Powell Puts 75-Basis-Point Hike on Table for Sept, Fed “Determined” to Get Inflation Down, Come Heck or High Water: Most Hawkish FOMC Press Conference I Ever Watched

“People at the lower income spectrum are suffering from high inflation”: Seems Powell wants markets to come out of denial.

By Wolf Richter for WOLF STREET.

The FOMC voted today to hike all policy rates by another “unusually large” 75 basis points, the second such hike in a row, the most hawkish moves since 1994, with no one dissenting, and even Esther George, who’d dissented last time, was on board.

This brings the Fed’s target for the federal funds rate to a range between 2.25% and 2.50%, which is still very low, given that CPI inflation has spiked to 9.1%, but it’s a lot higher than the near 0% in February.

During the post-meeting press conference, the most hawkish press conference I’ve ever listened to, Powell tried to get the message through to the markets that getting inflation down is the #1 priority, and that the Fed would get it back down, come heck or high water.

Powell put another 75-basis point hike on the table for September.

To make sure everyone got it, he said several times that “another unusually large increase could be appropriate at the next meeting,” depending on the inflation data, thus putting another 75-basis-point hike on the table for the September meeting.

Another 75-basis point hike in September would take the Fed’s target for the federal funds rate to a range between 3.0% and 3.25%.

Out the window went the notion of a “pause” in September that had been ridiculously hyped by some tightening-deniers a couple of months ago.

And Powell said that “we wouldn’t hesitate” to go even higher – so a 100-basis point hike maybe – if inflation data comes in hot.

He said over and over again that the Committee was “determined” to tighten financial conditions, and that it was “necessary” to slow the economy, and it was “necessary” to slow demand, and it was “necessary” to slow the labor market in order to get inflation back down.

And inflation is going to be the top focus until “we confident that inflation is on a path down to 2%.”

“Suffering from inflation.”

“People at the lower income spectrum are suffering from high inflation,” Powell said. “We know inflation is too high… particularly for people who live from paycheck to paycheck,” he said. “Middle-class and better-off people have resources to deal with inflation,” he said. But lower income people don’t.

At the lower income spectrum, “we’re seeing real declines in food consumption,” he said, pointing out that people in this income category spend all their money on necessities, such as food, gasoline, and rent, and it’s these necessities where inflation has been the worst, and these people are bearing the brunt of this inflation and can least afford it.

Would a recession stop the rate hikes?

After all this hawkish talk, he was asked, how a recession would change the Fed’s policy.

“We think it’s necessary to have growth slow down,” he said. “We need a period of growth below potential,” and he expects “some softening in labor market conditions” and this softening of the labor market will be “necessary.”

He said over and over again, so everyone would get it, that high inflation gets in the way of economic growth and “full employment” over the longer term because of all the problems it causes, and bringing inflation down was necessary to achieve the Fed’s dual mandate of price stability and full employment.

“We’re going to be focused on getting inflation down,” he said. “Price stability is the bedrock of the economy” and for a strong labor market and for growth, he said.

Economic growth and a strong labor market are not going to happen without getting inflation back down, he said. “Restoring price stability is what we have to do,” he said.

The costs of doing too little are far greater.

And he was asked about the risk of “doing too much,” of raising rates too far.

He said that the risk of “doing too little” is that inflation might not come down, which would then raise the costs of doing it later when inflation was really entrenched, and it would be harder and “more painful” to bring inflation down then, because once people start factoring in high inflation, it becomes very difficult and painful to dislodge.

“A soft landing is our goal, we keep trying to achieve it,” he said, but it’s “a very uncertain thing.”

The line tightening-deniers ran with, out of context.

After “frontloading” the rate hikes – 1x 25 basis points, 1x 50 basis points, 2x 75 basis points, and perhaps another 75 basis points in September – what’s next?

Powell said, “as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation.”

So maybe at the November and December meetings go with a 25-basis-point hike each.

And that makes sense because they’ve already pushed the rates far higher than imagined earlier this year, and if they don’t slow down with these “unusually large” rate hikes, they may be near 5% by year end, which would be fine with me, but that would be a huge jump, from near 0% in February.

He said he expects, in line with the Fed’s June guidance, that the Fed’s policy rates would be “moderately restrictive” by the end of the year, which back in June meant in the range of 3.0% to 3.5%. But all projections of tightening have been revised upward at every meeting. So we’ll see.

The Fed raised all its policy rates by 75 basis points today:

  • Federal funds rate target range, to 2.25% – 2.50%.
  • Interest it pays the banks on reserves, to 2.4%.
  • Interest it charges on overnight Repos, to 2.5%.
  • Interest it pays on overnight Reverse Repos (RRPs), to 2.3%.
  • Primary credit rate it charges banks, to 2.5%.

Rate cuts? Not so fast.

With the Fed’s target range for the federal funds rate at 2.25 to 2.50%, the effective federal funds rate (EFFR) will be around 2.37% going forward.

But CPI inflation is now 9.1%, and the “real” EFFR is negative 6.7%, which represents the minimum by which the Fed has fallen behind inflation. Its slowness in reacting to inflation is unprecedented in modern times. At this point, the Fed is still pouring fuel on the inflation fire. But it’s now trying to catch up and is hiking at the fastest pace since 1994.

When is the Fed going to cut? According to some people a few months ago, the Fed should have already cut today, or no later than September.

But the Fed has never started to cut rates when CPI was above the EFFR. If this holds true in this cycle, CPI would have to fall below the EFFR, or the EFFR would have to rise above CPI, or a combination of both, before the Fed engages in rate cuts, and this is likely to take a while by the looks of it:

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  363 comments for “Powell Puts 75-Basis-Point Hike on Table for Sept, Fed “Determined” to Get Inflation Down, Come Heck or High Water: Most Hawkish FOMC Press Conference I Ever Watched

  1. jon says:

    “Seems Powell wants markets to come out of denial.” ==> Seems market is both deaf and blind :-)

    • joedidee says:

      He’s so far behind it’s like he’s in 2021 yet
      He’s just towing 1% hedge fund poor me line

      IF HE HAD BALLS he’d hike 5% today

      LOW INCOME CANNOT BORROW and when they do it’s card shark rates of 21%+

      so 5% won’t do much for them

      • SS says:

        Now that Manchin is onboard, could it be that on one side fed pretends to be tightening (trust wolf, but not fed), on other side govt roles out big stimulus programs for struggling corporations in name of “stimulus to fight inflation”.

        I wonder what Fed Approval ratings will be like.

        • Flea says:

          Like 60 billion for semiconductors,after executives stold nonstop . Stop stock buybacks these corporations are worse than the vies in the night,they steal in Plain view

        • Max Power says:

          If wouldn’t bet on it. The proposed package contain some anti-corporate (and probably quite deserved) provisions such as eliminating the hedge funds favorite carried interest deduction and instituting a minimum corp tax (lo and behold Amazon might actually start paying some taxes). On the spending side, the package doesn’t appear to have significant helicopter type stimulus.

        • Happy1 says:

          @ Max Power

          How amusing that you think Amazon will “pay taxes”. You and everyone else who uses Amazon will pay more so that Amazon can pay taxes. This is what happens with corporate taxes, that and lower overall employment.

        • Harrold says:

          The provision to allow Medicare to negotiate drug prices is long over due.

        • phleep says:

          @ Happy1

          Shock, government does have to be funded somehow. Despite its waste. Or we are all in trouble, you apparently cannot imagine. Some of government being a scam, does not make it all bad — much is absolutely essential. So yes, if need be, I will pay more thru Amazon — oh, the horrors!

        • Flea says:

          Business doesn’t work that way,as long as you keep making capital improvements,taking DEPRECIATION and stay leveraged with debt . You pay no taxes

        • Isaac S. says:

          re “on other side govt roles out big stimulus programs for struggling corporations in name of “stimulus to fight inflation”

          it is spent over 10 years, so will not significantly increace or affect general inflation rate this or next year.

      • Escierto says:

        Exactly right. If I was Biden I would be in Powell’s office every single day screaming at him. Of course this would be completely out of character for the pansy in chief.

        • Djreef says:

          Like Trump was. Phone calls every day to lower rates. 3 tweets a day.

          I still have no idea how we got here.

        • Max Power says:

          In all seriousness, the president should stay out of the way of the Federal Reserve’s policies. Case in point, the 1970s inflation was in large part due to Nixon literally screaming at Arthur Burns.

        • Evan says:

          A pansy is actually a tough flower, but I’m sure the irony of how that word was misappropriated would be lost on someone like you.

      • Digger Dave says:

        Nothing is being done to help people who are struggling the most. Where are land use regulations and laws that discourage sprawl (suburbanization has stolen viable farmland that has pretty much eliminated the local farms industry)? Non-existent. Where are the laws and regulations that discourage housing speculation and make building anything so damn hard? Read about the missing middle – the mom and pop segment of the housing market that has been snuffed out. Where were the laws and regulations requiring basic affordable vehicles and safe roads so the working class can afford to get where they need to provide essential services?

        I’m sorry but this administration came in unprepared to deal with any crisis. I grew up in an old industrial (blue) working class city. I’ve seen nothing done to help my kind of people. What was priority number one? Massive infrastructure spending. Only a careerist politician in hoc to lobbies would have picked this as the most pressing issue in America. Even though the feds already debt spend endlessly on infrastructure (encouraging more sprawl on building new things we don’t need instead of maintaining what we have). This admin deserves to be voted out and if it knew what was good for it, would find a way to get the old man to quit if it wants to have any chance of keeping office for their team.

        • VintageVNvet says:

          Agree DD, with exception ALL the puppet politicians on ALL sides are just in it to line their own pockets while obeying their puppet masters.
          Formerly it could be said the masters were only the old money oligarchy; these days it is also the very very dark money coming from all over the globe because of USA dollar being the least dirty currency, as well as the current crop of corporatists.
          We, in this case the WE who have seen the destruction of the middle class — and experienced the challenges — have said for decades, “Clean HOUSE,,, SENATE too.” Way beyond that basic policy at this point,,, WAAAAY beyond.
          IS and is going to continue to be very messy until some sort of major catastrophe, human caused or not, wipes clean the slate and we start over again once more,,, or maybe this time will be the last.

        • Ethan in NoVA says:

          Building things employs a lot of blue collar workers, no?

        • Harrold says:

          Family farms are long gone, only corporate farms remain.

        • phleep says:

          Huge concentrated non-sprawling high-rise housing going up all around me. Huge rectangular buikldings, no design quality. Density looks like Soviet flats, or NYC. Just because it isn’t happening in some declining area doesn’t support your position, about the presidency or anything else.

        • Digger Dave says:

          phleep, have you actually been anywhere in this country? You think high rises with density is the norm? I suggest you do some traveling on the road. The predominant architecture type is a big house in a sprawling development, rung by arterials lined with strip mall & big box development. Over 50% of Americans live in suburbs. The rest are two minority groups of urban and rural dwellers.

        • Pea Sea says:

          “Building things employs a lot of blue collar workers, no?”

          Employs them and benefits them in other ways, yes. You get a job building a bridge, and eventually you get a safe bridge to travel over. Anyone who actually grew up in a working class city would understand that intuitively.

      • Flea says:

        Got to take care of friends as in banks ,wall street first

    • SS says:

      I think its not the markets but whole administration that is in denial. How can they think about facing really angry voters in next elections.

      It’s not that opposition has a better plan, its just that they are not in administration as this shit plays out.

      I worry for future of America. I do feel majority of Americans will get poorer for foreseen future.

    • Bobber says:

      The only person coming out of denial is Powell. He reduced rates to zero for many years thinking that would be good, then he does an about-face as wealth concentration explodes and inflation starts running wild, which was a foreseeable direct consequence of his actions. He led markets to a very unstable place.

      What was he thinking the past decade? It had to be something majorly F’d up and illogical.

      • Mark says:

        Exactly so – “What was he thinking the past decade?”

        And the new Irving Fisher thinks 75 basis points will address 18% inflation measured in any honest way ( Volcker CPI).

        Talk about a deer in the headlights …..

      • Nat says:

        It was a perfectly logical “this will make my friends on wall street rich, who will pay me back with all sorts of connections and compensation, F*** everyone and everything else.”

    • Bathelix says:

      We are just backed into a corner on everything now because for so long we have cheated our way out of things. It will be interesting to see what happens now as everywhere is just a rock and a hard place.

      The main thing I can’t understand is why the unbridled optimism still persists when we are faced with so many problems no one has a real answer to … not ones that don’t involve a serious amount of pain anyway.

    • RH says:

      Powell is like a Nile crocodile picking his teeth of zebra meat while claiming to worry about the dangers facing of zebras. LOL. Sure, we believe you care about the less wealthy 95% of Americans, Mr. bankster, sure. Of course, you are not happy that your banksters are netting liabilities reductions of over a trillion dollars a year due to the decrease of their depositors’ holdings by inflation each year.

      Of course, this interest rate increase, like all of those he has announced, will have ZERO effect as to inflation. The banksters’ buddies, the CCP, may actually help tame inflation later this year by crashing China’s economy, because they are depriving it of the economic multiplier effects of funding all that real estate, which already was about a third of China’s economy even without such multiplier effects counted.

      Why are they doing this? It is about the Benjamins which they make (and power accrued thereby) by keeping inflation high so their workers salaries and liabilities decrease year by year due to real inflation running 9% to 15% FOR YEARS. If the CCP does not inadvertently rescue us, watch what Greg Mannorino said in an interview available on youtube to Stansberry Research.

  2. Jackson Y says:

    It sounded hawkish to me too, but Wall Street liked it. Or maybe it was just a short squeeze. The last 3 FOMC meetings have seen huge rallies only to be followed by massive dumps on Thursday.

    • andy says:

      Feels like short sqeeze. In the last few days when the stocks went down, the VIX also went down. Weak bears were capitulating to this summer rally. I was looking for VIX to get to 22 before rally runs of of steam, and it almost got there (22.7 or so). Will be reloading here for the next leg down, perhaps sp500 to 3250 or so.

    • Mickey says:

      Too many disconnects.

      Powell and others say economy is strong. Powell said something to the effect there are too many areas of economy doing well.

      Ok, autos, housing, and retail not doing well.

      CPI ? Many seem to know its more like 15% if talking about inflation.

      Demand destruction? How about the supply side shortage? It was sad, not laughable how many time a politician or bureaucrat says something obviously false that should be challenged but is not.

    • Harrold says:

      DOW just hit a 6 week high.

  3. Arya Stark says:

    It was so hawkish that yields dropped and assets rocketed higher. Can you imagine if he actually raised rates a meaningful amount? Everything would have been limit up.

    Please share whatever you’re smoking!

    • Wolf Richter says:

      Arya Stark,

      Hahahaha, you’re part of the problem that Powell is trying to stamp out. You people don’t get it: the more markets fight the Fed, the more the Fed has to hike rates because it’s through the markets that the Fed transmits its monetary policies to financial conditions, and tightening financial conditions are what lowers demand, which is what tamps down on inflation.

