1/2 dozen times a day. I’m sorry, but I really can’t sympathize and when the recession comes, and it will, because the Fed has only successfully managed a soft landing once in 40 years (I think it was 1994 – soft). At all other opportunities the Fed has managed to crash the economy, because for the past 40 years the only instrument they have is a gigantic blunt instrument – to a hammer, everything looks like a nail. The Fed took us to zero interest rates 3 years ago to prevent the economy from imploding under the pandemic. The stock market went nuts with all that free money as did other entities, which took out these zero or near-zero loans to speculate on the market. Now the chickens are coming home to roost. It is a matter of how hard or how soft the crash landing will be later this year – does the crash kill everybody or so most of us survive with a few casualties. The Fed does not know what it is doing. Powell and Yellen are clueless and these are the experts. Again, I reiterate, that an 8th grader with fundamental grasp of supply and demand curve theory could have predicted this better than those two clowns. I’ve gotten my rant off my chest and I feel better. God bless America. May he keep her and protect her for imbeciles like those two. Thank you and have a great day.

    • Propheticus says:

      “…like my neighbors next door with 2 mid-size SUVs going in and out of the driveway 1/2 dozen times a day.”

      Could be they’re making their dope deals outside of the neighborhood.

    • BobC says:

      One of the things I love the most about this website is the amount of wisdom I gain from Wolf and from commenters like yourself. I sincerely hope that your retirement “Plan A” comes to fruition and you can retire at the end of 2024!

  59. The Fed controls short term rates which is EEFT at or near zero. When they wander back above 2% then they are in the bond market’s sphere, and they have less control, and in this instance practically none. The massive RRPO market 2T and rising, is all that’s holding the charade together. Today the 2Y is pulling back assuming that bond buyers are more willing to buy short term notes, but just wait. In essence this becomes YCC, which was last used after W2 and in Op Twist, more recently. Druckenmiller notes the Fed has never stopped inflation after it went higher than 5% without raising rates above CPI. However CPI might revert to the mean and relieve that requirement. The Fed is going to be chasing long yields higher, (from the not so short end) and making inflation worse. Fed got pushed into chasing headline inflation with a misunderstood reading of Fed history. The Volcker Fed dodged persistent inflation by offsetting deficit spending, pushing yields lower and with higher growth numbers.

  60. unamused says:

    Has anybody seen any sign of increased demand for antidepressants?

    It will be interesting to see what present conditions and Fed policy do for big bank stocks. Or TO big bank stocks. NIRP/ZIRP and QE were done for their benefit, after all, after the 2008 GFC took out some of the overexposed and they ended up getting buried in the back.

    Taking into account the 1 for 10 reverse stock split they did in 2011, Citigroup shares are still down over 80% from 2008, which might qualify them as an Imploded Stock if they weren’t Too Big to Fail. Apparently NIRP/ZIRP, QE, sweetheart deals, and generous corporate welfare haven’t been enough to bring them out of their funk.

    They’re so fine, there’s no telling where the money went.

    And with all the other contrary conditions (make your own list) systemic failure is still on the table.

    • Happy1 says:

      There has been a very substantial increase in mental illness generally during the pandemic.

  61. eg says:

    Look out below!

  62. SoCalBeachDude says:

    Cheery headlines from Matt Drudge today:

    Wall St Sounds Louder Recession Call…
    Consumer Spending Running Out Of Steam…
    Housing Starts Collapse…
    $3 trillion in retirement savings wiped out…
    China Treasury holdings 12-year low; Japan cuts…
    Food Shortage Worries Mount As Farms ‘Crushed’…
    ‘Teetering On Edge’…
    GOODBYE, DOW 30,000

  63. Shawn says:

    The Fed is between a rock and a hard place. Go soft on rate hikes, energy prices like oil and gas go through the roof, strengthening our primary geopolitical enemy Russia and tanking the economy because of skyrocketing inflation. Going hard on rate hikes risks a deflationary spiral, bringing inflation and energy costs down but also tanking asset process. I say go hard.

