Fed Pivots even More Hawkish, Sees Peak Rate above 5%, No Rate Cuts in 2023. Powell Brushes Off Raising Inflation Target

“We’ve raised 425 basis points this year.” Now it’s “not so important how fast we go” but “what the ultimate level is,” and “how long we remain restrictive.”

By Wolf Richter for WOLF STREET.

This has now been the rule for Fed meetings since the fall of 2021, when it stopped brushing off inflation. At every meeting since then, the FOMC pivoted more hawkish than at the prior meeting: Each “dot plot” projected a higher peak interest rate than the prior dot plot, and it projected staying there for longer, and as a result of the higher rates staying there for longer, it projected a higher unemployment rate and lower economic growth. And yet, each time it projected inflation to stick around longer. And the Fed kept hiking its rates to catch up with its rate projections, and with the next dot plot, the goalposts got moved again.

In today’s FOMC meeting, the “dot plot” raised the median projection for the peak federal funds rate by 50 basis points from the prior dot plot, to 5.13% at the mid-point of the target range, meaning a target range of 5.0% to 5.25%.

Of the 19 members who participated in what is officially called the “Summary of Economic Projections” (SEP), 17 saw this peak rate of at least 5.13%, meaning another 75 basis points in hikes. Seven of them saw the mid-point of the federal funds rate rise above 5.38%.

And yet, the goalposts might get moved again. When asked in the press conference, Powell conceded that the projections for the peak rate might be raised again with the next dot plot.

The big focus now, after the fastest rate hikes in four decades, was no longer the size of the rate hikes, but how high to go, and how long to stay there, he said several times to make sure everyone got it.

And despite the financial markets fervent hopes and prayers, there are no rate cuts for 2023 being projected in the SEP. And when asked about that omission, Powell unceremoniously brushed it off. The focus was on how high to go and how long to stay there, he said.

At today’s meeting, the FOMC voted unanimously to raise all five policy rates by 50 basis points, which the Fed had widely telegraphed in recent weeks, and which “is still a historically large increase, and we still have some ways to go,” Powell said at the press conference.

  • Federal funds rate target to a range between 4.25% and 4.50%, highest in 15 years.
  • Interest it pays the banks on reserves to 4.4%.
  • Interest it charges on overnight Repos to 4.5%.
  • Interest it pays on overnight Reverse Repos (RRPs) to 4.3%.
  • Primary credit rate it charges banks to 4.5%.

Since this rate hike cycle started in March, the Fed has raised its policy rates by 425 basis points – unimaginable earlier this year

And as Powell has been emphasizing – at a recent speech and today at the press conference – inflation is now shifting to “core services” (services without housing), which make up 55% of “core PCE,” which is the Fed’s favored inflation measure. Once inflation is entrenched in core services, it is very tough to wring out, and that’s why rates would have to go higher, and stay there longer, and why inflation may linger longer.

And the primary fuel for inflation in core services is the cost of labor, which is the major cost component of those services. And the labor market has been very tight, and labor costs are surging, and this is fueling the non-housing “core services” inflation.

Some of the other delectable points Powell made at the press conference.

Lower income people suffer the most from inflation, and the Fed knows it: “My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation,” he said.

Brushed off the loosening financial conditions, such as the 10-year yield dropping 60 basis points and junk-bond spreads narrowing, despite the Fed’s tightening: “Our focus is not on short-term moves but persistent moves; and many, many things of course move financial conditions over time,” he said. In other words, meh, markets go up and down, but eventually markets will figure this out.

To help markets figure this out, “I would say it’s our judgment today that we’re not at a sufficiently restrictive policy stance yet, which is why we say that we’d expect that ongoing hikes will be appropriate,” he said. And he sent the markets to check out today’s SEP (the dot plot), where 17 of the 19 members saw a peak rate of over 5%, and no one saw a rate cut in 2023. And he added that the goalpost might be moved again in the next SEP, depending on inflation data.

“The most important question now is no longer the speed,” he said when asked about the size of future rate hikes, 25 basis points v. 50 basis points. “We have raised 425 basis points this year, and we’re into restrictive territory. It’s now not so important how fast we go. It’s far more important to think what the ultimate level is.

And then at a certain point, the question will become how long do we remain restrictive,” he said. “The strong view on the committee is we’d need to stay there until we’re really confident that inflation is coming down in a sustained way and we think that will be some time.”

Higher for longer. “There is an expectation really that the services inflation will not move down so quickly, so we’ll have to raise rates higher to go where we want to go. That’s why we’re running down the high rates and why we’re expecting they’ll have to remain high for a time,” he said.

Core CPI stillthree times the 2% target.” “Two good monthly [inflation] reports are of course very welcome. But we need to be honest with ourselves that there is inflation. 12-month core inflation is 6% CPI. That’s three times the 2% target. Now it’s good to see progress, but let’s understand we have a long ways to go to get back to price stability,” he said.

“The worst pain would come from a failure to raise rates high enough, and from allowing inflation to become entrenched in the economy so that the ultimate cost of getting it out of the economy would be very high in terms of unemployment, meaning very high unemployment for extended periods of time. The kind of thing that had to happen when inflation got out of control and The Fed didn’t respond aggressively or soon enough in a prior episode 50 years ago,” he said.

Forget this nonsense about changing the 2% inflation target. “Changing our inflation goal is something we’re not thinking about. It’s not something we’re going to think about. We have a 2% inflation goal, and we’ll use our tools to get inflation back to 2%,” he said. “The committee – we’re not considering that, and are not going to consider that under any circumstances. We’re going to keep our inflation target at 2% and use our tools to get inflation back to 2%.”

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  243 comments for “Fed Pivots even More Hawkish, Sees Peak Rate above 5%, No Rate Cuts in 2023. Powell Brushes Off Raising Inflation Target

  1. Minutes says:

    Market is kicking and screaming about punch bowl not being available.

    • Options Prophet says:

      I honestly thought the markets would end lower than they did. There’s still a stubborn streak somewhere in the market that’s holding out for a Fed pivot.

      • sunny129 says:

        Mkts are calling him a bluff, just like after each Q&A, following Fed’s statement. See my comment below.

        • Motorcycle Guy says:


          Until he starts raising rates by one or two percentage points at a time (and I favor even more significant increases) the mkts are not going to believe him. For a comparison, Google search the average Fed funds rate for 1979 when Volker first took over.

        • joedidee says:

          real issue may well be the out of sight derivatives
          so glad these are real financial instruments and not gambling
          given size $1,200,000,000,000,000($1,200T)
          when the domino’s start dropping then we’ll see who has no clothes on

        • kam says:

          Amazon down $1 Trillion this year, earnings barely 2% of sales and still an 86 P/E.

      • Leo says:

        Signs that Markets are hallucinating:
        1. 10 year fell despite a 50 basis point rate hike.
        2. Zillows Zestimates in Seattle area went higher in last 2 months as mortgage rates dropped from 7.1% to 6.6% while case shiller data has been pointing to steep corrections.

        • Leo says:

          Add one more:
          1. Most tech executives still say that they would be expanding their operations and burning more cash in 2023. Clearly these guys were not in charge in 2007 or 2000 and have no experience of a real tightening. Or they are still hoping for instant pivot.

      • Motorcycle Guy says:

        At the time of posting this comment there are 77 comments and I have read all of them.
        Here’s a little insight as to when the markets will believe that the Fed is serious about bringing inflation under control and sending it scurrying to Zero (where it should be).
        When you see an inverted yield curve with the 20 year to 30 year T-Bond yielding double digits and the 3 month T-Bills yielding at least 3 percentage points above those T-Bonds, then the markets will know that Fed is serious about taming inflation.

        • Joe Bettag says:

          Speaking of the deepest inverted yield curve since 1982, did anyone see what Steven VanMetre just released on YouTube showing the BLS overstating employment figures in 2022 by at least 1,000,000? The Fed relies on the BLS and believes we have a strong economy when the opposite is true. I believe the smart money knows this and why they are saying something breaks by mid 2023.

        • Wolf Richter says:

          Joe Bettag,

          “something breaks by mid 2023.”

          Hahahaha. You missed it??? Something HUGE already broke, and it broke in early 2021: Price stability. Now we’ve got raging inflation, for the first time in 40 years. That’s the thing that broke and it’s huge and it’s hard to fix, and it takes a long time to fix, and fixing it (with higher interest rates and QT) will cause asset prices to fall – that’s part of the program! That’s what is going on. It will probably require a solid recession to get fixed. A solid recession isn’t that something “breaks,” but the required fix to the problem – it’s also part of the program. A lot of people out there need to do some growing up about this.

          What you’re referring to in terms of the BLS: The BLS does an annual benchmark revision, and it does it once a year every year. The Philadelphia Fed, using the same data that the BLS uses for its benchmark revisions, tries to estimate on a quarterly basis what that annual revision from the BLS might look like. And that is now suddenly gospel? The internet is full of clickbait garbage about that.