      The longer markets fight this, the higher rates will be going.

      Also, here is the J-Pow trade.

      It worked twice in a row already. And now we’re doing it for the third time. We need confirmation tomorrow.

      I described the J-Pow trade last time:

      1. go long at the end of the day before the FOMC meeting to cash in on the Powell ramp-up.
      2. sell during the press conference
      3. go short at the end of the press conference to cash in on the drop at the end of the day and on the big dive the next day.

      Happened exactly that way the last two times. Waiting for confirmation tomorrow. It would be a hoot to have this confirmed.

      https://wolfstreet.com/2022/06/16/morning-after-j-pow-second-time-in-a-row/

      • Nate says:

        Whelp, I am very curious to see if the Powell trade holds up again.

        Regardless, my gut says inflation seems to be driving policy rather than Powell. No clue how he is going to react if the data is mixed. Never trusted Powell. He wasn’t dovish enough for Trump early, the became the biggest dove during the pandemic. Seems in over his head.

        • ru82 says:

          I heard an interesting pod cast. The person said basically the 10 year is the inflation barometer. It shot up before the FEDs even raised rates. The 10 year is waiting for the FED to catch up.

          This person said we should just do away with the FED attempts at rate hikes and rate drops. They should just use the 10 year as the the fed fund indicator. If the 10 year goes up, the FED Fund rate goes up, etc.

          I went back and looked at charts showing the 10 year vs the fed fund rate. From 1060 to 1980 the fed fund rate chased the 10 year to the peak and it chased it down from 1980 to 2021.

          At least from the charts, the 10 year moved up before the FED did and it moved down before the Fed did. The FED rate always over shot the 10 year treasury going up which almost always led to a recession if they overshot by too much.

          So the 10 year seems to be stuck at 3 basis points. If history is correct, the FED will go to 5 basis and we will start to have a recession, the 10 year will drop and the FED will follow.

      • DR DOOM says:

        I rarely say negative things about a comment but the comment from Arya Stark was Just a dumb-ass cable ready asset barker quality. For the record I have been in treatment and now in recovery for Chronic QT denial syndrome. I caught the disease late at night from a You Tube “expert”.

        • joedidee says:

          Arya wrote – Can you imagine if he actually raised rates a meaningful amount?

          then 1% would want his head
          heck few billion not enough for them

          besides the STOCK MARKET is worse the MADE-OFF
          ie PONZI SCHEME for 1%

          99% need not apply

        • TK says:

          You tube is great for fixing the garage door but finance ? Not so much. I watched the pundits a long time only to realize that half say up and half say down. But they say it with the confidence of Gronk doing Tide Pods commercials. What a world.

        • QQQBall says:

          @DR. DOOM As to QT – how much NET in USTs and MBS did the Fed buy in the past 4 weeks? is that more QE and NOT QT. Not talking opinions, talking facts. The 10-year yield did drop after today’s increase. That’s a fact.

          If JPo raises 100 bps in September it would be vilified as political move.

      • Phoenix_Ikki says:

        Knowing this J-Pow trade and having some track record, did you buy any calls or puts or short for tomorrow Wolf?

        Personally I am too chicken S$$$ to do it, knowing my luck, I decide to do this and it will be the time this play won’t happen

        • Wolf Richter says:

          No, I didn’t trade this. If I had, I wouldn’t have written about it. But I’m having fun with it.

        • Here it comes says:

          While you can certainly expect volatility at these announcements and press conferences, predicting the direction of the market’s response to these events will kill you.

          The sentiment of the market will not react to the same news the same way every time. It depends on where the sentient is.

          Yesterday was a great example. We had the market/sentiment dip and recovery the day before the meeting. Was it related to it? Probably not, but anyone can argue anything.

          The market is like the Honey Badger, “He doesn’t give a sh..”

          Just trying to protect your accounts :-)

        • Phoenix_Ikki says:

          Whew…good thing I was too chicken S$$$ to short, looks like this time the market didn’t follow JPOW trade and closed higher…

          Now only if there’s a trade for hopium, I will go long all day long, apparently market is on a forever hopium ride

      • Arya Stark says:

        Hahahaha, s&p and Nas are both materially higher since last hike. Etherium is up over 60% as well!!! 10 year yield is DOWN.
        Tomorrow may dump, fine. Talk to me in a month. If he was “serious” about doing anything that made an actual difference he would have hiked at least 100 bps today. And if he was upset with how markets aren’t listening then he’d do an emergency hike to send a message. All I hear are crickets.

        BTW, I love your site and totally respect your experience and commentary. Just sick of the BS for the last 20 years. Maybe things will finally change. I just seriously doubt it.

        • Bob M. says:

          I recommend you go all in.

        • Halibut says:

          Well, buy more Ethereum.

        • Cyrus says:

          I agree it should have been 100bps today. If Powell wanted to send a message, he could have done so.

          That said, sometime between now and Sept when the Fed doesn’t change their speaking points bond markets will realize how behind the fed they are have to sell off violently. Stocks will of course follow just as they have all year.

          I guess I will hold out for an emergency Fed meeting in late August as SPY nears an ATH.

        • Cas127 says:

          And…it would help if the Fed treated an emergency like a freakin emergency.

          For instance…how about skipping the vacation and having an *August* meeting?

          Would still have a month’s worth of feedback, instead of letting sixty days go by so the Fed can go get a tan.

          It would be a bit disconcerting to have an interim meeting…but less so if you announce it four weeks in advance instead of the night before.

          Seriously, how dumb is it for the Fed to allow 60 days to go by right now?

        • Depth Charge says:

          “Ethereum”

          We’ve got a tulip barker, folks!

        • Arya Stark says:

          No Jpow trade today folks. Recession = lower rates = too the moon Alice! :)

        • Wolf Richter says:

          Arya Stark,

          Update: J-POW trade starting to line up timidly, S&P 500 now -0.5% about 35 minutes into it regular trading. This is not the hoot I was expecting, but the day is still long, and who knows what might happen.

        • robert says:

          Go long on hopium. Every politician knows to not vote against it.

        • Pea Sea says:

          Powell trade failed spectacularly today. What does that mean going forward?

      • historicus says:

        “…go short at the end of the press conference to cash in on the drop at the end of the day and on the big dive the next day…”

        the markets rallied after Powell finished his last testimony with the House on June 23…..markets have been up going into this July meeting…Dow up 1500 pts in that time period

        • Wolf Richter says:

          historicus,

          OK, let me give you what actually happened:

          On June 15, day of press conference, the S&P 500 jumped 54 points, and the Nasdaq jumped 270 points. But 30 minutes before the close, markets started dropping.

          On June 16, the S&P 500 plunged 123 points and the Nasdaq plunged 453 points.

          Worse, from the peak frenzy 30 minutes before the close on June 15, to the close on June 16, the Nasdaq plunged 512 points.

          That’s the J-Pow trade.

          Today, we already got the drop from the press conference to the close (-46 pts on the Nasdaq), now waiting for a dive tomorrow for confirmation of the J-Pow trade.

      • Depth Charge says:

        “Hahahaha, you’re part of the problem that Powell is trying to stamp out. You people don’t get it: the more markets fight the Fed, the more the Fed has to hike rates because it’s through the markets that the Fed transmits its monetary policies to financial conditions”

        Nobody is taking Powell and his little plastic squirt gun seriously, Wolf. Nobody. Roaring inflation is entrenched, and the last thing somebody thinks about is Yellow Powell as they hurry up and buy everything that’s not nailed down because they expect the price to be even higher next week.

        • Cytotoxic says:

          They will either start taking him seriously soon the easy way or later the extremely painful and bankrupting way. The fed will not relent in this fight, and there is no reason not to assume that they will eventually win. The issue is one of how fast they achieve the victory.

        • jr says:

          Personally I’m not seeing much inflation. My houses are all free and clear so I’m not effected by the housing ramp. I don’t buy food, my wife takes care of that and she doesn’t seem to think prices are up much, especially since we make just about everything from scratch, bread, cereal, pasta, salad dressing, etc. I bought a couple of new cars in the past year for 41k and 31k about 5% under MSRP, not bad. Bought some nice floor tile today for 1.49/ sq.ft. and some plumbing fixtures for no more than they cost a couple of years ago. Last week I bought 1800 concrete pavers for $3.11/ sq.ft. the last time I bought them in 2019 they were about 4.00/ sq.ft. I bought a bunch of vac freezer bags from a restaurant supply recently and they were the exact same price I paid for them in 2019. I buy a tank of gas about every 3 months so not too put out by fuel cost. My houses are all electric and very energy efficient and while my electric co-op raised their facility fee about 4% the KWH charges haven’t changed. The Medicare advantage plan that cost me an extra $75/month last year costs -0- this year. I don’t doubt that there is raging inflation out there, I’m just not seeing it up close.

        • Depth Charge says:

          “The issue is one of how fast they achieve the victory.”

          As slow as they possibly can, to permanently park asset prices at a new, higher level. These guys are running a con job.

        • SoCalBeachDude says:

          The Federal Reserve always makes policy decisions by CONSENSUS OF ITS 12 MEMBER FOMC (Federal Open Markets Committee) which is comprised on the 7 BOG (Board of Governors) of the Federal Reserve plus 5 of the 12 regional bank Presidents. The Chairman of the Federal Reserve is merely one of the 12 members of the FOMC and NEVER makes any policy decision unilaterally.

        • Old School says:

          JR

          Well done. Government and Fed make policy and we have to use our brain to live the best life we can.

        • Jezabeel says:

          Agreed. Furthermore. They know politically Powell can’t raise rates much more into a recession. Markets say “come at me bro”.

      • KPL says:

        May be people will get it if the Fed raises more than expected or if they hike between meetings. But then the Fed is too timid to do that.
        So basically it is a cat and mouse game with the market daring the Fed to do more and the timid Fed always feints and withdraws.

        • Ben says:

          Jr
          I’m thrilled that you are not experiencing inflation and have a complete handle of things. I did not see what rate you are paying for electricity. $/kWh posted but living in Texas I do know for a fact our rates have increased 50 percent from the 0.08/kWh to 0.14/kWh current.
          The survival of the human race depends on people to be born, mature over 25 years, find a spouse, find a job, find a home, eat, sleep, and transport themselves.
          The working class vs retired class is dealing with low wages higher fuel rent and food prices while trying to feed the new babies in the family.
          They need help now as the 1 percent have bought up all the assets with the ZIRP fed funds.
          I don’t want the poor and middle class to suffer I want higher rates now.
          Slow in coming but the rate of change is rising.

      • Pstuartb says:

        I think Todd Harrison used up call this trade “fade the Fed.” Or maybe it was Bill Meehan, or someone that used to write articles for TheSteet before they disassociated themselves from Cramer. Anyway, it’s a venerated trade with a lot of history.

        Great site, Wolf, been a reader for many years.

      • Alte Ami says:

        Sure enough the front half complied. I missed out on buying TQQQ yesterday, but I did jump in today at 3 on the sQQQ and SRTY. It’s like everyone knows how it will go – a feedback loop. I considered the prior discussion about a contrarian play kicking in, but it doesn’t appear to be this round.

      • DP says:

        I believe you’ve missed the mark on this one Wolf. This one isn’t like the last one. With a now “data depended” Fed for sept. the risk/reward equation is now firmly in the rates have peaked category, which couldn’t be made more clear then in eurodollar futures. Some serious hedging going on there. Sentiment is a fickle thing, when we saw markets doing nothing on bad news, it should have been the first clue that leverage is ready to return to work.

      • Senny says:

        All I could picture this morning while markets started tanking was Wolf dabbing.

        • Pea Sea says:

          What did you picture when the markets took off and finished well in the green?

      • Egon says:

        The pattern is broken. That is a buy signal for stocks, although just temporary.

      • SnotFroth says:

        So much for that JPow trade today Wolf. Nasdaq up 1% and 30-year fixed mortgage rate down 0.32%. Another drop like that and we’ll be back in the 4s.

        You have a lot of conviction in an organization that 6 months ago you were calling the most reckless ever.

        I know it’ll take years to play out, but if the Fed does end up faltering for whatever reason, I’ll get you special ratcheting wrench that makes clicking sounds when you turn it anti-clockwise, just spins silently when you turn it clockwise, and “Financial Condition Tightener” inscribed on the handle.

      • Bixem says:

        Wolf, Inflation is created by supply-push and demand-pull. Current, the world have supply-issue more than demand (not equal to pre-covid due to china lockdown).
        If supply is still stuck and China decide to open. Increase rate not stamp out inflation easy, we need to repair the supply chain

        • Wolf Richter says:

          Bixem,

          Inflation is to a large extent created by the “inflationary mindset” – when people pay whatever, instead of walking away.

          NOTHING is easier to walk away from than a vehicle purchase. Most people can keep driving what they already have. But they WANT a vehicle, and when the inflationary mindset kicks off, they’ll pay whatever instead of negotiating or walking away. And dealers realize they can charge whatever and still sell it, and then they’re bidding up wholesale prices because they know they can get customers to pay the big retail prices. That’s how it started in late 2020 and early 2021, and used vehicle prices spiked by 40% and new vehicle dealers slapped addendum stickers on their MSRPs, and customers paid whatever.

          I was screaming about this inflationary mindset since early last year. This was a HUGE warning sign that something very BIG has changed.

          There was NEVER a shortage of used cars, and yet prices spiked by 40% last year because the inflationary mindset let it happen.

          Now, this has crept into services, and we’re seeing service prices spiking. Nothing to do with China.

    • Flea says:

      3 ring circus= canine as a smart investor stated

    • nick kelly says:

      After 500 words of ‘maybe this, maybe that’ CNN’s business piece sums up its analysis titled: ‘Wait, why did stocks just rise?’

      Their conclusion, exactly : ‘we give up!’

      • Nat says:

        I think a high probability explaination (though still just a guess on my par) is the big players noticed that everyone figured out the Jpow trade, and took the other side to try and flease people.

  4. OutWest says:

    3 month T-bills look like an interesting option right now. I’m trying to play it safe until this blows over.

    • rojogrande says:

      If you expect another hike in September, the 8 week T-bill is also a good option.

    • Old School says:

      Vanguard Federal m/m was at 1.5% yield before today. I assume in a month they will be at 2.25%. My credit union pays nearly zero, so they lost nearly all excess funds.

      10% cash
      5% precious metals
      10% stocks
      75% short term treasuries

      Stocks going to need to be cheap if I ever buy them again.

      • Spaceman says:

        Old School

        I checked our Credit Union cd rates this morning and they are offering a 25 month cd @ 2.50%. I’ll start laddering cds again while the gettin is good.

        Agree with your comments on buying stocks. Though I’m not sure what cheap is anymore.

        • Mendocino Coast says:

          ? You Can get just about that Rate Liquid Now ? Why the CD ?
          Example is 2.02 @ Bask Bank soon to go up now with today’s 3/4 rate hike. ( Tie up the Money for 25 Months ? Humm )
          When their is a” Rate Hike Banks ” and Credit Unions don’t Match
          the Rate Hike but rather a % of it and perhaps add in some more
          Often just before the next Rate hike.
          I expect this is a Ploy to keep the funds in house longer Promoting Profit.