    • unamused says:

      The elephant in the room says humans are eating up planetary resources with prodigious and accelerating speed and that interest rate issues are the least of your problems because those only affect the demand side and that you really need to consider the supply side, because that’s where the shortages are, and there’s going to be more of them.

      Next up: resource wars. If you’ve made your list of Serious Economic Headwinds that one probably isn’t on it yet, even though we’ve had them for a while but prefer to call them something else because that would cause the Terminally Avaricious to repeat their lame excuses, and we’ve heard them all before and they get boring.

      • unamused says:

        I’m still trying to figure out how the Elephant in the Room managed to get through the door. Like the tree said to the lumberjack, I’m stumped.

        • NBay says:

          Just call it a miracle and let it go. God works in mysterious ways and all that…….

  64. sunny129 says:

    Mr Powell in (in prior released) yesterday press Q&A , said the inflation rate will be around 3%!

    The special traders (Fixing Traders!?) are of the opinion that the inflation will be around 9% or even higher now thru September!

    “Traders of so-called fixings, or derivatives-like instruments related to Treasury inflation-protected securities, expect four straight months of annual headline consumer-price index readings at roughly 9% or higher from June through September. That would be the longest stretch of such elevated readings since 1981 — the same year that the Fed, led by Paul Volcker, was forced to push the fed-funds rate target to as high as 20%, according to FactSet data. The outlook for a roughly 9% September CPI rate has been in place since May’s CPI report was released last Friday, one trader said”

    The pain has just started!

  65. Poor like you says:

    QE with interest rate suppression was invented by economists including Ben Bernanke as a direct hedge against what they saw as the principal accelerating factor of the Great Depression: Out of control deflation.

    They patted themselves on the backs for supposedly keeping the GFC from becoming the Great Depression II, but I wonder. In time, we may view their actions, and the actions of those that followed, as a stopgap measure that ensured an even worse crisis to come.

    I hope I’m wrong. Lord knows I’m no economist. But it seems to me that the whole system is breaking at the seams.

    • rojogrande says:

      I hope you’re wrong too. Too bad you’re not an economist though, then I’d have much more confidence you’re wrong.

    • sunny129 says:

      Poor like you

      “QE with interest rate suppression was invented by economists including Ben Bernanke…”

      The QE had NO research or prior record! It birthed straight from the seat of pant of Barnake!
      When reporters asked him to explain that theory, he couldn’t explain it but claimed it works in ‘practice’ He also had a tutorial from Wall ST experts on ‘derivatives, swaps, CDS etc! when housing bust in ’08!

      • Poor like you says:

        Prideful arrogance of humans who pretend to understand complex systems beyond understanding.

  66. gametv says:

    The Fed should be selling mortgage backed securities outright and driving mortgage rates up to 8%. That would kill the bubble in housing much faster. Real estate is the largest asset most households own, and the destruction of home equity will dramatically change the perception of wealth, which will cool off demand.

    The other major factor here is energy. We really need to create some incentives for the gas companies to ramp up production. But those energy companies have no reason to drive up production and decrease prices. And since Wall Street is not going to rush in and fund less stable companies to increase production, we have a real catch 22.

    We need to start having a discussion about the lack of competitive markets and how any market that doesnt have 5+ real competitors is not a free market and will result in inflationary pressures and a lack of accountability by executives.

    • sunny129 says:


      “The Fed should be selling mortgage backed securities outright and driving mortgage rates up to 8%”

      FYI-News Bulletin:

      There was NO BID for MBSs auction by Fed last week! Who is going to buy this TOXIC garbage dumped by Lenders/Banks on Fed!

      “Today, the CPI print is 8.6%. Mortgage rates were below 6%, as per Louis Barnes when MBS went to auction and got no-bid, instantly jacking rates up to 6%. Rates are likely headed higher.