          EVERY employment metric says the same thing, including the ADP employment report that is based on actual paychecks being processed (not surveys), and the unemployment insurance claims data that are based on actual applications for unemployment insurance (not surveys): This is a historically tight labor market because the labor force has not grown back to trend and remains about 3.5 million people below trend. The ADP report, based on payroll processing data, showed solid growth in payrolls ALL YEAR. Wages have been surging, and there are still massive labor shortages in entire industries – and we know that not from government data but from industry data. Unemployment insurance applications are near historic lows. This YouTube BS gets a lot of clicks, but it’s just BS.

    • Leo says:

      Inflation will get under control only when supply exceeds demand and that will happen when production increases and that will happen when productive businesses will become profitable again and that will only happen when asset bubbles are destroyed reducing speculation, promoting real work and reducing production costs.

      So Fed should focus on crashing the bubble faster. It would give chance for new businesses to start as old unsustainable ones go bankrupt. The slow QT is destroying real economy permanently as worker productivity keep dropping and working class and students keep avoiding gaining real skills that can make them more productive.

      • JeffD says:


      • jm says:

        You’re talking goods.
        Many goods are not in “Core CPI”.
        Powell is talking services. Core services.

      • The Real Tony says:

        I need the Fed to crash the bubble slower not faster. I would have been ok if they had of just done a normal rate hiking cycle but someone came up with some stupid idea about frontrunning interest rate hikes. That could cost me millions of dollars if interest rates fall before 2024 rolls around.

      • Spencer says:

        The FED is not honest. And Congress is corrupt. Economists don’t know a debit from a credit.

    • Winston S says:

      Good. Market needs to be kicked down. Sick of monetary policy in the past 14+ years.

  2. sunny129 says:

    ‘Mr. Powel brushes off raising inflation target’

    But that’s NOT what the mkts perceived after his answer to WSJ’s Nick Timiraos: “Powell on changing the Fed’s 2% inflation target: “We’re not going to consider that under any circumstances.”

    Only that’s not what Powell said: yes, he hemmed and hewed, and did say that we are not going to consider that under any circumstances now… but then quietly added that “it may be a longer-run project at some point.”
    Indexes recovered significantly but partially from deep losses at this point

    • Leo says:

      Yeah, mainstream media has been saying that inflation would never get back to 2%, so we should just change target.

      Too many people in this country don’t care for tomorrow as long as they make “virtual” money today.

    • Wolf Richter says:

      Here is the full text on what he said:

      “That’s just — so changing our inflation goal is something we’re not thinking about. It’s not something we’re going to think about. It’s — we have a 2% inflation goal and we’ll use our tools to get inflation back to 2%. I think this isn’t the time to be thinking about that. There may be a longer run project at some point but that is not where we are at all. The committee — we’re not considering that and not going to consider that under any circumstances. We’re going to keep our inflation target at 2% and use our tools to get inflation back to 2%.”

      • Motorcycle Guy says:

        “There may be a longer run project at some point….. WHY??
        The inflation target should be ZERO and always should have been.

        • Motorcycle Guy says:

          I’m not quoting you of course.

        • Wolf Richter says:

          Yes, it should be. If this inflation episode turns into a decade-long battle as it did last time, with 15% mortgage rates and the like, and the damage that this will do, they might then rethink the 2% target as something really stupid and go to a target of no inflation.

        • Djreef says:

          He let the markets off the hook with that single line. He should have just stopped with “we are not going to consider that under any circumstances” and made no side tracking comments which side tracks the message.

        • AD says:

          2% inflation is not runaway inflation.

          It creates some incentive or motivation for buyers to not remain on sidelines hoping for a further price drop such as in a 2% to 5% deflation environment.

        • RH says:

          To be fair, the 2% inflation target (which is actually grossly undercounting real inflation due to the sneaky changes in how CPI was calculated years ago) may be designed to inflate away the MASSIVE, US debt, not to mention the undisclosed, federal liabilities that were estimated at over $200 TRILLION years ago, far in excess of any ability to pay them from the federal budget, even before the 2017 tax cuts and pandemic exploded them. See e.g., sdbuillion. Conservative estimates, e.g., by AEI, estimate them at $29.3 TRILLION, but they are NOT counting gigantic sums due on entitlements like social security.

          That also ignores the fact that the banksters and financiers’ defrauding of them for decades will require many state and other pensions and governments to default on their obligations or get bailed out by the US federal government to the tune of hundreds of trillions of dollars. Given the voting power of the baby boomers, and of those who would have to support them if those programs/pensions failed, I predict they will be bailed out and those GIGANTIC entitlements will be paid for as long as possible until they cannot be paid, albeit they will be decreased dramatically by all the inflation they can sneak in without Americans protesting too much.

          Hence, I predict sneaky inflation will be continued as long as they can continue it. Never forget that the greedy banksters have been making trillions for years when real inflation exceeds by 5% to 6% what they pay their depositors or bondholders. They luv inflation long time. They do not even have to buy us dinner first.

      • Steve M says:

        Hey man. Where is the physical context for all this verbiage? The body language?

        Insider info has it that Powell blinked before he made the quote you presented.

        Take another hit and think about it. He blinked first.

        From the web:
        blink first (third-person singular simple present blinks first, present participle blinking first, simple past and past participle blinked first)

        To be the first party in some situation to give in or back down.

        I knew they couldn’t go all the way!

        • kam says:

          “the 2% inflation target…may be designed to inflate away the MASSIVE, US debt,”

          With DEBT increasing at least at the pace of inflation, if not faster, how is this going to happen?

        • RH says:

          Dear kam,
          That is the secret, bankster excuse for the inflation target used to calm legislators, so they will not balance the budget by raising taxes on the ultra rich, who are the only ones with that amount of net income. Ordinary Americans (the less wealthy 97%) would not have the net income to balance the budget. Read who avoided paying $50 billion in US taxes in Gizmodo.

          That tactic is a common tactic among corporations now. I do not believe inflating away debt will work for the government, but it is WONDERFUL for the ultra rich: e.g., the salaries they pay their workers are getting cut by inflation and what they owe in bonds or to their banks’ depositors gets reduced in real terms by 6% plus each year plus AND some get other government benefits by political contributors to allow this or for the SEC to close its eyes and look away.

          For example, the holy A10 had a much !ower survival rate than otber planes in the last wars but it cannot be cancelled. Corruption is the name of this game, with those in congress who fight for tax cuts/benefits for wealthy US families, who own incredible palaces like Putin’s palace hidden all over the US, working to either cut their taxes or fight any increase.

      • Yort says:

        “Longer Term Project” on inflation goal means the Fed isn’t likely to do it anytime soon, or ever…but it is a possibility being considered long term one “some level” if things don’t work out as planned.

        If inflation still runs 3-4% by mid year 2024, and unemployment is spiking and the economy is tanking and the gov is bitching at the Fed…the easy button is increasing the inflation target. Just like when Yellen said buying stock and bond ETFs might make sense in a recession, they look at low probability events and study them rigorously, and thus why the Fed budget is billions per year…

        Yet admitting such inflation goal change “nonsense” now more directly than “Longer Term Project”, such would be a idiotic move as the Fed needs to lie constantly to keep humans emotions in check and present a story of “whatever it takes” no matter what that Santa is real and coming to make us all happy at all times no matter what…

        In reality, it is a risk at some point that the Fed is forced to reduce the inflation goal, so perhaps “nonsense” today, but a low probability risk in the future, although high level consequences.

        Just like a massive solar flare directly hitting Earth, the odds are not high but the fallout would be enormous. So “IF” the Fed is dumb enough to increase the inflation goal in 2024/2025, Markets will hit euphoria instantly, so something to consider and plan for just in case.

        Like having a months worth of long term food stored, it’s crazy until it isn’t anymore, and “anymore” seems to be happening on a more frequent basis from my subjective perception over the last ten years…

    • SocalJohn says:

      Sunny, yes, he seemed to stumble with that longer-run wording, and this is precisely the sort of thing that some (perhaps many) people latch onto. Even a whisper of a hint that is slightly contrary to the overall message seems to have an outsized impact. Maybe he’s way smarter than us, and he does this to prop up the markets so that he can keep raising rates.

    • Yort says:

      sunny129 – that Nick Timiraos comment on Fed day created a huge ramp in SP500 futures, and I actually had pre-set a futures contract sell at 4070.00 (3 points above the 200 SMA at the time) and it filled at 3:13:06pm. I sold a few minutes later for a very nice gain as I thought the market would find a morsel of euphoria at some point during the interview, take it to the 200 SMA instantly, and then re-assess. Perhaps Nick and Jay did the same thing via automated trades…HA

      So Nick, thanks for pumping the market…can always count on the Fed’s new WSJ mouthpiece. I actually follow his Twitter for this very reason…

      • The Real Tony says:

        Somehow the stock market went from predicting the economy 6 to 8 months in the future to the greater fool theory just like the cryptocurrencies. In the end when the music finally stops the bankers will make all the money and everyone else will lose their shirt. Like the definition of a ponzi in the end 95 percent lose everything.