      • jr says:

        I have 2 savings accounts that pay 1.65%.

      • Phil says:

        i don’t understand. can you elaborate? it’s a communication thing. ever see cool hand luke?

    • DR DOOM says:

      I am in Treasury Direct rolling over 8 week bills on all my cash. So goes the Empire so goes me because I know that I don’t know what comes next. Like Dirty Harry said before the bomb went of in the car of his boss.. Gotta know your limitations.

    • Phil says:

      look interesting, or are you going to do it? there’s a lot of window shopping on this site, and boring talk, and as Bob sang in Maggie’s Farm, ‘I get bored’.

  5. 2banana says:

    Mr. Market up big.
    Dollar down.
    Gold up…

    Someone is a lion!

    • Wolf Richter says:

      Wait for confirmation of the J-Pow trade tomorrow. See above, and read all about it here:

      https://wolfstreet.com/2022/06/16/morning-after-j-pow-second-time-in-a-row/

      • 2banana says:

        “…slow the pace of increases while we assess…”

        Advance signaling ahead for foot off gas pedal.

        • Wolf Richter says:

          As I pointed out, if they don’t slow down, they’ll be near 5% by year end.

          From 0% to 5% in 10 months. That’s a LOT. I’m fine with it, but that’s a big adjustment.

          So they’ll do 50 or 75 in September plus 25 each in November and December. That makes sense to me.

          Unless inflation keeps getting worse, and then all bets are off.

        • cd says:

          I doubt we see anything over .25 in Sept before mid terms….then nothing till December..

        • 2banana says:

          With real inflation at 10%+???

          “From 0% to 5% in 10 months. That’s a LOT. I’m fine with it, but that’s a big adjustment.”

        • c1ue says:

          @Wolf
          The question is also: is QT accelerating or just the tepid “expire and not renew”?
          That’s pretty important – did not see any mention in your summary.
          As for inflation: fund of flows seems to be responsible for the July swoon in energy prices, but it is very far from clear to me that this is structural vs. tactical. More importantly, it is increasingly less clear to me that US/EU recessions will correct the supply/demand imbalance worldwide.
          G7 share of world GDP has fallen in half since 1990, plus I just read that Africa has at least 100 GW of diesel electricity generation because they can’t get the money to pay for even nominally reliable grids. That plus the apparent ongoing lack of fossil fuel industry capex increases vs. commodity price increases vs past price upswings – maybe it is different this time.
          And even if energy prices don’t re-accelerate past $120/barrel plus NG equivalent – late summer/fall is supposed to be when the first post-2/24/2022 crops (and effects of massive fertilizer etc price spikes) are supposed to be coming in, so it may well be that a reduction in the yoy energy price increases is offset (and more than offset) by food price increases plus catchup from rent/OER increases.
          Interesting times.

      • RockHard says:

        With Meta and Qualcomm missing earnings after the close, I’m thinking tomorrow will be a good morning to be short, at least on the NASDAQ.

  6. Old school says:

    The Fed is licensed to lie like James Bond is licensed to do certain things. Probably best thing to do is ignore everything that Powell says. Can’t really predict the future anyway so you have to manage your risk all the time.

    • unamused says:

      “Probably best thing to do is ignore everything that Powell says.”

      That’s second. The best thing is to pay attention to what Our Illustrious Blogger says about what Powell says.

      “Can’t really predict the future anyway”

      There’s such an endless list of contrary examples that the assertion is easily shown to be absurd, and you could no doubt come up with dozens yourself.

      You may not want to believe it, but it is also possible to prove a negative, incontrovertably and conclusively.

      • Nate says:

        Call me absurd but I have yet to meet the dude who can predict the future consistently. I know I cannot.

        But if you can, why are you not off being Buffet rich? Lotta money to make if you have a working crystal ball.

        • unamused says:

          The sun will rise in the east and set in the west tomorrow.
          If interest rates are too low for too long it will lead to inflation.
          Water will boil if you heat it enough.

          How am I doing so far?

          The so-called J-Pow trade model says US equity markets will be down tomorrow, and is nearly certain to be correct until too many traders pile into it.

          It’s okay if you don’t want to think outside the box, but you really shouldn’t keep yourself crowded into a corner. In the meantime you don’t want to play mumblety-peg with me. I’ll steal your leg.

        • Halibut says:

          Scattered darkness tonight…

    • Anthony says:

      On the other hand, it may be time for the Fed to destroy the markets/housing. They like to do it every so often , so why not now….

  7. unamused says:

    ‘He said that the risk of “doing too little” is that inflation might not come down’

    The Fed has been “doing too little” for years. That wasn’t working for them, so now they’re trying the “do as little as possible” approach.

    Mister Market is not impressed, but then, he’s a sucker for the J-Pow trade. Herd behavior is often predictable.

    • COWG says:

      “ The Fed has been “doing too little” for years. ”

      Except for a moment in time circa late 2018…

      And then was clubbed to death with a feather duster…

      • Cas127 says:

        Exactly, nobody should forget how the Fed folded like a lawn chair in the Fall of 2018 because the SP 500 dropped 20 pct (going from a 25 PE ratio to a 20…with the long time ave being 15…).

        Our Dr. Mengeles of MMT have for “fine tuned” their centrally managed bottle economy into the abyss.

        • Wolf Richter says:

          Cas127,

          Only the clueless compare 2018, when inflation was BELOW the Fed’s target, to 2022 when inflation is raging at 9%. Get a grip!

        • Cas127 says:

          Much better to be ahead of the problem (in 18/19) than behind it (in 22), right, Wolf?

          The inflationary cancer accumulates from yrs and yrs (and yrs) of ZIRP.

          The Fed treating inflation as a good (at bottom because it empowers stealth DC spending power) is what has led us here (starting 20 yrs ago).

          Waiting until the machine blows up to stop pouring fuel all over it, is not leadership/judgment.

  8. Freddie says:

    The Federal Reserve and Bank of Canada rate will be 4% in the next 6 to 9 months. This is why anyone with a reverse mortgage here in Canada is in big trouble. It is 8.33% right now and was much lower 5.25% just the beginning of this year. It will soon be 9% by September-2022, 9.75% maybe more by 2023, probably February, March-2023. Like George Carlin would say,the greatest comedian ever, they gotcha by the balls.

    • Venkarel says:

      I miss George. I saw him once at the MGM Grand in Vegas, good show. Carlin in Carnegie was my first introduction to him and I still laugh my ass off when I watch it.

      • Miller says:

        George was a gem. So much knowledge packed into such a brilliant presentation. And a better economist than a lot of the pros these days in understanding the financial condition of people on the street.

  9. Phoenix_Ikki says:

    “During the post-meeting press conference, the most hawkish press conference I’ve ever listen to, Powell tried to get the message through to the markets that getting inflation down is the #1 priority, and that the Fed would get it back down, come heck or high water.”

    Yeah that message is not getting through to QT deniers, I am starting to view QT deniers the same as religious fundamentalists. That ship has sailed and no amount of evidence or data will change their mind. QE will also be right around the corner in their mind

    • rojogrande says:

      QE must be as psychologically insidious as high inflation expectations. Once it’s lodged in someone’s head it’s very difficult to dislodge. In the future, the FED may want to keep QE expectations well anchored, preferably by not engaging in QE.

      • Cas127 says:

        Yes, the surest way to avoid crack addiction is to never take crack.

        But DC will cobble together theories about how crack really isn’t crack, how a little can sometimes help, how de-cracking is worse than crack, how a sub-optimal path of crack whore employment requires additional crack.

    • Confused says:

      The expression “QT deniers” bothers me because it seems to be used in this blog to describe two types of Fed watchers: (1) those who think the Fed isn’t raising rates or reducing its portfolio of long-term bonds at all; and (2) those of us who think the Fed ignored inflation during 2021 and is raising rates and reducing its bond portfolio way too slowly.

      • Eastwind says:

        I wasn’t sure what a QT denier was when I read DR DOOM’s comment, but I know there have been a lot of articles about how the fed “can’t” do this or that, and “can’t” do QT is on that list. There are those saying the fed can’t raise rates because we have 180% debt to GDP and we can’t pay the interest, that the fed can’t do QT because interest rates will blow out, etc etc.

        I think a lot of people mistake what the Fed’s mandate is: 1) fight inflation, 2) stable employment. Market stability is only a means to those ends, not a mandate. The market has gotten hooked on its fed-supplied baby formula and is gonna squeal like a stuck piglet when the bottle is finally pulled.

        Powell is wearing his Volker 2.0 tee shirt, for now, but it will be harder for him later on in this cycle, and I still think there’s a material possibility he will pick an excuse to wimp out before the inflation job is really done.

        They’re already weaseling by saying inflation has to be “on the way” to 2.0% rather than at 2.0%. That sounds like any little down-tick might give them an excuse to pivot too early if they’re feeling too much heat from the White House or the WEF or anyone else they’re beholding to.

        • rojogrande says:

          “Powell is wearing his Volker 2.0 tee shirt”

          If Powell had ripped open his shirt a la Superman to reveal the capital “V” maybe the markets would finally get the message.

        • Cytotoxic says:

          ” I still think there’s a material possibility he will pick an excuse to wimp out before the inflation job is really done.”

          I just don’t see anything in his statements to support this. Powell has gone right out and explicitly said that he messed up and was wrong. He’s not Arthur Burns.

        • Wolf Richter says:

          Yes, thanks for bringing this up. I thought this was fascinating. “I probably wouldn’t do it again,” he said.

        • rojogrande says:

          Cytotoxic,

          I agree. Powell went out of his way to talk about how inflation hurts wage earners and poor people the most. I’m not sure what he was referencing, but at one point he said there’s been a drop in food purchases among low income Americans. To think he’ll pivot because of stock market gyrations doesn’t fit with that statement. That would be evil, and for all his policy errors I don’t believe he’s evil. I think the FED thought they could get away with the QE and interest rate repression, misread the surge in inflation, and it got away from them. Now they have to bring it back down.

        • Miller says:

          yeah a lot of good points. Although some might offer criticisms that the Fed isn’t moving fast enough, there’s still a huge crop of investors and squawkers in full denial that the Fed is serious about inflation. That’s what a “QT denier” means imho–someone who argues that a QT stop and massive QE is right around the corner, with moving to ZIRP interest rate cuts to boot. They believe in the PPT myth and their argument is essentially that the Fed cares about the equities markets (and basically keeping bubbles inflated) more than anything else, which is just dumb. The Fed’s job #1 is to control inflation, and not because of some random policy statement but because inflation kills nations. Of all economic hardships, runaway inflation is the most disastrous to have and has been the main factor in bringing down many large empires and great powers in the past.

          Some of the QT deniers try to point to history like in 2018 and 2010, but like Wolf and a lot of people have been saying here, the fatal flaw in this thinking is that all of those cases of Federal Reserve monetary policy “coming to the rescue” were even barely possible because inflation was low. That’s why the unwinding of the current asset bubbles in the Everything Bubble is likely to cause a profound recession, maybe comparable to 2009. At least in 2009 and 2010, inflation was low, and the Fed was genuinely worried about the banking system itself collapsing with all the mortgage defaults. The difference now is two things. First, the financial bill in 2010 means essentially, United States taxpayers are on the hook if foreclosures get too high–there’s no danger of banks failing and no need for the Fed itself to intervene. And much more important, inflation is sky-high now compared to 2009 and 2010, so the Fed simply doesn’t have ZIRP or QE as options anymore. The more comparable historical period is what Paul Volcker faced in the early 1980’s with stagflation and even an inflationary recession (the worst possible kind) as consumers get squeezed for bare essentials and don’t have discretionary savings, leading to a vicious-cycle debt bubble as everything gets more expensive but wages don’t keep up. The solution is hard tightening and a rough recession, that nonetheless resets prices and leads to a strong recovery, just like we saw in late 1983. If inflation doesn’t get under control, then the US winds up dissolving into social unrest (and possibly balkanization, with how divided the USA already is) and investors completely lose confidence in our financial management and soundness. Compared to that existential risk to the very viability of America, propping up the markets is way low on the Fed’s priority list. And despite the naysayers, the Fed has been aggressive in words and the deeds. Just 3 months ago, even two straight 50 bp hikes were considered inconceivable and off the table. But now the Fed has hiked by 0.75, not just once but twice in a row. When you combine that with QT and the Fed’s actions with reverse-repos, we’re not really that far off from the aggressiveness of Paul Volcker in the early 80’s.

        • Old school says:

          Fed’s hubris to run experimental monetary policy hurt and is going to hurt a lot of innocent peons. It’s tough to play God.

        • Eastwind says:

          I agree Powell hasn’t yet given any sign of wimping out. It’s just that I’m skeptical that he’s got the fortitude to resist political pressure the way Volker did. And I believe inflation isn’t going to go away until interest rates are a lot higher than they are now, and the recession is a lot deeper. Michigan inflation expectations were still up. PCE was still up. I would count it as a wimp-out if they pointed to core PCE and said “see, that was down a tick, we can back off now”.

          I believe the only sane course of action is to take Powell at his word until he breaks it. But that doesn’t mean I can’t be skeptical about his commitment. The hard days are ahead. Up until now he could deny that his policies were going to put the economy into recession and spin some happy talk about soft landings. That’s a delaying tactic that will eventually expire, and he’ll be forced to recognize the recession just as he was eventually forced to recognize inflation wasn’t transitory.

      • Pea Sea says:

        If you think the Fed is reducing its bond portfolio too slowly, you’re a QT critic, not a QT denier. And you’re in good company.

        QT deniers are people who can’t read a chart.

  10. Phoenix_Ikki says:

    Btw, papa Powell, at this point, he should probably just STFU about this and still give people false hope. Much like inflation is transitory, just STFU and don’t mention it again….

    ““A soft landing is our goal, we keep trying to achieve it,” he said, but it’s “a very uncertain thing.””

    • Old school says:

      Powell knows he screwed up on the transitory thing so he is not over promising a soft landing. Powell can not be wrong again two years in a row as the system is built on confidence that the Fed knows what it’s doing. No confidence means no investment.

      • Rudolf says:

        Yes, but does it even matter if the system is preemptively based on actors playing out their roles for the infinite amount of time? Does Powell lose his position because he failed to maintain that confidence or just because it had been decided beforehand?

        I’m genuinely curious as to how this Federal regulation work, as a spectator from abroad.

  11. Roger Doger says:

    There is some mechanism at play that is resisting all markets returning to or below their pre-pandemic levels.

    DOW 29000, S&P 3300, and NASDAQ 9700.

    I believe things don’t truly get interesting until they do. That is, when the COVID bubble is completely wiped away.

    Perhaps the markets are resisting returning to normal, like some politicians.