      If inflation is 8.6% (and most smart people think real inflation is way higher), why would anyone buy MBS paying say 4%, thereby locking in a negative 4.6% yield? If you’re going to accept negative real yield, because you think the Fed is going to crush inflation, then just buy Treasuries which are definitionally zero-risk. Why take on default risk and such with MBS?
      h/t ( notoriousROB)

      As a result, agency MBS 2.5% dropped to under $90 as markets expect The Fed to keep raising rates to combat inflation. Who is going buy them?

      • cb says:

        @ sunny 129
        @ Wolf

        sunny 129 said: “There was NO BID for MBSs auction by Fed last week!”

        Did the FED auction MBSs last week? (I don’t think so.)

        There is a big difference between an MBS auction and a FED auction where the FED is trying to unload MBS.

  67. JeffD says:

    Former Atlanta Fed President Dennis Lockhart pointed out on CNBC that in Powell’s press conference yesterday, Powell said that he will now be looking for a series of inflation reports showing that inflation has come down before changing strategy. Dennis then pointed out that only one report will come out before the next meeting, which he interpreted to mean that a 0.75% hike next month should be the expectation. Great observation and info from the former Fed president! Then again, everyone has a plan until they are punched in the face, so there is always that…

  68. Nate says:

    I don’t really see the fed controlling inflation. Inflation was low because china dumped a ton of goods on us to gain manufacturing share. Now, aside from the housing asset bubble that I think was pretty much the Fed’s fault, most of the inflation seems to me to be because china stopped dumping because zero COVID, we substituted a ton of goods for the lack of services spending, and a war broke out involving one of the major energy producers. Fed had zero influence over these events. Even the goods spending wasn’t really the fed because consumers didn’t take on a ton more debt, so congress stimmies might be the culprit there. If fed actually tanks economy by raising rates, which I guess is the plan, seems like deflation is more likely if Putin keeps on trading Russian lives for tiny chunks of ukr territory.

    Weirdly enough I think we need both higher rates and lots of inflation that actually carries over to labor to get housing prices back to a normal ratio without making the asset bubble worse, but that will never happen in this country. I am worried what might happen with the housing bubble and how that might flow into the real economy, based on how long the hangover from the last bubble took to recover.

  69. Finster says:

    “But CPI inflation is now 8.6%, and the “real” EFFR is now a negative 7%, which represents the amount by which the Fed has fallen behind inflation.”

    The Fed is waaay behind for sure. But comparing Fed funds with the CPI is a bit apples and oranges. Fed funds lives in the asset markets and competes with currencies, bonds, money markets, stocks, etcetera … as opposed to consumer goods and services. This is especially significant because inflation shows up first in asset prices, only later in consumer prices.

    There’s also a time frame mismatch … the 8.6% CPI rate is over the past year … no one knows exactly what the current rate is. Yields on bonds on the other hand are in the future … even short rates like Fed funds are present if not immediate future. Popular as it is to quote “real” rates based on comparisons with CPI changes, the practice is mathematically or logically questionable.

    As a way to give a qualitative feel for where the Fed is, it makes perfect sense. There are policy implications though … Fed funds will not have to rise above 8.6% to quell inflation. Long before that the asset markets would buckle (as if it’s not already happening!), a rush to cash would occur, and the effects would radiate through the economy and crush even consumer price inflation in fairly short order. The bond market has already done most of the heavy lifting and disinflation is in the pipeline … the main challenge for the Fed is not to lose its nerve and send asset prices soaring again.

    • cb says:

      good points Finster –

      but please, Consider not using the propaganda word “disinflation”. The clearest, plain English terminology is “slowing inflation.”

      The FED loves confusion ………………… as do most thieves and con men.

      • Richard Greene says:

        That’s easier to understand, but I like:
        “Slowing the inflation they caused”

      • Finster says:

        No argument there, CB! Conventional economics is rife with warped terminology. I sometimes prioritize word economy over precision … feel free to read it as you propose.

  70. Richard Greene says:

    Who says that?
    The author must be like 103 years old.
    Maybe older

  71. Hey Wolf, another banger of an article. I appreciate your use of data to support your bearish tone.

    Actually, I talked about your article on my podcast FYI

    Keep it coming Wolf! Thanks!

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