  3. Nevada22 says:

    Winter is coming.
    It is impossible to go back to to those 40 glorious years of financial nirvana we all enjoyed. Expect a long painful process of a change in societal group think from “debt is good,” to “debt is bad.” It will take years and be very painful.

    The Fed was very vocal in its desire for increased inflation for over the14 years post TGR. And here we are. Just a few years ago they were pining for more wage growth too, and now they are concerned about that very thing. Missions accomplished.
    Yes, at this point the Fed is very adamant in its desire for reduced inflation going forward, but the reality is that they still prefer inflation over any serious breaking of the financial system. Evidence?
    -The Fed will not ask for fiscal restraint.
    -Fed “tools” either don’t work in our current financialized economy and/or only add complexity.
    -After 40 years of having the macro wind at its back from: Globilization, low debt, room to lower rates from 20% to zero, women entering the workforce, and more – these no longer exist. Their expiration date has passed. On top of all that, we have to recognize the de-carbonization efforts of the advanced economies. Very inflationary. Also demographics make our existing growth model ever more difficult.
    -Despite QT, aggregate credit has actually grown in 2022. Just look at the Fed’s own recent Q3 Z.1 report, with 2022 NonFinancialDebt growing 2x the average amount of the prior 20 years ending 2019. With over $200bil in repo and reserve payments, and the growth and bank and non-bank credit, aggregate credit to the system has been up, not down in 2022. Non-market based lending has boomed this year. Surely the Fed is aware of that as well, after all, it is in their own numbers.
    Also, government guaranteed loans continue unabated, a large source of money creation through riskless bank lending (riskless for the banks.)

    Expecting a large downshift in inflation, with the sum of these NET inflationary drivers, makes little sense.
    If all that isn’t sufficient, soon we will have $32T in Federal nominal debt, which will at some point pay interest @ 4.6%(the current average of median estimates of Fed rates for 2023 and 2024), which generates a run rate of $1.4T in interest payments alone. Add in the ever expanding spending for everything else in the Federal budget, the US Federal debt will continue to explode. Have we seen even a single clawback of $ Congress has authorized? No.
    The Fed has spent a fair amount of time talking about about Climate Change and Equality in the last few years as well. But do they even make a tiny squeak about stock buybacks or the massive Fiscal largesse? Of course not.

    Expect sometime next year that the Fed will announce a new inflation target of well over 2%. “It may be a longer run project at some point,” Powell said.
    They will have to.
    It looks to be a very long winter.

    • sunny129 says:

      He devalues his credibility actively by himself, by putting his ‘foot in his mouth ‘after each Q&A following a ‘hawkish’ statement. Guess he just cannot suppress his inner ‘dovish’ self. Just cannot shock the mkts, right?
      I am least surprised.

      • Wolf Richter says:


        “by putting his ‘foot in his mouth ‘after each Q&A following a ‘hawkish’ statement.”

        You’re among my favorite folks who try so hard to twist and turn everything he says into something pivot-ish or dovish. It really looks silly by now. Rate hike after rate hike, it’s the same thing. Now we’re getting to 5%-ish and you’re STILL doing it.

        I mean you people cherry-pick through syllables to figure out how to concoct something pivot-ish or dovish. It’s funny to me how you people stick to doing this, time after time.

        The Fed is tightening from both ends, rate hikes and QT. Hence the worst year for the bond market in history, RE is cratering, cryptos are down 70%+, stocks are down bigly, the S&P 500 -17%, the Nasdaq -31%. And all this fun just in the short period since they started tightening. What else do you want in such a short time?

        • Rudolf says:

          Do you suppose the cryptos could’ve went down huge in any event as well? Like, they went down these months largely not due to a Fed’s actions but just because they were bound to get blown up by now.

        • jm says:

          Interesting FRED data plot:

          Real M2 Money Stock/Real Gross Domestic Product


        • perpetual perp says:

          Crypto should be at zero. Crypto coins have no intrinsic value, other than the same one held by casino chips, called ‘transactional’ value. Crypto-ists exist only as long as someone is dumb enough to use their dollars (which do have intrinsic value) to buy crypto which has none. An attentive government, one not paid for by the super rich, would have never allowed the stock exchanges to list Bitcoin as ”worth” some dollar amount. That value is outrageous. Crypto has no value. Other than its original use–to wash dirty laundry.

        • Andrew Klein says:

          Can we avoid a Weimar Republic outcome, do you think?

        • Cytotoxic says:

          ” Crypto coins have no intrinsic value”

          Incorrect. You cannot do with tradfi the things you can do with crypto, from privacy to micropayments to not holding a currency subject to the whims of central banks. If you feel so strongly otherwise you can bet that with options.

        • sunny129 says:

          I hope you are right.

        • Winston S says:


    • gametv says:

      Nevada22 – I actually think my bigger concern is that inflation will drop by the end of 2023 and then the Fed will end up with a balance sheet of 6-7 trillion dollars that is “structural” and can never be eliminated.

      If we keep looking to the Fed for the answers to economic growth we fail to force the federal government to make painful changes.

      • ru82 says:

        Good comment. Currently the Government is letting the FED do all the heavy lifting at trying to tame inflation while the Government is increasing spending. They somewhat cancel out? The CBO says Government debt will be over $40 trillion in 2030. That sort of negates the FED attempt of removing their 6 trillion from the financial system.

    • Wolf Richter says:

      For those lovers of a higher inflation target: You don’t know what you’re talking about.

      A higher inflation target means higher interest rates and lower asset prices across the board because the expectation is that inflation will be 4%+ and not 2%, and then all yields, including bond yields, dividend yields, and RE yields will adjust to that. Higher yields means lower prices.

      It would crush the bond market. The bond market already had its worst year in history, and raising the inflation target would be like rug pull.

      • Motorcycle Guy says:


        • American Dream says:

          Exactly, if we accept higher inflation it doesn’t mean we can drop rates and juice growth and just deal with higher inflation.

          You drop rates again and then inflation takes off again. This is a no win situation for the markets and today was a blunt reminder of that.

          Unless inflation magically goes away and that seems unlikely to say the least

      • KPL says:


        Hopefully Bill Ackman reads this. Or may be you can send him this.

        He seems to have decided that 3% should be inflation target for the Fed.

        • Anonymous Coward says:

          I believe his argument is that they will conceded when it gets close and not signal any change until then, so today doesn’t change any of that. We will only know in the moment that their language changes.

          And why not 3% … what is so magical about 2% after all? They had no problem when it was below 2% for months and quarters on end.

      • Anonymous Coward says:

        I have never seen a credible argument for why 2% from anyone. It’s a made up number that economists found worked pretty well in the past.

        Also, I believe at some point during Powell’s run the FOMC changed the nature of the target to be more squishy than an actual 2% but rather bounded by or some other weasel words, when they were below. All reason to believe they’ll accept 2.5% or even 3% as being close enough to target.

        • Anonymous Coward says:

          Here it is.

          Fed Chair Jerome Powell announced the more significant changes resulting from the Fed’s monetary policy framework review on Aug. 27, 2020.

          Notably, the Fed changed its language on inflation, replacing its 2 percent inflation target commitment, and instead said it will “[seek] to achieve inflation that averages 2 percent over time.”

          This change is a substantial departure from the previous flexible inflation-targeting regime. Monetary policy under inflation targeting was symmetric—the Fed would equally respond to overshooting and undershooting of the target. The Fed lets “bygones be bygones,” since it does not attempt to make up for past inflation deviations from target.

          By comparison, average inflation targeting means that policymakers would consider those deviations and can allow inflation to modestly and temporarily run above the target to make up for past shortfalls, or vice versa.

        • Wolf Richter says:

          And then we got 9% CPI inflation, and that whole document has been ridiculed all year. This didn’t age well at all. That change is now one of the most embarrassing moments for the Fed.

        • Depth Charge says:

          “That change is now one of the most embarrassing moments for the Fed.”

          And one of a laundry list of reasons why the FED has zero credibility left, and why the markets are fighting the FED and think they are calling Jerome Powell’s bluff in spite of the rate hikes. This is a “Boy Who Cried Wold” situation. We all know the tale.

          I’m of the opinion that it really doesn’t matter what the FED does at this point, they’ve ruined the country and there is no way back. Generations of young have given up hope of a future. Can you imagine living with your parents in your late 30s, no wife or family, because you can’t even afford your own shelter? Now multiply that by tens of millions.

          I can’t say here what I think should happen to Jerome Powell, Janet Yellen, Ben Bernanke and Co., out of respect for Wolf and his site, but think “French Revolution.” What they have done to society is a crime against humanity. And they were personally day-trading on these policies, and Jerome Powell smiled meeting after meeting, boldly proclaiming “we’re not even thinking about thinking about raising rates.”

          This guy is a clown. An evil clown.

