Wolf Richter in an interview on these and other delectable topics on This Week in Money, by HoweStreet.com
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Inflation is getting better, lol. The Fed is dovish, lol. The Fed is going to pivot, lol. Nothing Powell said last week was dovish. Inflation is still rising but at a slower rate (if you even believe that). But it is still rising. If the Fed pivots, look out zimbabwe. 10 year went down last week on the manipulated new narrative that inflation is getting better. We can’t have housing prices go up again. It needs to reset.
Wolf, given that 10 year and 30 year are now below Fed rate, shouldn’t Fed take this opportunity to double the QT and offload a bunch of treasuries?
It seems like a logical step to make the QT effective.
” to double the QT and offload a bunch of treasuries?”
No, that could be catastrophic. And it’s not needed. QT is running just fine and is sufficiently “effective,” as markets have gotten seriously damaged already, the 10-year yield and mortgage rates are in an unbroken uptrend with higher highs and higher lows. The drop in yields was just another bear-market rally.
Hot off the press:
If there is acute crisis in Treasury mkt, Fed will have to save the Treasury over the stock mkt. That means a pause or pivot is likely possibility next year (when?)
Most balance sheet at Fed is tilted towards short term variety. The current interest at 4.5% for growing national debt of 31 Trillions will be at least 1 trillion or more. the annual deficit will be again 1 Trillion or more! DOD budget is now around 800 Billions.
Fed is trapped.
Sunny wrote: “…. If there is acute crisis in Treasury mkt, Fed will have to save the Treasury over the stock mkt. ”
Uhhhh….I wouldn’t be so sure of that. You do know who owns the Fed (I hope). And it isn’t the government.
Wolf (and many others here) believe the world revolves around the Fed and monetary policy.
It is disappointing to see how other solutions are never considered. Take inflation for example. If people here think inflation is caused by too much money printing, why not take some of the excess back with a 1950’s income tax on the 1% ?
If inflation is caused by too much lending by banks to buyers/speculators. Why not a limit (or corset) around the percentage of their deposits on what can be lent to buy stocks/real estate ?
There is more than one way to skin a cat.
Yes, it makes total sense to steal even more of people’s money.
Why not just stop the counterfeiting (monetary policy) and cut government spending which causes inflation to begin with?
I positively guarantee you that would end inflation immediately.
Most of the 1% (the lopsided percentage) are tax donkeys, not “Power brokers”.
No one exists to be used as the source to pay for someone else’s desired society either.
Well said. These ideologues always call for punitive taxes on the top 1%, and evoke images of robber barons and Bankman-Fried in support. But in reality, the truly wealthy don’t get caught up in these nets. The dual income husband is an accountant and wife is a dentist who make a lot of $, but work extremely hard and don’t have any tax loopholes, are the ones who get screwed.
It’s important to define “punitive taxes.” One ideologue’s punitive taxes is another ideologue’s fair share. Also, if the accountant and dentist you describe are self-employed, which is often the case, they will have loopholes available. It’s highly paid W-2 employees who generally get screwed.
Fair point, but in my experience, the people calling for someone else to pay their “fair share” generally don’t pay any federal income taxes themselves.
To answer your question, I think expecting a person to pay 40% of his income in federal income taxes, in addition to FICA and state and local taxes, is punitive, especially when you consider that a huge portion of the population doesn’t pay any federal income taxes at all.
I don’t pay any taxes. I’m stupid lazy scum, and proud of it.
Don’t you hate being on the same ball in space with trash like me?
I assume you mean “federal government” when you talk about the 31 trillion dollar debt, not the federal reserve (aka “the fed”).
If yes, that risk is hugely overblown. Right or wrong, this inflation is cleansing government balance sheets, not ruining it. So long as real yields are negative, the government will not have a funding crisis. They get “paid” to issue debt (primarily at the expense of the balance sheets of its citizenry).
8% inflation on 31 trillion dollars is 2.4 trillion annual reduction in real debt. So long as the nominal deficit doesn’t exceed that, the government has less debt in real terms than it had before.
That isn’t to say that the government doesn’t have a debt problem. It does. But 5% interest rates on 7-8% inflation is not a problem.
There won’t be an “acute crisis” in the Treasury market. Yields will go higher, and they should go higher, and the Fed wants them to go higher, but that’s only an “acute crisis” for Gundlach other bond kings and queens who’re now wailing and gnashing their teeth. It will be a good thing for investors who buy at those yields. And it’ll be a good thing for Congress, which is going to have to pay attention to the deficit, forced by the bond market, which is how it should be.
The “acute crisis” is inflation.
The Fed is never “trapped.” Tightening deniers have been saying this for years to show that the Fed can never raise rates and can never do QT. And look where we are.