    I’m not a trader, just a guy who looks at the longer term graphs to try and determine what should be expected, in a sane world. I must be insane. ;-)

    • Old school says:

      If we have a 1 in a hundred year low valuation then price to sales would be 0.5 which puts us way below 1000 on SP500. I think we are ripe for it because leverage is so high and we had Zirp for a decade.

      Pendulum swings both ways. Excessive risk takers get wiped out in bad recessions and have to start all over.

  12. cd says:

    Inflation is backing down, just like they were late in catching it, it peaked.
    TNX is at April levels. Everyone short got roasted again.

    You would think after watching Britain that produces nothing and has high home prices, heck, high prices in everything since its not a commodity state keep going north after losing reserve currency. Then throw in last 14 years of the fed game and every financial trick not in a book. Why do people believe the end of the world, US, RE, Market, Bonds is anywhere near.

    Its bewildering…big moves are so infrequent that only institutional shorts can make a living off that angle. They are so fast literally you will be waiting for 20-30 years for it to happen, then its over in 1 year. Most of profit in initial down move as smart money plays smart….

    perplexing….what a great day to be long, SOXL trade is sweet, yield a plenty in NG….blue skies, birds singing….party on Garth…

    • Dan Romig says:

      CD?,

      No, my digital disc with SACD is not British, but for analog vinyl, my phono system has a Rega ‘table, arm and cartridge; made in England two years ago. Phono preamp is made by Graham Slee; in England two years ago.

      There’s a new McLaren GT PIONEER in Chicago @ 645 West Randolph Street for $230k that beckons me. It is made in England.

      Some very high-end products are made in England. Mercedes makes their Formula 1 power unit, chassis and cars in England.

      • Halibut says:

        I have a Gibson from Bozeman. Us poor folk gotta make do with the simple stuff.

        • Dan Romig says:

          If you want to switch to a Fender, you can pick up a nice Fender x MoFi PrecisionDeck turntable with a Mobile Fidelity arm and ‘Master Tracker’ cartridge for $3,500. They are made in the USA.

        • Mark says:

          Somebody give this guy a Martin !

          Life is short …. He deserves the best.

      • Anthony says:

        Most formula 1 cars, apart from the Italians, are made in England….

  13. breamrod says:

    you must look at capital flows. Europe is sinking and the money is coming here. The U.S. Dollar will be the last to fall. Wall Street is always in denial until the bottom!

    • Miller says:

      That’s unlikely to have anything to do with it. Based on the way the housing market is correcting and crypto and equities are struggling, capital is flowing out of US assets far faster than it’s flowing in. In fact one of the reasons for the harsh hits to the US housing bubble is that Chinese and other foreign investors have been rapidly pulling their wealth out of American housing at the top of the bubble, to avoid taking losses (with a lot of American families and investors as the bagholders). EU assets aren’t in great shape either, but in general there’s a flight out of risky (and clearly overpriced) assets and into safer options. As it should be, there’s a reason it’s called the Everything Bubble. There’s nothing national about capital flows right now, capital is flowing in all kinds of directions into and out of countries, but the general pattern is getting the heck out of real estate, equities, crypto and other asset bubbles that were only fueled by the blunders of ZIRP and QE in the first place.

  14. Gen Z says:

    HIKE the interest rates SOME MORE and CRASH the Canadian housing market.

    • Anon1970 says:

      The Bank of Canada can either crash the C$ and get runaway inflation or crash the housing market.

      • Sams says:

        Do notice that C$ can be considered do be real estate backed. Crash the housing market and the backing of the currency crashes.

        Now, how do want to crash the C$?

    • AK says:

      I suspect that Canadian government will find ways to protect the housing market from the increases in interest rates. They can allow longer amortization periods, for example, or allow interest-only mortgages, or do other creative tricks. Like you, I would love to see housing prices go down, but I suspect that they probably won’t (in meaningful way).

    • Miller says:

      Canada’s housing bubble is indeed totally insane. I thought the housing bubbles in the US markets were nuts and they are, but Canada goes to a different level in propping up real estate–I’ve been hearing from even well paid professionals in Canada (doctors, lawyers, engineers) having to group with roommates to afford rent for a modest home outside a city center. This is happening in many of the inflated US markets too (hard to afford even a run-down shack in much of California and New York and New England), but Canada takes it to a new level–and it’s not even in the big cities like Toronto or Vancouver, even the smallest cities in the ice-cold provinces have been seeing these price rises! Same in Australia and New Zealand. Family formation there (and in the crazy inflated US housing markets) is collapsing to Japan levels or lower because young people can’t afford even a modest starter home to start a family. Asset bubbles always come with problems, but it was the height of stupidity to use ZIRP and QE to inflate a bubble in something so essential as housing (and in healthcare and college tuition in the US).

  15. Minutes says:

    Watching his press conference it didn’t seem hawkish to me. Easiest way to see that was dollar selling off the whole time. One day for sure but not sure Powell did a very good job communicating today. Imo.

    • Jon says:

      It wasn’t hawkish to anyone, well except….

    • Miller says:

      Part of Powell’s problem is just that he looks like the bumbling, absent minded college professor who realizes he forgot his lecture notes when he gets to class. And he just doesn’t have a firm or determined voice. I looked at his transcript after his talk and it really does look a lot more hawkish when you just see the words alone.

  16. Yancey Ward says:

    Look out at the world- where would you think to stash your cash if you were outside the US borders?

    Today’s action makes me even more confident that new stock market highs are coming in August/early September. It doesn’t have to be rational, it never did.

  17. Iona says:

    Looked like bots buying to me, just check the moon shot from Shopify.

    Facebook after the close announced ugly results and more ugliness going forward. Today’s post fed rally was a takeout IMO.

    • andy says:

      Shopify did not even make it back to Monday’s price. After falling 80% in 8 months. But yeah, moon shot!

    • Miller says:

      yeah, and probably a lot of short covers there. Maybe another reason for what Wolf’s been describing with the FOMC announcements and the zig-zagging after it.

  18. Cookdoggie says:

    On the last graph, I notice that red inflation line fell swiftly about 8% in 2009, from a 6% rate to negative 2%. I assume that was in line with the recession at the time but not sure. Notice also the EFFR wasn’t above that red line at the time, pushing it down. Inflation just crashed.

    Seems like something similar could happen this time, and voila, no more rate hikes needed and cuts forthcoming. But it will take a good recession, not just mopping up reverse repo’s and getting the unemployment rate to rise 0.1%.

    Still, I think we all know there won’t be nearly enough pain allowed before the medicine stops. It just takes such little adversity anymore to make people cry uncle. They cancelled our farmers market in town today due to a heat advisory. It’s 89 degrees in our Tacoma suburb.

    • Wolf Richter says:

      In late 2008, the economy collapsed when the Financial Crisis took down Lehman and AIG, and people thought that the whole financial system would collapse. And consumers and businesses STOPPED buying. They just stopped buying. Demand just vanished the day after Lehman. That was a huge event.

  19. Tbv3 says:

    Powell rebuffed labor-market-minded critics by saying stuff like :

    1. Without price stability you can’t have a sustained labor market.

    2. The risks of raising rates too little is greater than the risks of raising rates too much.

    3. We need growth below potential to create (labor market) slack.

    4. We need to see a pattern of inflation trending down.

    Advance GDP drops tomorrow; Core PCE (the Fed’s inflation yardstick) drops Friday; nonfarm payrolls drops Friday (Aug 5); CPI drops Wednesday (Aug 10).

    If those numbers are “hot” the likelihood of a third 75 bp hike will increase and 10-Year Note yields could easily rise 40 bps in two weeks.

    I say keep buying 28-day T-bills (currently yielding 2.15%).

    • Wolf Richter says:

      Yes, I thought it was pretty slick how he pulled the rug out from under critics that are pounding on him for trying to raise unemployment. He did that at the June press conference too.

  20. JGP says:

    Raising interest rates will in due course deal with inflation and damage the production side of the economy even as it cools demand. A better solution would be to gut the bureaucracy, reduce the regulatory state and stop all the insane spending. But there is no hope of that … alas.

    • unamused says:

      The reason you have bureaucracies, and regulations, and government spending is because much worse things happen when you don’t than when you do.

      Try removing the flywheel from your car’s engine and see how that works out for you, but put a down payment on another vehicle first.

      The libertarian worship of individual freedom, and contempt for social convention, comes easiest to people who have never really had to grow up.

      • two beers says:

        Otherwise highly intelligent people become credulous fools owing to a mystical misinterpretation of Adam Smith’s throwaway line, taken out of context, in a book neither they nor anyone else they know has ever read…

        • unamused says:

          The paradox of Adam Smith is that he knew that markets had to be regulated to be free, because in his time mercantilists had them locked down, and many like Smith locked out.

          “Wealth of Nations” is derivative to his “Theory of Moral Sentiments”, and my copies have long been tattered.

      • Spaceman says:

        Unamused

        “The reason you have bureaucracies, and regulations, and government spending is because much worse things happen when you don’t than when you do.”

        A necessary evil that needs to be kept on a short leash.

        • Cas127 says:

          Una,

          Comparing real world market dislocations to some idealized version of government actions is always going to make the G look good.

          But it ignores the fact that 20 yrs of G engineered ZIRP lay at the bottom of the worst housing collapse in US history and now likely another.

          There were plenty of private sector villains, but without the unprecedented depth and duration of ZIRP, their villainy would have had little fuel.

          DC handed them a 20 yr supply.

        • unamused says:

          Cas127, you’re disingenuously blaming the government for that which The Fed did.

          If you want the government to be less corrupt you’re going to need to stop blaming the government and start blaming the corporations and corporatists corrupting it, instead of voting for their candidates.

          Good people make good government.
          Bad people make bad government.
          Which kind are you? Tell me you’re not the kind who wants to replace democracy with ruthless corporations, because you’re not going to solve your problem if that’s what you get.

      • Cytotoxic says:

        “The reason you have bureaucracies, and regulations, and government spending is because much worse things happen when you don’t than when you do.”

        100 years of data demonstrate otherwise. We have Honk Kong and Dubai on our side, you have the Nordic states and other clean orderly hovels on yours.

        • unamused says:

          “100 years of data demonstrate otherwise.”

          Hong Kong and Dubai have bureaucracies, and regulations, and government spending too.

          You don’t have to pretend you’re blind to be dishonest, Mr. Toxic.

        • Sams says:

          Well, I do live in one of the Nordic states. Be sure they have government, regulations and bureaucracies. They are very regulated and governed. When it comes to governing society the Nordic countries do have a much stronger state than the USA. On the other hand, corporations have less power in the Nordic countries.

          An interesting example is consumer protection. In the USA it looks like that is left to the individual in the courts. In Nordic countries product and commerce standards enforced by the government take care of much.

      • Happy1 says:

        Bureaucracy and the regulatory state is accountable to no one. The US would be a far better and freer country without it. It isn’t remotely similar to a critical car engine part, it’s much more like barnacles entrusting a ship with weight and drag. And because there is no accountability there is no limiting principle. Which is why “navigable waterways” become “a puddle in your back yard ” to Federal regulatory agencies. So Congress doesn’t have to make the hard decisions.

        • MarkinSF says:

          So I guess you don’t care about safety standards for the food you buy. Or the water you drink. Or the maintenance of the power grids you depend on for heat in the winter and ac in the summer. Or the roads and highways you drive on are maintained. Or the public services like police, laws the courts. Basically “society” can only exist with these darned rules and regulations. Maybe you can afford an island somewhere and declare yourself King.

        • Happy1 says:

          @MarkinSF

          Didn’t say I don’t want laws and regs. Did say the regulatory state is aqn problem. We can have rule of law without crushing repressive regulatory state. It requires Congress to get off its fat rear and make laws rather than creating bureaus with vague guidelines that create laws ex nihilo with no accountability to you and I. If you have spent even a year in any kind of workplace you can see that 99% of regs have nothing whatsoever to do with what you are talking about. OSHA, HIPAA, EPA, you name it, days of wasted time and training for zero real world protection or benefit.

      • Christopher Burrell says:

        Unamused, the real issue isn’t whether the engine has a flywheel or not, but whether the engine has the proper size flywheel for it to be balanced. Republiscams love very little regulations which causes no checks or balances in the private sector, but Demonrats LOVE over regulation that cripples the private sector, there are very few politicians in Washington on either side of the aisle that have a balanced approach, most are for one extreme or the other. Also, half of the FED: the Board of Governors is totally political, appointed by the party in power and are employed by the federal government, and the government sees to it that they have a one vote majority rule in every decision made. Therefore the District Banks which are the private side and the Board of Governors which is the government side are equally at fault for all decisions made by the FED. It is very disingenuous to lay all the blame at the feet of the private sector. It is true that bad people make bad government, but the problem with your premise is that the ONLY candidates the Uniparty ever gives the voters as an option, are corrupted candidates who are bought and paid for by the lobbyists. You love being critical of Republiscams, yet I rarely see you criticize the Demonrats, yet as a whole, they are just as compromised and corrupt. A fish rots from the head down, the entire leadership and structure of both parties are corrupted and compromised and have zero desire to change. There are very few TR’s in Washington willing to take on the corporate monopolies and lobbyist.

    • Valerie from Australia says:

      So basically your solution to the very complex problem of runaway inflation is to fire most of the government workers (teachers and police too?) take away all financial regulation and let Laissez-faire capitalism run amok? Isn’t that what has gotten us into this mess – not enough regulation on the financial industry and cutting the government agencies which should be the watchdogs of our corrupted financial system to the bone?

  21. RoseN says:

    In my view, Powell basically said, in so many words, that the probability of a recession was high. The reporter Edward Lawrence asked him about the prospects of a soft landing.
    Powell replied, “Having a soft landing is what we’re aiming for. Of course, that has to be our goal, it is our goal…
    It’s unusual, it’s an unusual event, it’s not a typical event, given where we are.”
    If a soft landing is an unusual event in these circumstances, it’s fair to say that there is a high probably of a recession.
    It’s hard to understand why the markets take this information as good news.

    • Wolf Richter says:

      My understanding is that they’re going to do a landing. And if it’s soft, then awesome. And if not, well, they’ve got to land her anyway.

      • unamused says:

        It’s unfortunate that the guy you’re trusting for a soft landing is the same one who screwed up and made an emergency landing necessary in the first place.

        • Wolf Richter says:

          unamused,

          Re-read what I said.

          I said “they’re going to do a landing” (not “soft”). I’m trusting him to do a “landing.” Of whatever kind. I said that’s what they’re planning on doing, and “if it’s soft, then awesome.”

        • Sams says:

          I am not sure that smoking hole in the ground is considered a “landing”😉
          Not in aviation, but maybe in economics🙄

      • Ctcarver says:

        Jerome Powell doesn’t strike me as the Chesley Sullenberger type…

      • Venkarel says:

        One confusing element is Powell was just confirmed until 2026, so what is his motivation for playing any type of political game? Yet he still does. Is it 250K speachs, fellowships and other appointments?

        • Wolf Richter says:

          I see it as “legacy” rather than “political games.” He will go down in history as the guy that created monster inflation for many years, if he can’t get this under control.