        • VintageVNvet says:

          Actually for DC:
          Could NOT agree MORE DC!!! (( as usual ))
          Time and enough to get rid of the FRB -slimers,,, and ALL such currently telling total LIES about
          ”Their mandates” for WE the PEEDONs,,, and find some similar but very different way to protect:
          1. USD.
          2. Workers wages.
          3. ALL actual savings.
          4. And then go after the now ”QUADRILLIONS” of paper wealth/derivatives/unknowns.
          Until Wolf reports to WE the PEEDONs that this has happened globally, this old boy is staying in local, local RE, where at least SOME personal efforts will continue to be rewarded or at least helpful.

        • azbc says:

          Look closely at the language: “[seek] to achieve inflation that averages 2 percent over time.”

          This is further proof that these guys will only give lip service to fighting inflation. If we’re to have inflation that averages 2% over time, and we’re currently in the 7-8% range, doesn’t that mean that we need deflation in the -5% or so range for a while in order to hit the Fed’s stated 2% target?

          Of course this is never mentioned by the Fed or their de facto communications director working for the Wall Street Journal. Deflation will never happen and the price hikes we’ve all come to know and hate over the past year are forever part of the landscape in the mind of the Fed.

        • eg says:

          I think the 2% number was first pulled out of thin air by New Zealand’s central bank, but I am prepared to be corrected if that isn’t so.

        • Wisdom Seeker says:

          And before the Fed went “symmetric” the target was MAX inflation of 2%, that is 0-2% ok.

          Had they kept to that prior understanding of “stable prices”, the Fed wouldn’t have been as inclined to tolerate the inflationary overshoot in 2021. Likely we wouldn’t be in such a pickle as we are now.

      • Yort says:

        Wolf – Personally I think inflation goal should be “ZERO”, and I believe the Fed should allow deflation and inflation to happen naturally as was the case for hundreds of years before the Fed came into existence.

        That said, “2%” has always been arbitrary at best, as it could have easily been set to 1.25% over the last ten years and perhaps the US would not have printed so much fiat in attempts to get above 2% to compensate for being below 2% for so long.

        “IF” labor force issues do not resolve in a few years, and weather change issues continue to drive the cost of everything higher…then inflation might not drop to 2% without forcing unemployment to reach levels that govt and society find unacceptable long term.

        Thus the irony is the govt may want to increase the inflation goal at some point, as that allows them to print money to buy off voters, allows the fed to pump up Wall Street again, and gets “the game” back to fiat bliss again. Not to be mean, but the govt is full of individuals who have the skills of manipulation due to having few other talents, thus a lot of very illogical things are going to happen due to this very point. So the Fed might illogically get pressured at some point to increase the inflation goal, just like illogically they get pressured by govt officials to drop the interest rates constantly…

        Not what I would do, not good for the majority long term, yet illogical govt is always a risk nevertheless…

        • VintageVNvet says:

          TOTALLY agree with your “Wolf – Personally I think inflation goal should be “ZERO”, and I believe the Fed should allow deflation and inflation to happen naturally as was the case for hundreds of years before the Fed came into existence.”
          Time and enough to make the FRB, a totally owned and operated entity FOR the ”banksters” and their owners, either go away, or be fundamentally restructured to actually serve WE the PEEDONs to do what they claim to do, but clearly do NOT.

        • eg says:

          Yort, only someone who has never experienced deflation (or is unfamiliar with its history in several periods of American history) would welcome it.

          The history of why the Fed was established is also useful for understanding its inflationary bias (by which I mean that its target is NEVER zero, let alone negative)

      • cb says:

        yes Wolf …………… if markets were rational

      • Spencer says:

        I think our gov’t has thrown in the towel. The CBDC will destroy the underground economy or 10% of gDp.

    • TimmyOToole says:

      “Also demographics make our existing growth model ever more difficult.” Could this be why our country’s borders are being left open and we’re being flooded with young illegal immigrants? Nevermind what human capital they bring, however. FWIW I do not see this as a real long term solution or even leading to a high quality of life for US citizens, merely another short-term easy (for the government not the people) fix.

    • The Real Tony says:

      The glorious years for me were 1973 to 1982.

      • Escierto says:

        Exactly right. Those were good years. I was a poor law student in Pittsburgh working part time but life was good.

      • Wolf Richter says:

        1982 was among my worst years ever. With a fresh MA degree, I worked at a Taco Bueno to make ends not meet.

        • bulfinch says:

          Man — I hate to say it, but I feel like cutting one’s teeth in that way — subsisting on tacos/wages from a crappy gig when you know you’ve got miles more to offer — is a crucial part of building character.

    • Winston S says:

      “Yes, at this point the Fed is very adamant in its desire for reduced inflation going forward, but the reality is that they still prefer inflation over any serious breaking of the financial system. Evidence?”

      Prefer inflation? Maybe not, hopefully not. Way past time to get to sound economic policy.

  4. gametv says:

    What bothered me about Powell’s comments was his failure to break-down the components of inflation in his explanation. He didnt talk about how the healthcare adjustments are making services inflation look more tame than it is, or how many categories of services are seeing very large month to month increases and that might be very sticky. He looked/sounded very defensive to some of the questions.

    And no mention of the massive 8 trillion balance sheet and how that is distorting financial markets, pushing money out of treasuries and into riskier asset classes.

    He is no Volcker.

    • Phoenix_Ikki says:

      Haha you expect him to break it down for you like Wolf and tell it like it is?

      Even if not Powell, I don’t think any FED chairman will do that but this is Powell after all so even more unlikely..

    • Wolf Richter says:


      He didn’t need to talk about the health insurance adjustment because core PCE calculates health insurance inflation differently than CPI and is NOT adjusted. That’s why “core services” inflation, which he talked a lot about, was getting even hotter.

      In terms of the balance sheet, the statement said that QT will progress as per plan. Volcker didn’t even do QT at all.

      The Fed is tightening from both ends, rate hikes and QT. Hence the worst year for the bond market in history, RE is cratering, cryptos are down 70%+, stocks are down bigly, the S&P 500 -17%, the Nasdaq -31%. And all this fun just in the short period since they started tightening. What else do you want?

      • Chase D says:

        Wolf, I’d love to hear your thoughts on https://fred.stlouisfed.org/series/WRBWFRBL
        I’m calculating an 88% correlation between this fed chart and the S&P 500 over the past 12 months. Sure, fed fund rates are important but if we have $3 trillion or so to drop off the fed’s balance sheet, that will be much more important than the final fed rate. And your recent article on the losses the fed will incur may be impactful for a decade! Why do you think the press doesn’t talk more about QT? I suspect QT is THE story and interest rates are 2nd.

      • Tight Purse says:

        “ the S&P 500 -17%, the Nasdaq -31%”

        I find these declines way too low. I find the interest rates also too low, esp for the long term government bonds and for the mortgage rates. I think the market participants are way too optimistic and that’s why both the stock and the bond markets are nowhere near where they should/could be. I don’t really blame them, they’ve been conditioned, as El Erian put it, for a long time. And, Wolf, I read the article in which you discussed the issue of bounces vs trends, so you probably agree.

        Also, despite the record increases the Fed did, they remain interventionists, as opposed to just a lender of last resort. The optimists think this means they’ll use their powers to fix inflation and point to what they did this year. The realists know these are the same people who kept rates at zero and did QE and who would have no problem with going back to what they were doing just a year ago. After all, what’s the worst thing that could happen to them personally?

        • The Real Tony says:

          The bigger question is where is fair market value in case the unthinkable happens and the stock market no longer remains rigged to the upside? It’s a longshot but its possible.

      • LaughingLion says:

        Wolf, what I want is to find a non-shack house in my area (the DMV) that anyone would want to live in, for less than a million. That’s what I want. Waiting for much much MUCH more pain in the RE market. And I hope Realtors^TM feel a lot of pain in the meantime.

      • JeffD says:

        Vocker sort of did a QT:

        Money supply (effectively) dropped negative during parts of the period spanning 1979-1982. That’s probably why what Volcker did worked.

      • gametv says:

        Wolf – I want a rug pull and lower asset prices, because that will set up a better long term return. I believe asset bubbles are the primary cause of wealth disparity and over-consumption.

        Quality of life has degraded with the constant focus on “financial metrics”. Just having GDP growth does not equate to an improved quality of life for Americans.

        I think that the lack of a real big crash allows politicians to continue to basically allow the status quo to continue. We need some real pain in financial markets to maybe trigger just a little bipartisan compromise to address the core issues – trade policy, healthcare costs and industry structure, housing affordability, government debt, etc. Maybe I live in a fantasy world???

        Home prices are still crazy high, the S&P is still higher than pre-COVID. These are not signs of a completed correction, in my opinion.

        I want savers to be rewarded with inflation near zero, so that the savings rate improves.

        • Augustus Frost says:

          What you said, plus excessive congestion.