Let’s be very clear. Today’s inflation can’t go on years and years before something major breaks. The stock market & housing are WAY OVER VALUED for this to happen.
History would show otherwise.
The German stock market during the Weimer hyperinflation years did very well.
The Zimbabwe stock exchange was the world leader in returns during the hyperinflation at the end of Mugabe’s rule.
I, for one, can’t wait for my $1000000000 bank note. I’ll frame it as a lesson for my future grandkids.
Wolf, in the last 2-3 years one common theme in the comments was the Fed painted itself into a corner. No way out. Are you saying they aren’t in a corner at all?
I suppose destroying the job market is one way out, but who needs that.
The analogy, “the Fed painted itself into a corner,” needs to be thrown out. It’s just nonsense. The Fed can do anything it wants. But there are consequences of its actions, and we’re living amid those consequences.
Is it time for the Fed to raise QT to 150-200 Billion a Month?
No. QT is working just fine. There has been serious damage to the markets already. They need time to adjust.
Hot off the press:
A nice soft landing for the USA would be an average of 5% inflation over the next decade, with a Fed rate a little less. Debtors will be pleased…
Then count on 8% mortgage rates over the next decade and much lower asset prices across the board for at least that decade. Once the dream of 2% inflation vanishes, you’re back to the 1970s/80s.
But house and asset prices grew the most in 1970s/80s. Inflation in the long run inflated everything including asset and home prices (nominally).
False equivalence (= BS comparison).
1. Back then, house prices were LOW to begin with. Houses were CHEAP because mortgage rates were much higher. There was no housing bubble. Houses were very affordable by today’s measures.
2. Nowadays, after houses spiked for years at incredible rates due to money printing and interest rate repression, houses have become unaffordable. This is a HUGE housing bubble.
3. But money printing and interest rate repression have turned into the opposite: rate hikes and QT. And house prices are already coming down hard from the peak. Across the Bay Area, house prices are already down year-over-year.
4. Back then, despite the LOW prices to begin with, and MASSIVE inflation in the five years of 1979 through 1983, house prices grew at an annual rate of only 4.5%. In real terms house prices fell a bunch over the period, even though they were CHEAP to begin with.
5. This is an entirely different scenario. Now we’re coming off a HUGE asset bubble that had been driven by 14 years of money printing and interest rate repression.
Boomberg has an interesting article:
This Stock Strategist Says We’ll See 5% Inflation for the Next Decade
– Fed’s 2% target is a ‘made-up number,’ says Deluard at StoneX
– Economic growth has been faster with inflation in 4%-5% range
This seems plausible. PCE would show 3%, CPI maybe 3.5%, since both likely under-report actual inflation (of course, variable depending on one’s purchasing habits). The reason? It MIGHT be the easiest and optimal path, because it would be a little bad for everything, but not terrible for anything.
In carpentry, when you’ve got an error to fix, sometimes the best thing is to pick the middle point and sort of half fix it. It’s usually not visible, but it sure would be if you left it as is (9% inflation) or perfectly fixed it, making something else then look “off” (markets crash).
Decade!? Dumb AF
Any idea how quickly 4-5% inflation would compound to make prices of everything astronomical. Wage spiral inevitable! Retirement crisis exasperated! Civil unrest likely
Bro, we were running at 3.5-4% PRE-COVID, because you know PCE/CPI are b.s.
I am not sure Fed can lose anymore credibility and if I heard Powell correctly they will not be reviewing the current inflation target for four years or so. Current target is inflation should average 2% over time. Kind of mushy on what time means.
Agreed. And if the Democrats take Congress and the Presidency as the GOP implodes, we’ll see taxes increase and the National Debt stabilized in real terms. Cost of energy is the wild card and will need to be “managed”.
National debt won’t be stabilized via tax increases. Most of the debt will be rolled over the next few years at much higher rates. The government will be facing much higher debt service costs in the future and will need to make some tough decisions
1) We don’t know what JP do next. All we know is that in Kiev the temp is 23F and in Kharkiv 17F. Snow all over the place.
2) Inflation was aging in Europe in Sept, because the EUR/USD plunged nadir. In UK the inflation is worse, but not as bad as in eastern Europe. In Dec most seaborne oil from Russia will be prohibited in Europe. By Feb European NG reserves might fall below 20%. There is hope that Russia will f behave themselves and supply oil and NG at a steep discounts. If not, the European inflation might pop well above 20%.
3) Madam ECB will do whatever it takes to fight inflation. She will raise the deposit rate to 2.5%.
4) Full time jobs plunged 400K in six months. The housing is weak and the Nasdaq is down 40%. The Fed should cut rates, not raise them to please our globalist savants.
5) China might cave in next. They will switch from exporting inflation
back to deflation. China openness will be welcome by the G-20. China will fight inflation by exporting goods to US at a steep discount. The world will benefit a from a pacified China, while Shi is building aircraft carrier #7 and 1500 nukes.