        • SpencerG says:

          Wolf just nailed it with this comment. The biggest reason to believe that Powell is serious is that his legacy is riding on it.

          Most FED Chairmen are rather anonymous economic geeks. Bernanke is already disappearing into the mists of time… so is Yellen. The way the history books remember you is if you do something “Great!” (like Volcker) or horrible (like Burns).

          Powell and the rest of his colleagues at the FED do not want to spend their golden years listening to people complain how they messed up and let inflation take hold. They certainly don’t want to be a “cautionary lesson” in college Economics textbooks until the end of time.

          Anybody who thinks Powell isn’t serious about ending inflation doesn’t understand how the game is played at his level. This is ALL about his “legacy.” The fact that it is also the right thing to do for most Americans is almost beside the point.

        • Einhal says:

          SpencerG, yes, precisely. People say that Powell is motivated by his wealth. I doubt it. Does his life change if his $85 million in stocks drops to $45 million? No, not really.

          What he cares about is not being the guy who destroyed the U.S. dollar.

      • Christopher Burrell says:

        Agreed, I took that as, ” this plane is going to crash into the Hudson regardless, we are going to do our best to be a Captain Sully, but our landing may end up being way less graceful than his was. “

    • Depth Charge says:

      ‘Powell replied, “Having a soft landing is what we’re aiming for. Of course, that has to be our goal, it is our goal…
      It’s unusual, it’s an unusual event, it’s not a typical event, given where we are.”’

      Did anybody bother to ask him why we are airborne in the first place, necessitating a landing? THAT’S what he needs to be pressed on, pun intended. Seems nobody is asking the right questions, like “why did you cause this in the first place?”

      • Brant Lee says:

        Looking back, you have to ask: Why did they continue QE and 0% rates for so long? 12 years? What was going on in the teen years – 2011-2019 for the Fed to just keep going on and on with it? Just to bloat the stock and RE markets?

        And these are the same people who are going to fix it?

        • AK says:

          IMHO Federal Reserve discovered that they can print money in very large numbers without causing much inflation, so they did it. They did it because welfare state had to be sustained, military need to be sustained, wars had to be fought, living standards of the population had to be sustained, etc. etc. The hard, unpalatable fact is that most of the population benefited from easy money policies, many benefited alot.

          Now the same people that have been printing tons of money for more than a decade, will turn around and start fighting the inflation. They have no choice – if they won’t put out inflation fire, USD will lose its status as the reserve currency of the world, and that will impact US and western societies in a profound ways.

          If I understood Wolf correctly, there were no dissenters to 75 bps hike at this FOMC meeting. They are determined to put out inflation, at all costs, they absolutely don’t have a choice.

      • AK says:

        I think the honest answer to your question is that most of the people in USA and other western countries materially benefited from “being airborne” (as you put it), and would prefer to remain “airborne” as long as possible.

      • Flea says:

        I believe odds of soft landing is about 11%

  22. JeffD says:

    “Most Hawkish FOMC Press Conference I Ever Watched”

    Agreed. The market and pundit reaction is mind boggling. It is certainly a brave new world.

    PS Once they are rolling off $95 billion a month or more with QT, the EFFR might not need to be above CPI.

    • AB says:

      Excellent point. No one is looking at what matters most; QT.

      The rates obsession is overplayed in comparison to the largely unspoken schedule of blocks of credit being removed from the financial system.

    • SpencerG says:

      Yeah, I was going to make that point but you make it very well. What is “different about this time” is that the Fed has a tool for fighting inflation that no Fed before it has ever had… a bloated Balance Sheet. The fact that they are the ones who created that bloated Balance Sheet is pure poetry.

    • JJ says:

      One thing I ask: If the Fed doesn’t need the EFFR above CPI if enough QT takes place, why was it necessary to have EFFR above CPI *before* QE was even thought of, such as the high inflation of the 70’s?

      • historicus says:

        JJ
        The Fed balance sheet was way less than a Trillion back in the 70s…
        they didnt have the supply of securities to sell off as they do now.

  23. Uber Driver says:

    Powell dropped guidance because he plans on cutting back. Guidance on hikes means he’s going to hike. I saw nothing in the conference that makes me believe he is hawkish.

    No Fed guidance = Powell pulls back on hikes. (probably because economy is slowing fast- but that does not mean inflation will cool)

    Powell appeared weak and babbling. I doubt Paul Volker would have left any doubt in our minds as to his resolve. This was a guy doing QE just a few weeks ago!

    Tommorows GDP and core PCE will tell the rest of the story.

    • Wolf Richter says:

      Uber Driver,

      “Powell dropped guidance because he plans on cutting back”

      What kind of BS is this? Are you confusing this with an earnings announcement? Go listen to the press conference!

      He said the Fed might do 75 basis points in Sep. And he said at what rate roughly they will be by the end of the year. What kind of toxic internet BS are you consuming?

  24. THEWILLMAN says:

    Two additional points I found interesting that you didn’t cover here:

    1. Powell (indirectly) called the -6.7% EFFR “neutral” during the conference. So perhaps there is some room for dovishness?

    2. Seems like he thinks the reason they got transitory wrong was bc of labor force participation rate being stubborn to go back to normal levels. Wonder if this would serve as a good proxy for predicting future increases?

    • Wolf Richter says:

      The actual standard term is “longer-term neutral” — so over the years. That’s the standard technical term, often abbreviated “neutral.” The “longer-term neutral” doesn’t change. The longer-term inflation rates are around that range. What this means is that under normal conditions, with inflation at 2% give or take, over the years, neutral (according to his number) would be about 2.5%. There is no agreement what actual longer-term neutral is. But if you have an inflation spike, this “longer-term neutral” – whatever rate it may be – doesn’t change. But your monetary policy changes, and you might go above neutral to address this situation.

  25. Hyperinflation IS the soft landing says:

    Looking forward to Powell placing the target on his back for the Dems to blame him for losing mid-terms, destroying the economy, and sinking markets for an entire year… all for the net result of gaining zero ground against inflation.

    It’s gonna take years and several crashes bigger than this one for the Fed to get the memo that no amount of tightening will ever bring inflation back to 2% and realize that they’ll always be blamed by both parties for enabling reckless gov fiscal spending.

  26. SocalJimObjects says:

    Still BS. Say last year’s price for a certain item was $2 dollars. With the blistering pace of inflation we’ve seen seeing, the same item will cost a whole lot more, by the time we return to 2% inflation. How will this help people who live paycheck to paycheck? What will help is if prices were to actually DROP. 2% inflation is STILL inflation.

    • Gattopardo says:

      YES. IMO, the Fed owes me at least 10% lower prices on everything. Or they can just cut me a check for 10% of my net worth and let prices stick where they are. What’s Powell’s email?

    • Flea says:

      In my lifetime very few things dropped in price ,maybe temporarily. But if you have some examples I’m more than ready to listen

      • SocalJimObjects says:

        I think people might be missing my point. The Fed claim that they are worried about people in the lower strata making ends meet. Again say we have a starting price of $2, and then inflation every month is like 9%, 9%, 9%, 8%, 7%, 5%, 4%, 2%. So yes, inflation finally drops to 2%, that’s a great victory right? Well just before that 2%, the price has gone up to $3.27!! Slowing the rate of increase will not help anyone not getting a cost of life adjustment.

        • rojogrande says:

          The inflation figures you’re using are annualized (at least at this point in the US). 9% inflation means the monthly inflation rate averages around .75% per month for the preceding year. That’s why the CPI report gives both annual and monthly inflation figures. So if you start with a price of $2.00, it takes a full year to get to $2.18 if inflation averages 9%. The monthly rate of price increase is far lower than your example so getting inflation down quickly will help many people.

        • SocalJimObjects says:

          I realize that, but again that’s not my point. Even if you are using smaller numbers, most people are not getting that kind of adjustment, hence the long lines at food banks. Seems like what you are arguing is inflation is not a problem, then what’s the point of Wolf writing this article?

        • historicus says:

          Exactly..
          The increases are aggregated and compounded.
          We can envision CPI #s coming in at 7% or even 5% ….and the Fed declaring victory…
          But as you note, these increases are STACKED upon the 9% spike…and still multiples of the Fed’s “target”.
          Never has Powell spoken of trying to get prices back to 2021 levels with the target rate added….ie a roll back of the spike plus their 2%.
          To me this makes sense, and the fact the Fed doesnt speak to that is very telling. IMO

      • MarkinSF says:

        Flat screen TVs, Computers, DVDs, etc,

    • azbc says:

      Yes. Remember when the Fed said that average inflation should be around 2%, so it was OK if it ran a little higher than 2% for a while, because it had been under that mark for a period of time?

      By that logic, the Fed needs to engineer deflation for some time in order to bring the 9.1% inflation we have now back down to an average of 2%. But you could see from Powell’s comments that even inflation trending back toward 2% will be declared a victory. The price hikes that we’ve experienced in recent months are baked in forever, according to this “hawk.”

  27. Depth Charge says:

    “He said that the risk of “doing too little” is that inflation might not come down, which would then raise the costs of doing it later when inflation was really entrenched, and it would be harder and “more painful” to bring inflation down then, because once people start factoring in high inflation, it becomes very difficult and painful to dislodge.”

    Yet this is what he’s doing, and this is exactly what’s already happened. Inflation came in hotter than expected AFTER the FED’s last meeting, yet when it came time to raise they stuck to 75 basis points instead of 100, when everybody and their mother would have seen 100 basis points as almost a given.

    These guys are pussy footing around while the fed funds rate is like 7% BELOW CPI. If that’s not an emergency, then I don’t know what is. Has the fed funds rate ever been so far below CPI in history? This is a f**kin’ clown show these guys are running, which is why all these assets are on a tear the past month.

    • Mendocino Coast says:

      pussy footing around ? Don’t you think that some of that Mindset is still selling off Property’s they bought knowing the Market was going to go sky hi. The money is still being raked in I bet , perhaps a Tad less but still coming
      Their is a reason for the Fed’s madness and its called Profit look at all the Money they made …..

      Of course they never should have done that printing Money , promoting inflation on and on killing Savers.

      If they manage to kill or stave off Inflation “What’s Left ? ” to start all over again ? Why not they got away with it so far ? it seems

    • Wolf Richter says:

      Yes, they were way too slow in getting this started, and now inflation is already entrenched, and it’s going to be hard and painful to bring under control. So the Fed may keep doing what it has done so far this year: keep raising the target for where it will go with rates, and keep raising rates, further and faster until it gets there.

    • SocalJimObjects says:

      The only “upside” is that riots are pretty much guaranteed. This winter will serve as a preview of things to come.

      Food banks are already struggling with demand, so it will be interesting how they will cope later this year.

    • historicus says:

      “…while the fed funds rate is like 7% BELOW CPI. …”
      and long rates are even at a greater disparity.
      Acute Congressional questioning is missing…..all we seem to get is gender, inclusiveness, and climate lectures posed as questions.
      Rates must have some formula driven “guard rails”…. some channel in which they must obey tied to a reality rather than the whims of the FOMC.

  28. Martok says:

    Wolf – I too recognized the same pattern with the Fed announcing a rate increase and the market rising the same day, – it has always amazed me too.

    Then the next day as reality sets in the market takes a sharp downward drop.

    This time I’m ready for the drop with call options on SQQQ.

    I didn’t allocate very much money at all, – just lotto ticket money.

    With this screwball market it could possibly rally – LOL

  29. Poor like you says:

    How effing stupid are you if you think Powell et al. are somehow clueless idiots. Reckless, yes. Corrupt, almost certainly. Hubristic? Definitely. But clearly sharp as tacks.

    • andy says:

      Was it their dots plots that gave you that impression?

    • Bobber says:

      They can’t see the big picture, nor the direct consequences of their actions. There will be three huge financial bubbles and bursts in roughly 20 years.

      Yet you say they are “sharp as tacks”.

      Clearly, the results beg for a restructuring of monetary policy and governance.

  30. Kevin says:

    So Covid is an emergency but inflation is not. If Powell and other fed members are serious about fighting inflation, they should do an emergency rate hike in August. But they would do all they can to not surprise the market.

    • Depth Charge says:

      Rich banksters having to take paper losses on stocks = crisis

      Poor kids having to forego food and shelter = just life

      • Kevin says:

        well-said, well-said. A very dark and crooked system of cartels and very bad people. I can only hope there will be karma for those who orchestrated it.

      • Old Ghost says:

        Depth Charge said: “Rich banksters having to take paper losses on stocks = crisis

        Poor kids having to forego food and shelter = just life”

        Yes, very well put. The economic planning these days is done on Wall Street, not in D.C. The FED is not the government, they are a cartel of private banks. People who complain about government regulations don’t seem to realize this. So they chatter mindlessly about things like “mandates”.

        If you can figure out what the FIRE sector wants/needs, then you will know what the FED is going to do. The only change I see coming is the number of $500 million yachts sailing past the homeless people living under the bridge.

    • historicus says:

      Kevin..
      Indeed.. The Fed is QUICK to support markets with “plunge protection team” efforts.
      SLOW to address inflation.
      So very telling.

    • Happy1 says:

      Yes. Rates go to zero in weeks for COVID. Inflation 10%? Probably transitory, let’s wait a year and then take 3 months to get rates to 2.5%

  31. Cytotoxic says:

    Glad that there’s more people who see the paradigm shift before us.

    This is a good post but would be enriched by including QT and its role. Does EFFR need to be above inflation if QT rips hard enough?

    • Wolf Richter says:

      Good point. QT has a rate-hike-like effect. I’ve been saying that short rates of 4% and enough QT might be enough to control inflation. I’m not sure that $95 billion a month is enough, but it’s a start. Outright sales would be better, starting with the longest maturities. But that could be read as explicitly trying to sink the markets and housing, and so they want to let it run on automatic pilot, and not get blamed, which is going to be less effective.

      In about 6-8 months, people are going to scream about QT. It took that long last time. For now the QT deniers rule, but once they’re washed out and markets tank a lot more than they already have, the Wall Street crybabies will be all over QT, and Powell will be under huge pressure to end it.

      • Dan Romig says:

        Wolf,

        Yes, the Fed should sell long term Treasury securities.

        As of market close yesterday: 3 Year @ 2.93%, and 30 year @ 3.03%.

        For only a 10-basis-point spread between the two, the Fed is still enabling distortion. The 30 Year should be much higher than the 3 Year — especially with inflation where it is now and in the foreseeable future.

      • historicus says:

        I assume you are predicting a measurable drop in the balance sheet at month’s end.
        If the impact of QT is to take a few months, it will bump into the November election results which, based on polls, should provide some air under the markets. It should be quite a tug of war.

      • Spencer Bradley Hall says:

        Sheila Bair said the same thing. But the FED’s technical staff are idiots. All they have to do is apply the distributed lag effect.

  32. Finster says:

    If Powell had started to back off the gas pedal in the second half of 2020, he wouldn’t be having to slam on the brakes now.