          US population has increased by over 100MM since my family moved back in 1975 and it’s mostly concentrated in a few dozen cities.

          In metro ATL where I live now, population has increased 4X to about 6MM. In some municipalities within the metro area, far more.

          It’s unsustainable.

        • Winston S says:

          Great post. Couldn’t have said it better.

    • Kernburn says:

      I don’t think he ever wanted to be volcker…he just throws the name around here and there for dramatic effect. It’s interesting to note that where interest rates are right now, is still barely higher than the LOWEST that rates were in the 70s.

      • LaughingLion says:

        He wants a Nobel prize… which he will get, no matter what happens, because neoliberalism.

      • Bruce Kellogg says:

        I remember when Volker retired. He said he was going fishing in Connecticut. Why is everyone so intense?

        • Depth Charge says:

          They have turned the country into a financial pressure cooker. That’s why.

  5. sam s says:

    Can someone please explain why the 5/10 year treasury yields dropped again today despite the 5%+ dot plot and no pivot anytime soon? What am i missing?

    • Wolf Richter says:

      Same reason why the 10-year yield dropped to 0.5% in mid-2020. Markets are IDIOTS. They got killed last time — we now have the worst year in bond market history — and they’re still being IDIOTS. I call it consensual hallucination.

      • Depth Charge says:

        I call it a complete lack of FED credibility. They think Pinocchio Powell is lying again.

        • Johnny5 says:

          Depth Charge, I think you should just change your pseudonym to “I Hate Jerome Powell”. It would free up a lot of space in your comments.

        • American Dream says:

          You can call it whatever you want but it’s going to happen. Yields are gonna rise.

          While I agree that basically nobody believes in the fed for good reasons they still hold all the keys. The dot plot is inescapable

          The more the markets fight them the higher rates have to go and the more hawkish they will get so really it works against them.

          The tide turned this week…. Quicker then this summer I’d add😁

      • dougzero says:

        I call it opportunity. Don’t fall for the hallucination, and money can be made. The Fed will win. We are in a tough spot. Powell is doing a decent job, since he lost that ‘transitory’ nonsense. Many here think they know better. Ok, but I hope you are not fighting the Fed.

      • Doubting Thomas says:

        Agreed. The “wisdom of the markets” seems to have disappeared. The challenge for wise investors who base their decisions on fundamental financial analysis is *timing*. Even if you know markets are wrong and that assets are badly mispriced, you don’t know *when* the markets will stop the hallucination.

      • Spencer says:

        “Markets are IDIOTS.”

        You proved that in FEB 2021.

    • Here it comes says:

      Markets are controlled by sentiment, not some omnipotent hand of the Fed. Sentiment is emotion, not logic.

      When you look at the markets through a sentiment lens rather than a fundamentals one suddenly you find that the moves were fairly predictable even though they had nothing to do with the content of the fundamentals (aka reality).

      • bulfinch says:

        I keep alluding to this in the broader economy, or ‘Main Street’ — the fatalism I see in consumer spending and the blitheness toward inflation seems to me to be fueled by two things: one, a growing fatigue with the boom/bust cycles, and two, a unique madness resulting from 2 years of feeling cooped up & schizoid. The planet emerged from this molting period only to skid right back into global pell mell, and I think a lot of people feel like — screw fundamentals; I’m buying that X,Y or Z.

        • Here it comes says:

          This is always how the markets have worked, things didn’t just change recently. Fundamentals do matter, just not in the shorter term.

          If you look at longer term sentiment charts they tend to align with the larger degree fundamentals. According to those charts, we are in the early stages of a downturn that is of the same degree as the Great Depression. So this behavior you talk about will probably change over the next 10 – 15 years.

          Right now everyone is living in basically the same world that existed 8 months ago. It takes time for the interest rate changes to affect more than the most sensitive sectors.

        • bulfinch says:

          Really?? From what I witness, I disagree — behaviors are different because, well, shits been real different lately; people were cloistered, people lost loved ones, people almost died themselves — which is to say nothing of all all the concomitant social in political unrest which ensued.

          The pandemic and all of its follow-on effects have not been invisible forces in the consumer mindset/marketplace. You saw it in the housing market in particular.

      • Lynn says:

        I’m thinking the markets are composed of more global sentiment than before. Not so much American sentiment as before. And that it is 1. one of the least leaky buckets globally so money just piles in. 2. a status symbol for people in other countries to own some part of it, regardless of profit. 3. More uninformed gambling than any sort of reasoned reaction, ever. 4. a good place for global layered laundering because of LLC laws in Delaware, Wyoming etc plus RE law throughout the country (which thankfully is changing).

        I can’t even really wrap my mind around the number of a billion dollars. I don’t really truly understand that number. There are so many people globally who have that. That is a phenomenal amount of money for one person or family to have. At that number do most people who have that much even really understand the number? Do they even care if there is a profit on that number or not? Or are they just playing with the bulk of it like a card game?

  6. Andy says:

    So Wolf, do you think they should go much higher or not?
    Should they keep chugging at 50 Bips or what?
    Now that there’s been all this layoff data, and a lull in housing price increases, and you’ve talked about how increased interest rates can choke off demand, but can’t create supply, I don’t what to expect anymore.
    Do we want to risk a recession and add a whole bunch of slack in the labor market?
    Or do we want to crush the debt and choke off the easy money again?

    J. Powell doesn’t seem to be the only one moving the goalposts.

    • Wolf Richter says:

      They’re already higher than I thought last year that they would have to go. But since last year, inflation has gotten worse. I think 5-6% and wait and see, and continue with QT is probably a pretty good path. The important part is wait and see.

      I believe this inflation will dish up some nasty surprises, as inflation does once it starts getting going.

      “Risk a recession” is the wrong phrase. The problem is inflation, the worst in 40 years. I think that a recession is required to squash this inflation.

      The easy money needs to be choked off for good. That’s a very destructive thing to have around, as we found out.

      • Depth Charge says:

        “The important part is wait and see.”

        So the working class and poor can continue to get screwed 6 ways to Sunday by inflation, which becomes entrenched, then do something?

      • BuySome says:

        I’d sure like to know what a recession in this “modern” economy (or e-con-oh me) is supposed to look like. This ain’t yo’ grandaddy’s world no mo’.

      • Nate says:

        Curious on this. In your view, is having a median recession “worth it” to go from 4% to 2% inflation? Also, do you think Powell shares that opinion?

        • Wolf Richter says:

          Inflation is a scourge for a big part of the population. The rich don’t mind inflation. Everyone else faces issues that can reach existential crisis levels because of inflation.

          Inflation must be stopped. In addition, all the ridiculous excesses that have been woven into the economy since 0% and QE started in 2008 need to be wrung out of it. And inflation should be brought to 0%.

          There is a price to pay for 12 years of 0% and QE. There is no free money after all.

          The economy will adjust.

      • Concerned_guy says:

        Wolf – you said ‘I think that a recession is required to squash this inflation.’

        But with the unemployment being where it is, how can there be a recession?

        With tight labor market wont the people getting laid off get another job instantly?

        • Wolf Richter says:


          Yes, that’s part of the problem. That’s one of the reasons why I think inflation will be surprisingly stubborn — and I think the Fed has now bought into it too.

        • josap says:

          If you want higher unemployment and lower wages, or wages that don’t need to be increased quickly – bring in immigrants. Increase the labor pool.

          Some immigrants will take low paying restaurant jobs and the people working there now will get higher paying retail jobs. Retail workers might move into lower-level office work. There will be more construction workers, lowering those wages and the input cost of housing.

          Higher skilled immigrants will improve the labor pool of those jobs, nurses / engineers / machine shop operators.

    • Pea Sea says:

      “and a lull in housing price increases”

      A lull in housing price increases doesn’t even begin to solve the problem. Housing prices are way, way, way, way, way, way too high. They need to come down substantially, not just stop going up for a few months.

      • Depth Charge says:

        You need a 75% drop in some markets for affordability to return. They ruined the country.

        • Escierto says:

          Back in the day not so long ago, I bought a house in a small south Texas town for $30K. I went to some software development training in Palo Alto, CA and they refused to believe me. They didn’t think it was possible to buy a house that cheap. Now it all seems like a dream.

        • VintageVNvet says:

          10-4 once again DC…
          Saw just exactly that when wanting to buy a house or two on a canal with sailboat clearance, both water and bridges to the GOM in 2006.
          Sold in 2009 for about 25% of the asking in 2006.
          Please keep this in mind when considering ANY RE.

    • Augustus Frost says:

      Do you believe that a recession can be avoided forever?

      The only reason there have been so few recessions since the early 80’s (when the last major credit cycle turned) is because of such loose fiscal and monetary policy. Contrary to what so many people, governments and central banks didn’t learn how to “manage” the economy so much better and the productive capacity without both of these distortions isn’t that much bigger either.

  7. Phoenix_Ikki says:

    Powell boy might be trying but the market is trying even harder in their fantasy about cutting rates soon… the market’s pathetic half a percentage drop by closing is a testament to that

    I am sure they will dream out many fantasies before year end to give it a proper Santa’s rally.