Explain the need to drop rates as u suggest if you don’t mind but maybe you are being Facetious.
Full time jobs plunge 400K, RE dropped, NDX is down 40% in one year and SPX lower highs/lower lows, in bearish territory.
The layoff have just start. High paying job losses will cont and possibly shift to other sectors.
Claudia Sahm for sure will come.
Despite the above ==> JP should finish what he started while synchronizing with other central banks
FTX was Schrödinger’s canary in the coal mine.
Another Mixed Metaphor on the rocks barkeep.
Z-Estimates were the Skinner Bar for the last specu-vestor
Quantum mechanics? Nope. Newtonian Dynamics please.
Acceleration = Force/Mass.
And, my drug of choice, Velocity = Efficient Deployment of Force.
Speaking of which, two developments in EV technology are being worked on. Magnets for motors using nickel and iron in NorthEast Minneapolis at Niron Magnetics have begun production.
Also, Lithium-ion battery tech has some interesting research from MIT that uses mechanical pressure on the solid electrolyte that’s replaced the standard liquid electrolyte that sits between the positive and negative electrodes. This helps control the formation of dendrites, or branches, that can cross over between electrodes and cause shorting and fires.
Lighter magnets constructed without using rare earth elements and solid-state batteries that are also lighter and more stable are not that far away. MIT Professor Yet-Ming Chiang is recently published in ‘Joule’ with Cole Fincher, and five other researchers at MIT and Brown University as part of the team looking into this. Worth checking out IMO.
Until then, Mate Rimac’s Nevera is the most performance in EV technology. 34 years old, and from Croatia (Bosnian), the man knows how to go fast!
There is a lot of money still out there. The ultra wealthy and whatever class is right below them still have a lot of cash. If interest rates keep going up they will just sit on their money. They were taking risks with 4%-5% investments before, now all they have to do is put their money in a money market or treasuries to make the same with barely any risk.
This is just going to cause an even greater wealth disparity. They will keep making money while the poor will suffer, and when the fed does pivot to stop the suffering, the wealthy will be buying at the bottom and the cycle will restart.
To me it seems like the wealthy are salivating over these higher rates for the moment. But reading the comments on this site most people here feel that the continued raising of rates will help the wealth disparity. What am I missing?
Disagree. Most of the ultra wealthy have their assets in non-cash assets. There isn’t enough cash in the world that they could “cash them out” and get those 4-5% rates in safe investments. If they tried, prices would plummet.
Many have income producing businesses. Income that they used to need to place somewhere because of low interest rates.
All these non cash assets would be down quite a lot with higher interest rates.
The cat ate that canary. Toonces
If the European inflation will rage between 10% and 20%, y/y, within five years their $30T debt will deflate by 50%, in real terms…
I think the auto filter put my comment from a few days ago into the round file.
It was manually entered into the round file because it went over the BS red line. Don’t take it personally. Happens to the best of us.
You run a great informative site here and I really appreciate it, along with all the varied comments, but, honestly, I sure feel like there are times that outlier opinion is no good.
Just out of curiosity, do you feel the published CPI is an accurate measure of inflation? I’ll reserve my opinions on it.
The issue was that you used the BS crap from Shadowstats. I have proven mathematically here over and over again (with compounding math) over years that his crap is just crap. But it’s useless. His crap keeps showing up in the comments, no matter how often I destroy it with compounding math. But math is hard and belief is easy, and so people go for belief because it’s more fun than math.
So now, I just don’t allow people to promote his nonsense here. At the same time, I no longer waste my time explaining to people why his crap is just crap. I’ve wasted many hours on it, but people believe what they want to believe. Religion is fine with me, but not here. Now I just delete this crap.
Depending on where you live and how you live, the CPI may understate inflation. It may also overstate inflation in some cases. But this is an average for urban US. And it’s pretty close. It may be off by 0.5 percentage points, or by 0.3 percentage points per year over time, and that’s bad enough because it’s compounding, and after 20 years, it becomes a big number. So that’s a problem. But it’s not off by 10 percentage points. That’s just braindead nonsense by a guy trying to sell stuff.
The internet is chock full of BS, and fine with me, but if you drag this BS into here, I’m going to delete it. I don’t allow people to abuse my site to spread BS. I would rather shut down the comments for good and forever.
Math is easy. That is my belief.
Okay, despite my snarky comment, math scores among 4th grade and 8th grade students in the USA have dropped in the last two years as tested by the National Center for Education Statistics, and reported in mid-November 2022. Much of this is due to at-home-schooling from Covid policies closing down active enrollment.
In 2022, nationwide average math scores for 4th grade dropped by 5 points from 241 & scores for 8th grade by 8 points from 282 compared to the test results of 2019. They are both considerably higher than they were 30 years ago.