  33. Nonconformist says:

    If the Fed was serious about inflation they would shrink their balance sheet by $2T which would remove the excess reserves from the system and tighten financial conditions. As it is, all they have done is announce that they are paying the banks $50B in interest this year and intend to pay them another $15B at the September meeting. Main street and the consumer get hosed while Wall Street continues to rake in the cash and corporations still have access to low cost funds.

  34. Venkarel says:

    The government just spent more money on top of the CHIPS bill. Manchen agreed to a build back better super light, estimated cost 300 billion with 369 billion of tax “saving” to pay for it. Part of the savings was closing the carried interst loophole for money managers.

    • historicus says:

      “Part of the savings was closing the carried interst loophole for money managers.”
      If that is proposed, there will be great efforts and money moved to carve it out. Watch to see if this is in the final bill.

  35. Venkarel says:

    Switch the savings and spending amounts around, I entered them in the incorrect order.

  36. ru82 says:

    Just thinking out loud here. My thoughts could be wrong

    The HB1 was really not the FEDs fault. It was driven by G. Bush and the government to make sure everyone in America could afford a home. The the FHA and SEC did a really bad job of regulating.

    Just a reminder. I copied this from the official white-house.gov archives highlighting G Bush achievements. Almost all of these programs were focused on subprime borrowers which failed because of lax regulation.

    -The President set a goal to increase the number of minority homeowners by 5.5 million families by the end of the decade. Through his homeownership challenge, the President called on the private sector to help in this effort. More than two dozen companies and organizations have made commitments to increase minority homeownership – including pledges to provide more than $1.1 trillion in mortgage purchases for minority homebuyers this decade.
    -President Bush signed the $200 million-per-year American Dream Downpayment Act which will help approximately 40,000 families each year with their downpayment and closing costs.
    -The Administration proposed the Zero-Downpayment Initiative to allow the Federal Housing Administration to insure mortgages for first-time homebuyers without a downpayment. Projections indicate this could generate over 150,000 new homeowners in the first year alone.
    -President Bush proposed a new Single Family Affordable Housing Tax Credit to increase the supply of affordable homes.
    -The President has proposed to more than double funding for the Self-Help Homeownership Opportunity Program (SHOP), where government and non-profit organizations work closely together to increase homeownership opportunities.
    -The President proposed $2.7 billion in USDA home loan guarantees to support rural homeownership and $1.1 billion in direct loans for low-income borrowers unable to secure a mortgage through a conventional lender. These loans are expected to provide 42,800 homeownership opportunities to rural families across America.

    This Housing Bubble is all on the FED. I hope they know it and will be much more in tune with any big housing collapse. I don’t think there is an industry that support as many jobs as housing. I read that building 1000 house creates 2,900 jobs.

    On the techy side, building 1000 metaverse houses probably does not create 3000 jobs. Building a shopping web site on Shopify probably does not create 2,900 jobs.

    It will be interesting to see how these rate hikes to kill housing will effect the economy. Inflation is hurting the middle and lower class and I think that is where most of the housing construction related jobs fall. So hurt this demographics with the cost of owning a house and to fix the problem, put them out of a job. Hmmm.

  37. ru82 says:

    I make this comment after reading the “jr” comment above about he is not really not seeing or effected inflation. He is certainly not in the middle to lower class demographics in owning multiple houses and buying two new cars. It appears he is frugal and successful.

    It is not going to be a fun couple of years for this group I think. Home affordability may go up but if you do not have a job, it does not do you much good?

    What a mess. I think the only answer I can think of will be MMT for lower income families. They are certainly getting the short end of the stick during the bubble rise and probably with the bubble pop.

    • Augustus Frost says:

      “What a mess. I think the only answer I can think of will be MMT for lower income families.”

      Not picking on your post but I read this type of sentiment, regularly. There is no solution that doesn’t involve declining living standards for the majority of the population.

      That’s what almost no one will accept.

      In the aggregate, the country has consumed above its means for decades and the supposed “wealth” reported in household net worth represents claims against goods and services that don’t exist now with no realistic prospect to exist in sufficient supply later to allow the number who want to convert it to do so at anywhere near today’s inflated values.

      It’s either a massive decline in asset prices, noticeably higher extended price inflation, or a combination of both. My prediction is both.

      If attempted, MMT will eventually make inflation worse, a lot worse. The belief that it doesn’t is a fantasy, based upon assuming people behave contrary to how they are known to act. If MMT were feasible at any scale over any time horizon, socialism would also be feasible. Both ultimately fail because it requires behavior at scale contrary to human nature.

      • COWG says:

        “ What a mess. I think the only answer I can think of will be MMT for lower income families.”

        The problem with the MMT crowd is they have no clue what they’re talking about when it comes to giving money to poor people….

        The closest they would ever come to poor people would be if their jet crashed into some poor guys trailer…

        They should make the people who shipped the jobs to overseas to increase their stock prices pay for the ripping out of the jobs that the MMT recipients previously held…

        I think a 10% transaction tax on ALL stock transactions would take care of the repatriation owed to the many small towns and their citizens they destroyed…

        And as far as I’m concerned, that would be merely the beginning…

        Their are many things that are inherently governmental…

        Providing a basic income should not be one of them…

  38. Xaver says:

    Interesting. Thank you.

    When markets are moving before major news the odds are higher that they are moving in the wrong direction imo. It must not happen, but the odds are for a move lower today.

    I would not trust Powell for a second, but the rate increases clearly continue to be negative for assets.
    Why does he say “it likely will become appropriate to slow the pace of increases”? It’s counterproductive. It’s for his clientele.

  39. Steve W says:

    Here’s a fun thought experiment. What would be the effects of a federal law that requires the EFFR to always be 0% real, based on CPI? For one thing, the stock market would become a way to grow wealth based on risk, rather than what it is currently, which is a way to grow wealth, plus a way to keep up with inflation. Keeping up with inflation would be automatic in a world where everybody’s savings account always kept up with inflation.

    • Steve W says:

      For example, if CPI is currently at 9.1%, then rates would also be 9.1%. Immediately. As in right now. Today.

      What would be the effects? For one thing, if the average worker who does enough work today to earn $1 were to put that dollar into a savings account, then that dollar would still be able to buy that same amount of labor value tomorrow or next year or ten years from now.

      • drifterprof says:

        The kleptocrats would freak out if there was serious talk of some rational rule about the effen real EFFR. The would mean one less smoke and mirror show to distract and divide people.

        They sternly warn that any such thing would result in them not trickling down their beneficent golden showers on the banal grassroots citizenry.

        • Augustus Frost says:

          No rule is going to make any difference. It’s extended systemic institutional decay.

        • historicus says:

          The Fed actually has “Rules of Monetary Policy” that can be accessed at the Cleveland Federal Reserve web site.
          Among the “rules” are the guidelines for Fed Funds based on several inputs. The “rules” have been ignored. Sharply higher rates are called for by the “rules”.
          Fluff.
          File this with the Fed being limited to dealing only in federally backed paper.

      • rojogrande says:

        It’s an interesting idea because it would prevent the interest rate repression that got us into this mess. I’d need to think about it more, but lean towards drifterprof’s conclusion. It would take power from the FED and no institution willingly cedes power.

      • Steve W says:

        Maybe a good way to understand what I’m advocating is to imagine renaming the dollar. Calling it something like a “US labor value unit.” Inflation of one USLVU should be always and forever zero.

        If I paid a guy 10 USLVUs to mow my lawn 10 years ago, I should still be paying him 10USLVUs today. Same labor value, same cost, inflation zero.

        Inflation is not a principal of physics or a fact of nature. It’s a choice.

        Admittedly, I have always been an outside the box type of thinker, but that’s just me.

    • Augustus Frost says:

      It’s pointless.

      No laws or regulations can lead to the outcome you infer. Look at the budget process.

      Rising stock prices don’t increase wealth. It’s not real production.

      Without an increase in real production, the population would only have more fake wealth to spend on goods and services that don’t exist, regardless of the source. Indexing market interest rates to some arbitrary inflation measure (the CPI or another one) would only inflate the credit supply leading to more inflation, eventually.

    • historicus says:

      Steve…
      That’s how it used to be….as shown by the chart in the article.
      All this went away with the “new Fed” of 2008.
      A formula tied monetary policy requiring automatic rate adjustments would have prevented the “it’s only transitory” and “we are keeping a close eye on it” game.
      Also, the expansion of the money supply must be tied to a “pull” from economic expansion (GDP) rather than the whimsical 40% jump decided in an oak paneled room over coffee.

  40. Anthony says:

    I’ve not read the report but if what Mr Wolf says is right, Thurday and Friday may be an interesting day when the reality strikes.

    Oh, for some reason, silver did a little bounce last night, up nearly three percent. Strange world.

    • Venkarel says:

      Most likely this is because of the advancement of the climate change agenda by Manchen and Schumer. Silver is used in solar panels I think.

  41. Michael Engel says:

    1) Senator Manchin clicked few trillions to fix chip shortages.
    2) The Fed raise rates, but our gov keep spending, raising debt.
    3) JP fight inflation, but the gov fight JP. The gov don’t care, because with negative rates debt deflate.
    4) JP might raise to 5%-6%, but gravity with Germany will keep US10Y
    at 3%-4%.
    5) SPX closed June 9/10 gap, a setup bar. Double the size on slightly higher vol. Today we might get a trigger.
    6) SPX close is not good enough. If confirmed, the markdown might cont
    with a new down thrust.

  42. Michael Engel says:

    7) Student loans jubilee in late Aug.

  43. Michael Engel says:

    Mike Pimpei will fly to Taiwan in Aug with his partner.

  44. historicus says:

    Wolf….
    your comments on the Fed paying on excess reserves, something started around 2008.
    Often mentioned is Milton Friedman being for the Fed paying on “required reserves”…. but the paying on excess reserves becomes a giant step that had little cost with ZIRP and is now a cash cow for banking, and quite a cost for the Fed now. Was that a wise move?

    • crazytown says:

      No such thing anymore as required and excess reserves. The required reserve ratio is now 0% so all reserves are excess. Since the Fed has flooded banks with reserves since 2008 (through QE which puts reserves in the primary dealer accounts when the treasuries are scooped up by the Fed), the interbank reserve lending has dried up. As QT continues, reserves will continue to drop ans the interest will come down.

    • Wolf Richter says:

      I’m going to artfully dodge your question. This huge pile of reserves (there are no more “required reserves”) is in part a result of QE. The Fed should have never done QE, period. And it should have stuck to required reserves — which were small, and it wouldn’t make a lot of difference if the pays on them or not since they were small.

      That pile of reserves has now plunged by about $1 trillion since the peak in Sept last year when the end of QE was announced. And it will be getting much smaller with QT.

      The also pays on RRPs, which is another $2.2 trillion.

      The fact that the Fed pays for reserves and RRPs keeps this excess liquidity from sloshing around the markets and it keeps short-term yields from dropping below the Fed’s target range for the FF rate. So in that sense, I’m kind of OK with it. But I would like faster and more QT, which would mop up the RRPs and much of the reserves.

  45. YuShan says:

    The economy is overheated from all the stimulus.

    Yes, really. Labor shortages, wage spiral, massive asset bubbles, out of control inflation… that used to be called an overheated economy.

    There is simply too much money flowing around relative to the available goods and services.

    Nobody likes to use the term “overheated” because they feel that “real growth” is low. Well, that’s what happens when you allow inflation to go out of control.

    People think that wealth is the same as the amount of money and “value” of assets. However, wealth is basically the amount of goods and services that are available. And there is a massive mismatch between money + assets “wealth” and these real goods and services. At current prices there are not nearly the amount of goods and services available that these asset prices + amount of money suggests. So that is phantom wealth. It is not real.

    This is also why almost everybody has a pension shortage, but most people don’t realize it because it is masked by bubble asset prices.

  46. Michael Engel says:

    Those who dared to risk MSFT had a good day. In order to move up MSFT must have a close > July 7 high @268.40. Yesterday it didn’t.

  47. Brant Lee says:

    Yep, Wolf, looks like the stock market just might be hitting the skids today.

  48. Michael Engel says:

    MSFT must have close > July 7 high @269.06.

  49. historicus says:

    Interesting quotes from the WSJ today 7/28/2022
    “It was especially striking to hear him (Powell) say that current interest rates are close to “neutral,” meaning they are no longer accommodative. But even after Wednesday’s 75 basis-point increase, the fed funds rate is only 2.25%-2.5%. The inflation rate in June was 9.1%, which means real rates are still decidedly negative”. Actually near RECORD negative.
    and…
    “when the fed funds rate was 2%-2.25% in October 2018, Mr. Powell said
    “we’re a long way from neutral” on interest rates. The inflation rate at the
    time was a mere 2.5%. ”

    Notice the words changing meaning. “neutral”….and “recession” twisted to meet the needs of our rulers. When this type of game is in play deception is the sport.

    • Depth Charge says:

      “Soft landing” = do as little as possible to give the illusion of fighting inflation while maintaining massive asset price bubbles which benefit the wealthy at the expense of society.

  50. JF says:

    Wolf,

    Newer reader here. I strongly agree with most everything you write. I struggle to understand this one, though.

    Powell indicating that current rates are close to neutral is highly dovish (and highly foolish).

    He said all the right things about fighting inflation and it’s our top priority, etc. But the neutral rate stuff trumps all that by far by implicitly telling the market there isn’t that much more to expect here forward.

    • Wolf Richter says:

      JF,

      No, it’s not dovish or hawkish. “Neutral” is a straight line that doesn’t change over the years – whatever level people think it might be and there is disagreement on that. Powell thinks its 2.5%, others think it’s around 3%, etc.

      The actual term is “longer-term neutral” — so over the years – usually abbreviated “neutral.” The “longer-term neutral” doesn’t change. The longer-term inflation rates are around that range. What this means is that under normal conditions, with inflation at 2% give or take, over the years, neutral would be about 2.5%, Powell’s terms.

      There is no agreement what rate actual longer-term neutral is. But if you have an inflation spike, this “longer-term neutral” – whatever rate it may be – doesn’t change. But monetary policy changes, and you might go above “neutral” to address this situation. And now, as Powell said, the Fed’s rates will go “moderately above neutral” by year end.

      • JF says:

        Got it. So is it fair to say you think the market woefully misinterpreted Powell’s comments? I’m still not clear on why the market’s view was so different than yours. If the market interpreted your way, stocks should have been way down and yields way up.

        I want yours to be right and for aggressive rate increases to be the norm ROY.

      • azbc says:

        In a non-Orwellian world, “neutral” interest rates would mean that the federal funds rate and the rate of inflation are the same. What we currently have– a real interest rate of -6.35%– is loose, accomodative monetary policy that continues to reward accumulation of debt and punish saving. Whatever “moderately above neutral” would mean would at least involve a real interest rate above zero.

        I agree with what was said above by Depth Charge– this is all about doing as little as possible in order to maintain the asset bubble (and hopefully reverse the inflationary trend).