    One disappointing thing or perhaps I missed it is the fact no one asked Powell boy about selling this MBS…I guess most reporters don’t want to open that QT pandora box

  8. Eastern Bunny says:

    Inflation might come down but that means only prices are going up a bit slower than now.
    The crime was to let inflation get out of hand.
    Get used to much higher prices forward.

  9. Jay says:

    “The worst pain would come from a failure to raise rates high enough, and from allowing inflation to become entrenched in the economy so that the ultimate cost of getting it out of the economy would be very high in terms of unemployment, meaning very high unemployment for extended periods of time. The kind of thing that had to happen when inflation got out of control and The Fed didn’t respond aggressively or soon enough in a prior episode 50 years ago”

    This entire statement is invalid. In 1973, the Fed raised the FFR 500 basis points in 7 months. In 1980, Volcker raised the FFR 950 basis points in 7 months. So all this historic, rapid rise over the last 50 years in the FFR is totally false. In both cases, the result was a recession. The REAL problem is that the Fed dropped the FFR to near ZERO which WAS absolutely unprecedented and left it there for two years. And, they went on a QE binge along with Congress to the tune of $11T, both of which were highly unprecedented.

    The results were a massively overly stimulated economy & stock markets, both of which JPowell now must own. But with $31.5T in national debt, JPowell is pinned between the rock & a hard place of these massively over stimulated asset bubbles and massive increases in interest expense.

    He’s in a no-win situation that he caused and now has no way out of. Oh, and Janel Yellen is just as much to blame as JPowell & Biden.

    • HowNow says:

      In 1942, the Fed (which was not independent at that time) dropped rates to .38% and kept them there for 7 years. After WWII, inflation reached double digits. The 3-month T. yield was below 2%. Just after the war, home ownership was approx. 47%.

    • Nick Kelly says:

      There is someone else to blame: who publicly tore into Powell when he tried baby steps of .25 % before Covid?

  10. Bob says:

    Wolf, what happens when servicing the debt starts to take up a huge portion of the budget and limits social services and entitlements? Won’t there be considerable political pressure to lower rates? Or is there a consensus that we can live with the short term budget hit because inflation is more destructive in the long run? Thanks for your clear eyed analysis on the fed. I’m continually amazed that all markets are basically a proxy for liquidity.

    • Wolf Richter says:

      Don’t worry about the debt with this inflation. Inflation is also inflating government receipts. So the relative burden of the debt will decline. That’s already happening big time.

      In fiscal 2022, federal receipts spiked by 21% from fiscal 2021. To $4.90 trillion in 2022, from $4.05 trillion in 2021.

      As long as the interest rates that the Treasury Dept. pays on the debt is below the rate of inflation, the burden of that interest expense will decline.

      • cb says:

        “In fiscal 2022, federal receipts spiked by 21% from fiscal 2021. To $4.90 trillion in 2022, from $4.05 trillion in 2021.”

        the plan. stagflation.

        why the hell else would they hold to a stated 2% inflation target?

    • Apple says:

      Social services and entitlements are not a small portion of the Federal budget. Certainly when compared to the military budget.

    • James says:

      Actually, we do need to worry about debt. Take a look at this Fed URL:


      It clearly shows that tax receipts are peaking. Good times never last forever, but of course Congress never gets this message. Tax receipts will fall next year. And, just look at the latest CR that’s being proposed. It’s gargantuan.

      The key takeaway here is that America has arrived at the point where our debt is starting to influence the Fed’s ability to sustain its policies. If the FFR stays above 2.5% through 20225 like it’s expected to, then our interest expense will continue to explode higher as GDP & tax receipts falter.

      It’s now a much bigger deal than certain head posters here want to admit.

      • Wolf Richter says:

        Nah. Look at the chart you linked and do some math. What your chart shows:

        Tax receipts SPIKED by 51% in 2 years since Q3 2020
        Tax receipts SPIKED by 21% year-over-year.

        Those are the biggest percentage increases since the one-quarter miracle in 1976 and the biggest dollar increases EVER.

    • Kurtismayfield says:

      There will be pressure to print money once the SS deficit gets too large,which will be in ten years. Congress will not pull itself together to solve that issue, unless they sell future generations down the river (remember, SS is paid for by current taxpayers).

  11. Blam 35 says:


    Agreed. If he wanted credibility he’d sell 300 bil of mbs. Relying on interest rates alone seems like trying to accomplish inflation reduction without addressing the elephant. How can he even think he’ll get substantial reduction of inflation without draining the punch bowl; hard to see as not disingenuous.

    • Heron says:

      Sell to who? Who has the money and the desire?

      • cb says:

        there is a thing called markets …………..

        • Iona says:

          Idiotic comment. 300 billion of 30 year paper at 2.5 – 3% rate. No one is going to buy that except maybe geniuses like yourself

        • rojogrande says:


          If sold, the 30 year paper will sell at current market interest rates, not 2.5-3%. At a high enough rate plenty of buyers will purchase mbs guaranteed by taxpayers.

    • gametv says:

      I guess what I wonder/think is if the Fed was willing to buy Treasuries and MBS at such a fast pace, why is the pace of selling so slow? And how much of this can they sell back to the markets before it causes a market melt-down and they must stop?

      I feel there is a possibility of a black-swan event here that noone really considers. That is the possibility that at some point the lack of demand for Treasuries (outside of the Fed) causes the market to lose faith in the credit of the US government, and then all hell breaks loose. It happened in England. But if it happens with US Treasuries, it will be far worse. It would take down the whole financial system. So then the Fed has to step in and buy Treasuries and that stokes another cycle of inflation?

      It just feels like we have created a very brittle system, where markets have been so babied that they cant function without intervention from central bankers. And that is dangerous.

  12. info says:

    Would it be doable to raise QT to 120 Billion per Month?

    Or is that too catastrophic

    • Wolf Richter says:

      Not needed. Markets are already struggling enough.

      The Fed is tightening from both ends, rate hikes and QT. Hence the worst year for the bond market in history, RE is cratering, cryptos are down 70%+, stocks are down bigly, the S&P 500 -17%, the Nasdaq -31%. And all this fun just in the short period since they started tightening.

      Just be patient. Give it some time.

      • info says:

        The inflation is driving me up the wall. I want it to stop ASAP.

        • Wisdom Seeker says:

          It’s better for sanity to focus on the things you can control, minimize the risks you face from everything else, and have faith that because someone else isn’t so wise, they’ll be driven up the wall first and that invisible hand market/political pressure will sort things out for you too. Oh and when you get to that spot, you will also be ready for unexpected opportunities.

      • Swamp Creature says:

        Why not leave interest rates to seek their market level and concentrate on lowering the balance sheet and a faster rate? Wouldn’t that work better in the long run?

        • gametv says:

          Swamp Creature – I think the answer to that comes from a previous Wolf article. If the Fed started to dump the balance sheet more aggressively right now, it would incur really large principle losses, which it would be forced to add to the balance sheet. That might raise some questions.

          They basically want to use short term rates to kill inflation and then bring interest rates back down later. They can just let the Treasuries and MBS run off as it matures, so there is no loss of principle. That is probably why they have not met their goals for QT to date.

  13. J.M. Keynes says:

    -The FED is now “ahead of the curve”. Because they are targeting a rate between 4.25% and 4.50% but the 3 month T-bill rate (today) is below 4.25%. To be precise: it is (today) at 4.22%.

    • Wolf Richter says:

      The Fed isn’t ahead of the curve. It is ahead of the 3-month T-bill. That’s it. Ahead of the curve would mean an EFFR of 7%.

      • DawnsEarlyLight says:

        Wouldn’t that be something!

      • Mark says:

        ” Ahead of the curve would mean and EFFR of 7%.”

        Or an EFFR of 15% ….. to reflect the true inflation that’s rampant – not the “Chinese” statistic of inflation that the Fed offers

  14. JeffD says:

    It’s easy to talk tough in a benign environment. When a foreshadowing of consequences start to roll in, likely round April, I firmly believe the Fed (aka Powell) will begin to change their tune. Based on the emotions expressed during his Brookings Q&A , Powell focused on making sure to minimize/eliminate damage or pain in the process of returning job openings and unemployment to “balance”. The inflation fight itself was not his emotional focus.

  15. Don’t Bullshit Bob says:

    I can’t believe SOB from the Fed has the nerve to mention “price stability”. Just a bunch of rich elites collecting pensions for our taxes and the best healthcare possible. Their will be a reckoning for Powell and his cronies reckless behavior. Much like the out of control border crossings, this reactive leadership by every branch of government has to be atoned. Leadership at the Fed basically saying they have no idea what the numbers will be or when inflation will be under control.

  16. WolfGoat says:

    Yep, ANFCI is headed in the wrong direction… still work to be done!