Math is the world’s universal language. It is a good thing to be fluent in, eh?
I don’t even know what shadow stats is. My numbers were primarily from personal observations. I’m that guy who looks at the bottle of deodorant from a year ago and compares it to today (less volume combined with higher price). I’m in the building industry and have seen doubling of many items over the last two to three years. My wife comments to me about the cost of this and that and that what she used to spend at Costco is now what she spends at Trader Joe’s. My mom is on a fixed social security income and shares stories with me. I joke with my friends that a hundred dollar bill is the new twenty. This had nothing to do with some goofball website I’ve never even heard of.
Math “universal”? Nope.
Only as far as Newtonian physics goes…maybe…and for limited use now….which isn’t very far at all. When Newtonian physics/math (based on gravity) ran into electricity, that was the end of the easy stuff, to say the LEAST! Kinda like “close enough for gov’t work”.
Guy with a PhD in plasma physics from MIT was consulting at our CO2 laser engraving outfit in return for a small salary and being able to use machine shop, gasses, and electronic and imaging facilities to work on his own transverse flow CO2 laser project that could run on only 120v….maybe 220.
I lived in a bread van outside and came in in the evening to talk with him a lot. Looked at his notebook and said, “wow that is some real weird math”. He laughed and said, “we just make the math up as we go along”.
He never made it work after about a year, but that’s science, lotta trial and error. Physical and mathematical. Just an attempt to model reality.
Same as the spoken/written language…never exact, and changes with time…always best effort at modeling reality….whatever that is.
Do we, holding that the gods exist, deceive ourselves with insubstantial dreams and lies, while random careless chance and change alone control the world?
In April 2009 they dropped to about 478,000, an all time low since 1959. 30 year mortgage rate hovered near 4.87% that month.
If anyone thinks today’s ~6.5% mortgage rates are high, and killing new housing, try this on for size:
Feb 1982, 30 year rate was more than 10 points higher, at 17.4%, yet new 1982 housing starts never went below 866,000 units and increased from then onward.
Could it be the public’s allocation of funds has shifted away from housing to other “stuff” like inflated taxes, fuel, and food?
Seattle real estate market is collapsing fast it seems. Bubble prices, higher rates, the first measurable population decline in decades (due to wokeism), massive tax increases, and an unfavorable business climate taking its toll. I don’t know if this is going to be an opportunity of a lifetime, or the beginning of a long dystopian scenario for Seattle and other cities. I just saw another house for sale that I go by almost daily. It’s a tear-down, but 6 months ago, developers would have stepped over themselves to pay cash for this thing to build townhomes on it. I spoke to the agent, and this little 4000 sq ft lot had offers of 650k on 699k asking, then 600 and even 550k. Now all of them have fallen through. This is the first time I’ve seen this in over 10 years.
Here’s a great example of home prices coming down to earth. This home is located in a very old money neighborhood of suburban Cleveland.
Originally listed for $649,000 in May, 2022.
Sold for $392,000 in December, 2022.
A trading site for Hex has its disclaimer which appears to be faded out but is accessible if you dare read it. It is pure gobbledigook. But the kicker is the last statement called “More Stuff” which petty much sums up the entire business. No expectations, no redress, and total surprise that it works at all. Departing gobbledigook and returning to English, the last sentence describes the entire bitcoin CD scheme.
If you’ve read down this far, congratulations. You will notice the theme of all of the above text is that you should have absolutely no expectations of any sort regarding anything, and if anything goes wrong, you shouldn’t look for redress anywhere, and you should receive none. When you send ETH to the contract, you don’t get the ETH back. Donations can be made by sending ETH directly to the contract without running the join XfLobby function. Software is hard. Blockchain software is harder. We’re lucky any of this stuff works at all.”
LOL. The whole crypto space is a joke, even the disclosures.
Yes sir, ,…. those disclaimer words might be the ONLY truths in the entire site! :-))
I couldn’t find the relevant post that referenced the declining Savings rate and increasing Credit Card balances. Forgive me if this is “off topic” a bit.
Question: Among the CC usage stats, is there one that shows the percentage of credit card usage that is paid off monthly versus the credit card usage that is carried over and subject to monthly payments?
It seems that might be a clarifying stat to have if available.
None of the credit card data that we get monthly and quarterly show this distinction. The problem is that banks themselves don’t track it that way either. Their credit card balances are all in one asset account, and some of them are accruing interest, and others are not because they’re paid off monthly. Some time ago, I saw a report based on some bank data that tried to separate them out. But this is not a regular feature that I know of. There is some discussion underway between the credit bureaus (which collect the data) and the banks (which provide the data) to try to come up with separate data for interest-accruing and non-interest-accruing credit-card balances because the data we have now is really misleading.