  51. David W. Young says:

    Okay, boys and girls get around the Roulette Wheel called Wall Street and throw your dice this morning. Note that the 30-year Bond yesterday, Fed Blabber Day, gave a vote of no confidence with yields rising as an inflation premium gets build into the longer maturities as the Fed’s feet are moving much slower than the Fed’s verbal hokum. Watch what they do, not what they say.

    Now I read that the Fed’s go-to Financial Squid, Extraordinaire, Blackrock, lost $1.7 Trillion of its clients’ moola in the first half of this year, and am so glad they were anointed by the out-of-control U.S. central bank to administer the basically illegal Special Purpose Vehicles starting in March, 2020 to attempt to circumvent their legal mandates in front of an asleep at the wheel Justice Department and public. So far they have gotten away with this slight of hand, as they have with gross instances of Insider Trading vis a vis any interpretation of S.E.C. statutes.

    But a 5% to 6% as Mr. Engel predicts is very likely for Fed Funds by December 31st of this shock and awe year. And since the bond vigilantes are back in town, market participants, not the Fed, will adjust the yield curve accordingly, killing the principal values of 20 to 30-year Treasuries as inflation stays hot as a Top Gun movie rating (and 10-years, Michael!). Plenty of hot inflation numbers still waiting to come out of the Supply Chain Python, like rent and wheat and Fall farm product prices with drought & reduced fertilizer and the stymied U.S. energy sector , pick your favorite horse.

    The Corporate side of the bond equation will get its comeuppance also, as Default Risk / Credit Risk comes back into town riding hard. Across the oceans, can you imagine being an Evergrande bondholder as non-payment spreads to Chinese nationals or a U.S. cryptocurrency snake oil company’s bondholder??! A bloodbath is coming in the Corporate bond market as total corporate debt to mainly fund stock buybacks is way too high to service in a shrinking demand, shrinking real sales, and devastated Consumer Confidence environment.

    So, watch Jay Powell’s feet, and if his gang of monetary/market manipulators don’t accelerate their QT liquidity drain program going forward, the Inflation Genie is going to eat the American consumer alive.

    Oh, and little old me, not that I take pleasure in the human suffering a recession causes, at all, was right about the First Half, 2022, recession call. The White House can try to change the definition of a recession, but I still know that men cannot get pregnant. Only Arnold The Governator.

    • historicus says:

      “….. the bond vigilantes are back in town,…”

      Their impact is in inverse relationship to the willingness of the Fed to expand their balance sheet.

      ie When the Fed went from 800 billion to 9 Trillion, bond vigilantes were like bugs on a wind shield. Sadly. For speculators in a free market are valuable participants, IMO.

      • David W. Young says:

        Don’t think you’ll see any form of QE for a long, long time. Manipulated markets revert to their mean, which is price discovery led prices. Stay tuned.

        Wait until the Dollar heads South; we do have one of the highest inflation rates in the world and that is never beneficial to those who want to or currently hold Dollars. Fed and Uncle Sam, take a bow. Another inflation component to get red hot thru import prices and Americans love imported goods, hence, the record breaking Trade Deficits.

  52. Spencer Bradley Hall says:

    I think Trump was right: ““The Fed is like a powerful golfer who can’t score because he has no touch,” he wrote. “He can’t putt!”

    The last figures for the 2nd qtr. GDPnow are out. Latest estimate: -1.2 percent — July 27, 2022. There’s no way this could be correct without a major error in the money stock #s. Stop/go monetary mis-management under Powell has never been worse. The FED has lost control.

  53. Turtle says:

    Good grief, the time to be “determined” was last year.

    But you know, tank the markets and scoop up the deals en masse. Nevermind all the casualties along the way.

    The elite really are going to do this every 15 years, aren’t they?

    The Fed is a joke at best.

    • Wolf Richter says:

      “Good grief, the time to be “determined” was last year.”

      Hahaha, yes, totally, Feb 2021 was the time to be “determined” — these idiots blew it. They should have read Wolf Street, LOL

  54. Ajax says:

    Most Americans aren’t paying attention to the FED. Some are bamboozled by the Vogue photo shoot of the Ukrainian first couple while hundreds of billions in freshly manufactured US dollars flow to Ukraine in order to be distributed to US and European weapon manufacturers and Swiss bank accounts for Ukrainian and US elites. Meanwhile, inflation is higher than reported, wages are stagnant, and the next war/crisis is being planned along side the next sports season. The Empire’s bread and circuses must go on while the rot consumes more and more of the foundation.

  55. gametv says:

    This is all still just talk. Where is the action? The real action would be to sell off the balance sheet at the same rate they grew it. Otherwise, that balance sheet is structural and will never be brought down.

    This larger balance sheet of debt will just make our system more fragile and volatile. They should sell the MBS debt as fast as possible and drive mortgage rates up to 6.5% to bring home prices down to where they were 2 years ago. That would be a good starting point.

    But they are not going to do that. They are going to jawbone the markets with “tough talk”.

    All a bunch of BS. You really think Blackrock is going to allow the Fed to drive real estate back to normal prices when they own massive portfolios of overvalued real estate.

    Real estate bubbles are the very core of the inflation problem, and create massive inequalities. Crush real estate.

    Look at California, where Prop 13 created incentives for housing price appreciation beyond what people can really afford.

  56. WolfGoat says:

    Hey Wolf, what’s your take on the 10yr Bond Rate?

    It fell this morning to 2.65 which is practically in line with the FFR. Seems folks are bailing on the markets and plowing into Bonds. This has inverted the yield curve, but I thought one of the Fed’s objectives was to raise long term rates to cool some of the ingrained speculation.

    How’s that dilemma going to work out?

    • Wolf Richter says:

      Enough QT will resolve this issue. So be patient. QT just started and is still in the phase-in period. It was the same thing last time. It took quite a bit of QT to bring up long-term rates, but it did in about six months, and that’s when the screaming about QT started.

  57. nsa says:

    It’s the early 1970s all over again with powerful private sector unions screaming for 10% per annum wage increases and wage/price controls being threatened! Oh wait…..maybe not. In the 1970s 25% of the private sector work force was unionized, but in 2020 only 10%…with most of these being timid kept “house unions” with little bargaining power as at Boeing. It’s interesting that a steady 35% of the massive govt work force is unionized….but then expected as well under 50% of GDP is left in the true private sector.

  58. Michael Engel says:

    1) After raising RRP to $2.2T the Fed raised rates, but Elizabeth Fangs don’t care, because she asked for more stimie to help the poor and the middle class. $7,500 discount for $100K ev and chips to open your car door don’t help the middle class, who need a car to move from point A to
    point B.
    2) The upper middle class became frugal. They cook at home, shop less
    in Amazon, buy less clothes, but fly more with a $100K smile behind
    their face mask.
    3) A pizza a day to fight inflation :
    – one cup of Basmati rice, because the Indian Rupee is weak.
    – scalp 4 roma tomatoes for $1.30 a pack of five/ six.
    – half eggplant to liquidity.
    – dump in the InstantPot for half an hour. No fat, no white/ red meat, no cheese.
    4) Ginger tea, for vitamin C, instead of coffee.
    5) Twenty minutes of vitamin D in the park don’t cost a dime.

  59. phillip jeffreys says:

    Let’s see now.

    Inflation can ruin economies.

    2% inflation is the target.

    Energy policies driving supply side inflation….chirp….chirp…..chirp.

    This is pure politics.

    • historicus says:

      Inflation is a thief.
      And those who promote theft are thieves themselves. (even at 2%)

  60. Michael Engel says:

    6) What extracted in Russia stay in Russia. What produced in China
    might stay in China , because Russia and China imitate each other, herding together, creating an inflation bubble, joint by the rest, to punish the west.
    7) The Fed cannot fight a bubble, because it cannot recognize the bubble, until the bubble burst.
    8) The Fed might be able to handle the shuddered pcs in the next decade.

    • Flea says:

      When the time comes China will turn on Russia,they have no friends only acquaints Ruaais better wake up to reality

  61. CreditGB says:

    Corp Tax increases and elimination of escape doors in the new bill will bring more inflation to consumers, worse on the lowest incomes and on fixed incomes.

    These people just can’t stop spending on useless crap which most of this new bill does.

    A 30,000 foot quick look at this 713 page lunacy, found these little gems:
    Page 62: The Secretary’s decisions on drugs are no longer subject to Administrative or Judicial review. What!?
    Page 213: Appears to be repealing the drug company anti kickback statute.
    Numerous requirements for Green projects favoring unionization.

    Disgusted with this crap, I quit looking. Its gonna cost is all for decades, just hope we can survive this.

    • unamused says:

      “Corp Tax increases and elimination of escape doors in the new bill will bring more inflation to consumers, worse on the lowest incomes and on fixed incomes.”

      Corporatist threats and propaganda, brought to you by Wall St. predators.

    • Bobber says:

      Exactly, how do corporate tax increases increase inflation, in your view? You’ll have to explain that one better, given corporate tax increases decrease fiscal deficit spending and debt. The impact is clearly deflationary in my mind, not inflationary.

      • David W. Young says:

        No, Bobber, truly inflationary since corporations, versus governments, are guided by the profit motive and if an entity shrinks their net margins, they first attempt to raise prices before trying to cut costs. Joe and Friends take more of my cashflow, I try to pass on this part of my cost structure onto Joe and Josephine Six-Pack.

        Ever know Uncle Sam to apply additional Tax Revenues to Deficit Reduction. Surely not in the last 20 years.

      • Flea says:

        They pass it along to consumers,u bumbling fool

    • Gattopardo says:

      You’ve been listening to McConnell’s b.s. (just like him calling this “the Democrats’ inflation….as if Trump didn’t appoint Powell, push him for lower/longer, and spend like crazy, especially all the fraudulent junk in the first two Covid bills).

      This bill is actually small…take those amounts and divide by 10. That’s the annual number. I don’t love some of the stuff in it, but this whole exaggerated “…just hope we can survive this” is ridiculous. You know what we should hope we can survive? All the other 97% of government spending, especially the defense over-spending for the last 30 years. Come on, man.

      • Depth Charge says:

        The Kentucky Turtle and the California Crypt Keeper are both the enemy of the American people. The partisan charade that the dumbed-down sheep have fallen for is what has allowed a bought-and-paid-for Congress and their corporate buddies to loot the country, selling it off to the highest bidder.

  62. Arya Stark says:

    Nothing but green across the board. These moves have been huge and making the laptop class feel comfortable again. All bubbles will be at full expansion by end of summer. Don’t get angry at me. It’s not my fault JP is a feckless bureaucrat

    • SoCalBeachDude says:

      Jerome Powell does not make any decisions unilaterally and all policy decisions at the Federal Reserve are made with the full consensus of the FOMC which is a 12 member committee comprised of the 7 BOG (Board Of Governors) of the Federal Reserve plus 5 of its 12 regional bank presidents. As to what Wall Street does in regards to any of its policies, the Federal Reserve has no control of that whatsoever.

      • unamused says:

        It would seem that if you’re raking it in like the national bank cartel you can afford to operate democratically.

        Much too good for the common people.

  63. Michael Engel says:

    Forty years in the Sinai desert. Forty day on Mt Sinai for the ten Commandments. 40 days between MSFT last trigger in May 31 2022.
    MSFT might have a new close > May 31 high @274.77.
    If it can’t…
    If it can it might not be good enough.

  64. Franz Beckenbauer says:

    When incompetent, narcissistic people that have risen to the top of an organization screw something up really badly, because they are, well, incompetent and have only risen to the top because big organizations favor opportunistic sleazebags, the process is always the same: first, they double down, because they are completely incapable of criticism. That of course makes things even worse, and when the brown matter is already flying towards the ventilating device, they set up a fall guy to blame it on someone else.

    That fall guy gave a speech yesterday which could be described as exactly such a setup. And lo and behold, today the walt disney Gnome running the treasury came out and blamed everything on the fall guy.

    Which tells you, this is the end of the rope. Normally, the people described above go into hiding for some time and then pop right up again.

    This time it’s different. Gold and silver on a tear, commercial banks long for the first time ever.

    Usually they win.

  65. Jake Bodhi says:

    I have a question for t bill buyers. I have just started buying t bills to coincide with Fed meetings to track interest rates. It seems they deduct the interest payment from the original purchase and then return all the principal at the end of the term. Is this correct?

    • SoCalBeachDude says:

      They are purchased at a discount from face value which represents the yield (interest rate) and to learn all about US Treasuries go to:

      TreasuryDirect.gov

    • doug says:

      Yes. Treasury Direct is the place to learn all about buying bills and notes. TD is easy to use to purchase bills and notes, but it doesn’t provide a lot of reporting/analysis on your current holdings.

  66. Willy2 says:

    – I must confess that I was wrong. I thought the FED wouldn’t raise rates or limit it to a 0.25% hike.
    – Currently the FED is NOT “behind the curve”. They are “AT the curve”. It’s the 3 month T-bill rate that dermines what the FED is going to do. Both the 10 year and 30 year rates seem to “hesitate” what direction to go next. In spite of all the (PRICE) inflation my bet is that all the US rates are going to go down from here, incl. the 3 month T-bill. And the FED will be forced to follow.
    – But we’ll have wait and see what the future brings.

    • historicus says:

      Willy
      The New York Fed reported (admitted) the Fed owns circa 35% of all treasuries with maturities between 10 and 30 years.
      ie, the Fed has sopped up that supply and keeps it off the market.
      So, what do those rates really mean? What does the yield curve really show when there is that much manipulation?
      Add in that the Fed owns 2.7 Trillion of long term paper in the form of MBSs.
      The Fed seems bent on pounding the long end to, as former Fed Gov Fisher said, to “force” the investor to take more risk. Interesting the Fed feels it their position to “force” investors.

  67. Anthony says:

    So have the 200 million who have cut their spending in the USA, taken the USA into a recession?? Probably…..

  68. ru82 says:

    Here is something interesting.

    Just a week ago, I went test driving some vehicles at 3 dealerships.

    I was pretty much told by Honda, Hyundai, and KIA that the SUV I am interested are 1 to 4 months out if I put down a $500 deposit.

    The Kia told me 6 months.

    Fast forward. Both the Hyundai and Kia dealers called me and said they have just received shipments and have the SUV I am looking for.

    So, are the SUV people ordered 3 and 4 months ago arriving and they are backing out and canceling. Just like the many homes deals that are getting canceled? Maybe the FED rate hikes are working. Fear of recession is also getting people to cut back on spending?

    • Jdog says:

      What the FED is doing is irrelevant. The FED follows the bond market, it does not dictate terms. Look at any interest rate chart and that will make itself painfully obvious. Mortgage and corporate bond rates were already going up before the FED ever moved.
      It is inflation that is bringing on the recession not interest rates. Energy inflation is taking all the wind out of the consumers sails. A large portion of the population commute 20 miles or more one way to work, and this is killing them. $400 to $500 a month just to get to work and back makes a huge dent in most peoples budgets.