    Index Suggests Steady Financial Conditions in Week Ending December 9

    The NFCI was unchanged at –0.21 in the week ending December 9. Risk indicators contributed –0.02, credit indicators contributed –0.10, and leverage indicators contributed –0.09 to the index in the latest week.

    The ANFCI ticked down in the latest week to –0.11. Risk indicators contributed 0.02, credit indicators contributed –0.06, leverage indicators contributed –0.06, and the adjustments for prevailing macroeconomic conditions contributed –0.01 to the index in the latest week.

  17. Harry Houndstooth says:

    The Dollar Index peaked in September 2022.

    If any human has any insight into what this means or represents, I would be very grateful.

    Please note that I have moved aggressively into FDIC insured bank CDs paying 4.7% to 4.8% for 9 months to a year.

    After Powell’s talk I expect 5% very soon.

    • Mendocino Coast says:

      Sallie Mae 27 month high-yield CD 5 % you can get that now

    • josap says:

      It means that as the USD goes lower against other currencies, imports cost more.

      Sept saw USD and Euro at par. Today the Euro is at 1.07, so imports from there cost more.

  18. Bobber says:

    After this latest 15% inflation episode, it will be decades before I buy a bond with a maturity longer than one year.

    Inflation is just a symptom of the core problem, which is dovish interventionist central bank policy, and that is not acknowledged by legislators.

  19. Finster says:

    “I would say it’s our judgment today that we’re not at a sufficiently restrictive policy stance yet…”

    … but instead of fixing that today, we will put it off until tomorrow … next year … whatever …

    • Wolf Richter says:

      Any kind of economic adjustment needs to occur more or less slowly so that businesses, consumers, and other economic participants can adjust to it. If it occurs all at once, you get chaos. I understand that some people here are dreaming about that kind of chaos where everything just collapses and shuts down from one day to the next. But be careful what you wish for.

      • P says:

        “Any kind of economic adjustment needs to occur more or less slowly”

        But only when tightening, apparently. When easing, it’s damn the torpedos.

        Unprecedented money printing and interest rate repression driving housing prices up 40% in two years, pricing a generation out of homeownership and blowing up ludicrous asset bubbles worldwide? Sure, why not!

        Unwinding that massive money print with any kind of speed at all? Oh, no, you silly children. Don’t you know that these things must be done cautiously?

      • Depth Charge says:

        Wolf – I fail to see how raising 75 basis points versus 50 causes “everything to just collapse and shut down.” I believe Jerome Powell is scared of doing too much, and all of his bluster about “the risk of doing too little outweighs the risk of doing too much” is just that – bluster.

        If the fed funds rate was already above CPI and he was hiking 100 basis points at a time, then yeah, I’d start to wonder what kind of madman he was (I think I know, because what he already did is deranged). But the fact that he waited so long to start hiking and allowed inflation to become entrenched (newsflash: it’s ALREADY entrenched), buying all those MBS when he should have stopped, warrants another 75 basis point hike.

        His slowdown makes no sense, in my opinion, especially given that mortgage rates and all other rates have been rapidly falling as of late.

  20. Michael Engel says:

    1) The Fed dots are limited. The market know that gravity with Germany
    will prevent the Fed from becoming too hawkish. The Fed is fighting
    debt, not inflation. Therefor, the Fedrates must be below the inflation rates.
    2) Our industrial yield curve is also limited. We cannot be too hawkish about modern US industries with robots and automation.
    Gravity with China, ASEAN nations, Mexico… will prevent it. It will become a futile malinvestment, in an overcapacity, deflationary world.
    3) Real wages might deflate, even if the poor spend spend billions on community colleges and tech schools to acquire new skills. After piling debt, they might not easily find jobs, compete with each other, lowering real wages.
    4) Today tight job market might be different than the one of tomorrow. Community colleges providing knowledge might be a new fad…
    5) We might be in a sticky inflation with deflating job market.

  21. Michael Engel says:

    6) Marocco have better skills than European and US men national team.

  22. John says:

    I would think mortgage backed securities are in short supply now, so the fed has no need to buy them, or even sell them.

  23. John says:

    Are the mortgage backed securities a problem again? Will the fed be stuck with them?

    • SoCalBeachDude says:

      Yes. No.

    • Wolf Richter says:

      Housing credit is very strong at the moment. Plus, the MBS the Fed holds are all guaranteed by the government. So if foreclosures surge, the taxpayers gets to cover the credit losses.

      But like I said, housing credit is very strong, and foreclosures, after ticking up from historic lows, dipped deeper into historic lows:

  24. AB says:

    A hard landing is certain. On the other side of this, the Fed’s tools will not function as they once did and we will experience entrenched deflation. We will hear the roar of QE but the thrust will not be there.

    Before long we will really experience the air pockets the Fed created.

    The market suffers from unprecedented interventionism. The Fed has been patching up deflation risk for years with ever increasing rounds of money printing. The Fed’s assets and deferred assets are not equivalent to spent nuclear fuel rods lying dormant in storage. The toxic money has been released.

    As we transition, we spend our time discussing certain-to-be-inaccurate dot plots.

    While I accept that the yields on the 10-year and 30-year will increase, so too will their spreads with the short end and this makes perfect sense to me.

    • HowNow says:

      And, to summarize, the sky is falling.

      • Jon says:

        AB made very acceptable points. You don’t have to snarkily comment to everyone you disagree with.

        Michael Engel had a joke, it was funny.

        • cb says:

          that’s all HowNow has ………….

          much snark, little substance …………..

        • AB says:

          I used “will” and “we will” far too many times and of course only noticed once I posted. It jars when you notice it. How Now was probably calling me out for that. That’s fine. Valid. Punch taken.

          No problems this end.

        • bulfinch says:

          Gotta say — most comments here on wolfstreet tend to mirror the old adage about pizza & sex; even the bad ones are still pretty good.

  25. Max Power says:

    Let’s put things in perspective… I chuckle at the notion that this Fed is “hawkish” when real yields are still deeply negative and the current real yield of the 10-year bond is a negative 3.7%.

    Let’s see if the Fed can maintain and this economy can handle a real yield of say just .25% for more than a month or two.

    • AB says:

      Max Power

      The Fed is being extremely hawkish, despite reducing the rate of monthly increases from 0.75% to 0.5% and despite not meeting its MBS reduction targets.

      This is not a 1970’s redux. I understand why all the discourse revolves around the 1970’s Whac-a-Mole inflation playbook but the current economic backdrop is different. The Fed is also reviving Volcker but is actually in the midst of performing a ‘most splendid’ demolition of its own work over the past decade and more. Monetary policy today is way more consequential than Volcker’s actions from the past. Let it play out.

  26. Xavier Caveat says:

    Fed dribbles down the court treating the object of their desire like a yo-yo, pivots behind the line and sends up an air ball on the trey try, and the refs give them half a point for the effort.

  27. Sean says:

    “I would say it’s our judgment today that we’re not at a sufficiently restrictive policy stance yet, …”

    There you have it. After over 1 year of over 7% Inflation, we are still NOT YET reaching a restrictive point of RESTRICTIVE policy. In other words, Powell is admitting to dragging his feet to rein in the Inflation.

    Guys, it’s an easy and logical sense — Economic 101, with 1970s as proof, that FED must raise the interest rate to match CPI. Why? If business can borrow at 6% and expand product selling at 8% INFLATED price, of course business would HIRE to Expand. Duh!

    But Powell and Fed pretend they don’t understand the Economics 101 above, not understanding why Labor Market is soooooo STRONG. LOL.

    My easy solution — There is NO SHIFT in labor structure. It’s wayyyyyy toooooo much printed money and NEGATIVE Rate that still stimulate the economy. Try cutting the balance sheet down to Pre-Pandemic $4 Trillion , and raise rate to 8% to match CPI.

    Powell would start to see that, magically people starting to want to work. No more FREE Food FREE RENT FREE Tuition .

    But Fed pretend they don’t understand this, and don’t want to talk about Balance Sheet that enable all this “Structural shift” in labor.

    • Sean says:

      By the time Inflation goes back to 2% in 2024, everything would be at least 70% higher than 2020. The eggs used to be $1 per dozen in Ohio, now $3.5 at the same place.

      And Powell still dragging his feet, echoing his San Fran governor that all his friends and people he knows in circle, are ALL DOING GREAT! What Inflation?!

      And Powell blamed it all on “STRUCTURAL Shift” in labor. Well, for starter, if you bring down the Balance Sheet to the $3.8 Trillion Pre-Pandemic, and raise rate to 8% to match CPI, I am sure the structural shift of Labor would just magically “Shift” away.

      • JeffD says:

        “Inflation goes back to 2% in 2024”

        Lol! That would be great, but highly doubtful. We only get there if the recession gets out of control.

      • josap says:

        Hundreds of millions of chickens have died or been killed off due to Bird Flu. This flu is now in much of the wild bird population. Birds in zoos are dying from this flu as well.

        Only if the flu is somehow contained or stopped will we have enough eggs to lower the cost.