      • jon says:

        Looking at Apple’s ER this evening, I don’t think consumers are hurting anymore.

  69. Nate says:

    Powell trade starting to look as steady as Powell.

  70. Kevin says:

    Hawkish my ass. If he really want to tank the market he could. Instead he telegraphs everything. The market does not believe him . The bond market surely doesn’t believe him . A recession is here now followed by a pivot and more easy money(QE) . Inflation will continue for years to come and i would not be surprised if we hit all time highs again. You can see this is what the market thinks by the constant inorganic movements on low volume. Its all a house of cards at this point but it will continue. Doesnt matter the news its all good news even when its bad because it all leads to one thing. Easy money from the feds printer.

  71. ru82 says:

    Silly people who sold Walmart stock after their earnings. Stock has recovered 95% of the drop in 2 days. Crazy

  72. ru82 says:

    Home builders (HOMZ ETF) after an month long run off a bottom was looking to roll over until J-Pow speech yesterday. It looks like he gave it some extra firepower. It looks like risk is on again.

  73. Butters says:

    I am convinced that there’s a secret message that has been passed by Powell to the ones who bid up the ‘market.’ Looking like Stocks will be ATH in no time.

    Why’s Powell doing this? Is it because he wants to ‘crash’ the housing to 2019 levels? Certainly you can’t have both stonks and housing crash at the same time, right?

  74. sunny129 says:

    This mkt is for nimble traders only. Not a mkt for investors
    Fight between the force of PERCEPTION vs REALITY is going on. When does the reality take over? I don’t know.
    Swing trading with biased to long, is winning, as I explained earlier note but apparently deleted. that’s fine.

  75. dishonest says:

    Paul Volcker was a hawk.
    Powell is a parrot for wall street.

    .75 basis points!!! Wow.

  76. Brian says:

    Thanks for the article. I really appreciated the “The line tightening-deniers ran with, out of context.” section and would even have liked to see more detail there as I too was confused by the market reaction.

    I consider myself, at best, an “advanced amatuer” when it comes to Mr. Market but it’s my opinion that many investors are still too optimistic. A significant number didn’t even have investments in 2008 so their experience really is, “stocks only go up”. Assuming the Fed continues their hard line, which I’m inclined to believe they will, then eventually there will have to be a _capitulaiton_. That’s when I’ll start buying again.

  77. unamused says:

    The J-Pow trade lasted only an hour. It got booked solid before the markets even opened.

    The Financial Industrial Complex is laughing off The Fed’s rate hikes and GDP numbers showing recession. They’re golden, and they know it, because they have Amerika by the short hairs.

    • Wolf Richter says:

      The first leg (long – sell during presser) worked like a charm.

      The second leg (short at end of presser and through the next day) collapsed at 10:30 am today. So it lasted 30 minutes yesterday and 60 minutes today for a total of 90 minutes before collapsing.

      It would have been such a hoot to see it play out properly for a third time. But as I said in my article about it, people figure this out, and then the trade gets jinxed :-]

      • Phoenix_Ikki says:

        My money still on a longer term short….starting to really smell like that dotcom summer rally pattern…by the end of the year, landscape might look very different..

      • Egon says:

        Not people have figured it out. The Market has changed its pattern of behavior, which mean it is time to close your short now. Later at higher prices you go short again for the bear market will continue.

      • unamused says:

        “But as I said in my article about it, people figure this out, and then the trade gets jinxed”

        GMTA. I said as much in my comment late yesterday, that it would work until too many traders piled in.

        It’s predicted by the Efficient Market Hypothesis, that any market advantage will disappear because it will attract other participants and dilute it out. EMH is useless for acquiring or preserving any market advantage. That requires monopolistic practices which are technically illegal. Technically.

        • Wolf Richter says:

          What I meant was I said it a month ago when I described the J-Pow trade in an article, which was tongue in cheek, and you have to read the article (link below) to get that. I said this:

          Quoted from the June 16 article:

          Someone could just decide to sit there and, like, endure it and maybe go do something else. Or someone might think, OK, I could, like, speculate with it and lose some money the easy way. I could go long early on day 1, and then I could sell at the peak of the frenzy when J-Pow says that the Committee might consider a 100-basis-point hike at the next meeting, or whatever, which will cause the Nasdaq to spike 5%. And someone might think, OK, I want to cash in on both legs of the pattern, and during peak frenzy, I’m going to go short. And on day 2, when regular trading starts and everything is deep red, I already made a bunch of money, essentially overnight, and then I can strategize what moment to cover the short and exit.

          But now that the whole entire world knows about the J-Pow pattern, someone might think, if the whole world knows it and plans on doing the same thing, it’s going to get jinxed and blow up and rip people’s faces off. And so someone might think, OK, I’m going to go contrarian and do the opposite, so when the pattern blows up, I’ll make a bunch of money.

          And now, that the whole world knows that the contrarian approach is the thing to do, everyone will do the contrarian trade and it’ll get jinxed and blow up and rip everyone’s face off, and we’re back to square one of how to trade the J-Pow pattern.

          https://wolfstreet.com/2022/06/16/morning-after-j-pow-second-time-in-a-row/

        • unamused says:

          Wow, that takes me back. All the way to June.

          Where does the time go?

  78. RickV says:

    Good thing you didn’t put any money on the JPowell trade. Of course, I’m speaking with hindsight. Yesterday, Bill Dudley made an interesting comment. He is no longer in government service, so he spoke as a private citizen. I’ll paraphrase. The market going up and yields down after Powell’s speech is bad for the Fed. It means monetary conditions are loosening instead of tightening as the fed wants, and the Fed will have to increase interest rates further then they expected or hoped for. We will see.

    • Wolf Richter says:

      Yes, this is a big problem that Dudley put his finger on. That’s why Powell was so hawkish yesterday, and brushed all concerns aside, and still the markets blew him off. The Fed needs the markets to transmit its monetary policies to the economy, and if markets don’t transmit the monetary policies, the Fed has to keep tightening until the markets do transmit them. This could get rough.

      • Phoenix_Ikki says:

        The market is like my 5 yrs old…keep ignoring me and test the water thinking I am not going to do anything…then bam…action is taken and kiddo is busting out crying, twisting and turning on the floor.

      • KPL says:

        The markets will not transmit till the Fed hikes more than expected in meeting(s) and/or hikes in-between meetings. It is calling the Fed’s bluff. Every time the Fed acts timidly it risks the little credibility it has left. Looks like the Fed has a real credibility problem having been timid and pandering to every market sneeze for the last so many years. Add “transitory” to it.

        It had a golden chance of raising by 100 bps on 27th July which it again passed due to its timidity. The Fed is in a soup of its own making.

      • Depth Charge says:

        “The Fed needs the markets to transmit its monetary policies to the economy, and if markets don’t transmit the monetary policies, the Fed has to keep tightening until the markets do transmit them.”

        Yellow Powell is not the man for the job. Put somebody in there with some cojones to administer a “knock your socks off” 200 basis point hike, along with stern words, not just stern words. Even 200 basis points puts us nowhere close to inflation. They should be talking about multiple 200 basis point hikes consecutively. But the reality is that the FED “doesn’t want to upset the markets.” The FED is Wall Street’s b!tch.

  79. The Longer View says:

    Throughout history, governments have overpromised and overspent. The massive US. debt load CANNOT sustain high real rates. So, the minute inflation ticks down a notch, the Fed will back off. Hawkish talk notwithstanding. Talk is cheap. The only solution to the deadly debt trap that the U.S is in is to debase the currency. Any investor holding too many U.S. dollars will be sorry. Read Lyn Alden.

    • unamused says:

      “Throughout history, governments have overpromised and overspent.”

      And some haven’t. It depends on who’s running the show, and how well greedy special interests coerce them and gaslight the general population.

      Not that you’d know anything about coercion and gaslighting, now would you?

      “The only solution to the deadly debt trap that the U.S is in is to debase the currency.”

      Which would wipe out the US middle class, disempowering it and making it that much easier to exploit. The real solution is to tax the rich, a subject you were careful to avoid.

      Think Mexico. Once you’ve figured that out, think Haiti. That’s where the US is going.

      • jon says:

        “wipe out the US middle class, disempowering it and making it that much easier to exploit.” This is already happening for the last few decades or so. The changes are slow but quite stark when you look at it in decades. Just look at the concentration of wealth in the hands of top 5% or so.
        Do you think we may have uprising like Srilanka is facing ?

        • unamused says:

          One must pity the children, knowing they have no future.

          So much of the future has been pillaged to feed the billionaire class in the present that there really isn’t that much left.

          Ce serait vraiment dommage de ne pas pouvoir les terminer.

      • Happy1 says:

        Uh, Mexico does tax the rich. The “rich” are never the end payer when tax rates are raised, there aren’t enough of them to fill the unending demands of the welfare state. Look at the history of the income tax in US, originally just on the “rich “, now much harder on the upper middle class than on Elon. Look at VAT in Europe.

    • cb says:

      @ The Longer View –

      Is Lyn Alden still favorable towards bitcoin? Could that influence her view of how many dollars should be held?

  80. KGC says:

    Not to worry, it’s all transitory.

    There’s going to be an American “Whatever it takes” moment as they try to stop this train wreck before the elections.

  81. “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless” -Thomas Jefferson

  82. Alez says:

    Wolf your articles are so refreshing. In light of all this, I’m curious what your medium term (6-12 months) investing strategy is. With the market brushing off the fed which should make them tighten harder, are you short?

  83. Peter says:

    I literally have no idea how that conference is interpreted as hawkish…Powell capitulated fully by saying rates are nearly neutral…yet are 7% below inflation…I haven’t a clue what planet he’s on but he threw in the towel and risk assets and bonds know it.

    Why the heck is nobody holding his feet to the fire on just this one simple issue?!

    • Wolf Richter says:

      There is a misconception about “neutral.”

      “Neutral” is a straight line that doesn’t change over the years – whatever level people think it might be and there is disagreement on that. Powell thinks its 2.5%, others think it’s around 3% or 2%, etc.

      The actual term is “longer-term neutral” — so over the years – usually abbreviated “neutral.” The “longer-term neutral” doesn’t change. The longer-term inflation rates are around that range. What this means is that under normal conditions, with inflation at 2% give or take, over the years, neutral would be about 2.5%, Powell’s terms.

      There is no agreement what rate actual longer-term neutral is. But if you have an inflation spike, this “longer-term neutral” – whatever rate it may be – doesn’t change. But monetary policy changes, and you might go above “neutral” to address this situation. And now, as Powell said, the Fed’s rates will go “moderately above neutral” by year end.

      • Peter says:

        Why would Powell take his foot off the neck of inflation at a time when inflation is still roaring? Messaging is extremely important. Everyone knew risk assets were looking for ANY excuse to go on a tear…and he gave it to them…that is dovish.

        I know of absolutely ZERO items I purchase that are only up 9%…the FED is going to wipe out the lower and lower middle classes and don’t care that they will. Unless, of course, the plan is to wipe them out in order to establish a universal basic income…

      • cb says:

        @ Wolf –

        Shouldn’t neutral be zero?

  84. historicus says:

    So we have had a rip roaring inflation, barely addressed by a slow Fed…
    Inflation well above interest rates, at all time disparities
    And the constant spending bills from Congress ($250 Billion plus disguised as a Chip bill) and billions to Ukraine.
    *Spending too high
    *Interest rates too low
    *Inflation too high but dropping the rate of increase.
    *Yield Curve inverted

    This is how “they” want it.

    • cb says:

      It is a coordination stagflation effort to cover past bad practices and to make sure that the proper parties or classes maintain their position.

  85. cb says:

    Two insulting “slap in the face” practices by the FED that bails out the banker/wall street class and should be enough reason for common Americans to wish the existence of the FED revoked are:

    1. paying any interest on reserves (much less 2.4% while the banks pay their depositors much less)

    2. paying interest on reverse repos (much less 2.3% while the bailed out parties/money market funds pay their depositors much less)

    Practices 1 and 2 just provides selective welfare for the properly connected, at the fleecing of the common citizen.

    • Wolf Richter says:

      If the Fed didn’t do that, those trillions in cash would be sloshing through the markets, and short-term yields would be negative, and asset prices might be out the wazoo, and inflation might be going a lot crazier than it is now.

      • cb says:

        Let the yields go negative, IF they would. It wouldn’t last long. Better than subsidizing undeserving players like money market fund managers and bankers.

        Asset prices are already out the wazoo.

        Money market funds might break the buck, investors might learn a harsh lesson (just as the crypto investors are now learning), and many funds might go under. Good.

        As for bank reserves how would they undergo a negatives yield. They would just earn zero. Good.

        • Wolf Richter says:

          Ok, maybe you would like to be in that mess, not me.

          “As for bank reserves how would they undergo a negatives yield.”

          I think you misunderstood what I said. If the Fed didn’t pay the banks for their cash on deposit at the Fed (reserves), there wouldn’t be any reserves. That’s why there used to be “required reserves,” which the banks were forced to keep at the Fed (without interest). But that requirement was lifted. If the Fed doesn’t pay interest, the banks will yank their cash out and deploy it in the markets. That’s exactly what you DO NOT want for a whole bunch of reasons, including financial stability reasons. Sure, you can say, let it all blow up. But I don’t really feel like that.

        • cb says:

          Wolf said: ” But that requirement was lifted. If the Fed doesn’t pay interest, the banks will yank their cash out and deploy it in the markets. ”
          ——————————————-
          Sounds like the obliteration of Glass-Steagal was a bit hasty.

          But even absent that obliteration, I wonder where the banks would choose to deploy all those reserves. Do they commit hari-kari in the search for yield —– that same search for yield they have imposed on savers with their interest rate suppression for the last several years. There is no reason for the FED to pay for reserves or reverse repos at the rate they are paying. It is theft in plain site.

      • cb says:

        @ Wolf –

        Those trillions are sitting in money market funds and reserve accounts because the owners of those dollars have no-where better to put them.

        If those owners don’t want the risk of the financial or asset markets, it is absurd for the FED to reward those purposefully idle, risk avoiding funds with yield. Those funds deserve a yield the market outside of the FED will pay. It that is zero or negative, so be it.

        The FED is just manipulating the market and rewarding entities that do not deserve it. Socialism and Bail-outs for the rich.

        • Wolf Richter says:

          You’re twisting everything around into the absurd.

        • cb says:

          @ Wolf –

          Thanks for letting the post go through. I think I am facing true North, much of it due to you. You dismantled much of the mis-perception that the FED would not go as far with raising interest rates or starting QT to the extent that they have. You also killed the fallacy that interest rates could not be allowed to rise because of the amount of outstanding government debt.

          Let’s collectively dismantle all the other lies we are fed by paid liars (with the insult that we are forced to pay for the liars). This is an amazing board that you run and moderate.

  86. Ian says:

    That last graph says it all Wolf. Never before has there been such a lag between fund rate and inflation. Deliberate foot dragging. It is worse here in the UK, still on 1.25% while inflation at 9.4 and still talking 0.25% rises. Criminal.

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