        Depending on how high feed costs go.

    • Happy1 says:

      Yes! Current policy is still accomdative. QT needs to be serious. Fed rate will need to exceed the rate of inflation. They are about a year late already. The poor are being absolutely crushed.

  28. polistra says:

    Listening to the normal financial media just now, I noticed something that has been true for many years. The media focuses EXCLUSIVELY on the interest rate, but the real effect on the real economy comes from the pulls and pushes of fake money. (QE/QT). Wolf constantly focuses on those moves.

  29. JG says:

    Bottom Line: The market does NOT believe the FED, and all their tuff talk & jawboning from here. They are now calling Powell’s bluff. The 10 Year Yield and mortgage rates are dropping, not rising. Where are the MBS sales?…Come on now.

    • Pea Sea says:

      Who needs MBS sales when the Fed managed to trim an entire 35 million dollars from its $2.5 trillion MBS holdings last week? Paul Volcker II is really showing that overpriced housing market a thing or two!

  30. Michael Engel says:

    After a lower high inflation might move higher to 10%.

  31. Michael Engel says:

    All rates are rising in Germany. The highest is 2Y @2.35%. The 10Y @2.1%. It’s cold in Europe, but it might become “super hot”…

  32. KGC says:

    What’s really going to be interesting is what will happen in Europe. China is going to have to deal with the real estate and COVID fallout and that’s going to limit their responses to either recession or war, and probably depression. But Europe has a war on the boarder of the EU, growing extremism in politics, and an amalgamation of disparate economies that have a history of refusing to face reality and acting way too slowly.

    The early 1980’s were a great time to be an American in Europe. The USA came out of a recession and started to get control of inflation much faster than the separate European economies, and the dollar got very strong. The EU reacts even slower than the individual countries can, and there’s a real chance that the EU will lose members if they can’t prop up the Euro against the dollar or other currencies.

    The thoughts of a recession are starting to show in the media. But the real elephant in the room is the possibility of a worldwide depression.

    • eg says:

      Germany is de-industrializing before our eyes — that may be the front end of the elephant …

  33. david pare says:

    Powell definitely remains hawkish; he spent time talking about Wolf Richter’s Labor Shortage – the mysterious labor shortage of 3.5 to 4 million people. Powell used these exact numbers, which we’ve known here for weeks. Who knows, maybe his staff reads Wolf Street? Isn’t it great to know stuff in advance?

    Powell was asked: what is the cause for this shortage? Powell brought no data. He didn’t point to a timeseries that sums to (about) 3.5 to 4 million missing people. He just threw “reasons” against the wall, hoping one might stick. “Retirement”, and “COVID deaths” (he said half a million – although COVID mostly just kills really old people – average age of COVID death is roughly “average lifespan”). So the COVID reason didn’t stick – but nobody noticed. They just accepted it and moved on.

    I want a timeseries that explains this labor shortage. BLS, or SSA, can you help me?

    • bulfinch says:

      Perhaps COVID deaths created two other economic forces not being considered: inheritance and renewed existentialism, both of which might tamp down on labor participation rates.

      • Pea Sea says:

        I tell you, when those kids get their hands on a copy of Being and Nothingness some of them don’t enter the job market for years!

      • josap says:

        Long Covid disability may play a part as well. I don’t know the numbers, but it isn’t just a few.

        And there is no way Powel will say that people learned to live on one income, or fewer hours. He won’t say that people are fed up with the way many employers treat people, and they won’t go to work for crap wages ever again.

    • Happy1 says:

      This is at least 80% people pulling their retirement a few years earlier because stocks jumped 25% for no reason. There are more deaths from overdose and suicide than deaths from COVID in working age people. Very few working age people have just decided to live in a truck for the rest of their lives. Well very few mentally healthy non addicted people that is. If stocks come down 50% you will see millions coming back to work.

  34. WolfGoat says:

    Not that I’m a big Ron Insana fanboi, but I think he nailed this one… it’s about the labor pool stupid!

    Fed rate hikes won’t fix what’s wrong with the economy…

    • eg says:

      This is a poorly acknowledged fact — monetary policy cannot do all of the heavy lifting that is required to keep an economy fit for purpose. It requires coordination between monetary policy, fiscal policy and industrial policy (hint: what is the interest rate that caused “the arsenal of democracy” to come into being? It’s a trick question — there is no such number)

  35. Augusto says:

    Powell is right to be hawkish. The one inflationary area I see rising are wages. Companies may get away with keeping Xmas bonuses low (for non-Executives of course) by blathering about uncertainty, but the new round of annual pay increases starts in January…and as a friend of mine said, “there is no way they are getting away with another (crappy) 2% wage increase this year…” So watch out….

  36. cb says:

    Wolf said –

    – Federal funds rate target to a range between 4.25% and 4.50%, highest in 15 years.
    – Interest it pays the banks on reserves to 4.4%.

    why would a bank loan reserves to another bank at 4.25 to 4.5%, when it can do nothing and make 4.4% on it’s reserves from the FED?

    • Wolf Richter says:

      The federal funds market has very little use. Few banks use it to borrow. Most banks are awash in cash. But the advantage the FF market for borrowers is that these loans between banks are unsecured (no collateral), so the rate is the unsecured rate, as opposed to borrowing in the repo market where a bank has to post collateral.

  37. Concerned Citizen says:

    My concern is how will the Fed balances its actions with the Federal Government’s ongoing massive spending. It’s like a push-pull situation.

    1) Will the Federal Government’s spending add further stimulus to the economy making it harder to control inflation?

    2) Will increased interest rates push the deficit up even higher leading to more Federal Government borrowing?

    3) Will the Federal Government’s debt become undesirable?


    • Swamp Creature says:

      Unless the Federal Government gets control of spending, nothing the Fed is doing will bring down the inflation.

  38. Denise says:

    Wolf.. Some time in the late 80’s maybe after the S&L scandal assumable rate mortgages went by the wayside. After this run of inflation do you think the same might follow for 30 year mortgages? It seems like we are the only wealthy country with 30 year mortgages. We hear about the Britts right now with their short term interest contracts that were maybe designed to get young people on the property ladder.

    Bond holders of all types are suffering now. Something has to give and usually the people with the money get what they want.

    Can not see how this property market will unlock in the future. Who would give up their 3% rate unless they had to?

  39. “My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation,” he said. Lower income people suffer the most from inflation, and the Fed knows it:

    From my perch this comment may be the most important – it may draw a line in the sand between the Wall St haves and the rest of us. The Fed must be acutely aware that the unsustainable rise in rents can easily morph onto a political issue, getting WH and Congress involved – which so far they have stayed out of Fed business.

    • WolfGoat says:

      Not sure how raising interest rates solves the housing crisis!

      However, my comment awaiting moderation about Ron Isana’s opinion that solving the immigration issue by expanding the working population, rather than raising unemployment to reduce wage pressures, does hit home!

      You want to reduce wage pressure, have more competition! Don’t crater the economy! Of course, the Fed doesn’t control that discussion, Congress does!

      • Wolf Richter says:

        The MarketWatch reporter at the FOMC press conference yesterday challenged Powell on this, saying that the US should allow more “legal migration” to solve the wage pressures. Powell said: not our job, that’s Congress’s job to deal with.

        I can’t wait for this MarketWatch reporter’s reaction when he finds out that he is being replaced by a bot, then he can go and fill one of those job openings LOL

        • Daisy says:

          Many people love to give away other people’s jobs.

          Yet, these globalists won’t even send their kids to public school.

      • Augustus Frost says:

        I read that CNBC article and it’s BS.

        The excess demand for labor is primarily if not entirely the result of higher federal spending and loose monetary policy.

        Demographics isn’t the actual root cause, as the labor shortage would evaporate overnight if fiscal and monetary stimulus reverted to pre-GFC levels.

    • ace says:

      big time. it’s not spouted enough.

  40. Jdog says:

    Inflation is not simply a matter of interest rates, there are more factors involved. Government spending is a big factor and that has not begun to change. The structure of the economy is a factor, especially when you have entire industries that make huge profits, but really do not produce a tangible good or service. Worker productivity is a huge factor and one that is skewed due to automation and other technical advances.
    In a healthy manufacturing environment, prices actually drop as a function of improved efficiency. The model T began with a price of about $900 in 1909 and the price fell to about $300 by 1924. Computer prices fell massively between 2000 and 2010. Where do you see that sort of production efficiency today? When was the last time you saw a worker that impressed you with their speed and skill? Most workers I see today are loafing playing with their cell phones more that working. If you think the FED can wave its magic wand and fix inflation by changing interest rates then you are not looking at reality.

  41. Spencer says:

    Powell blew it. Armageddon is at our door.

  42. Desert Dweller says:

    What a lot of people do not realize is the Fed’s real objective is to create a recession, raising rates is merely a means towards the end. The Fed needs the deflationary forces from a recession to kill the inflation. And let’s not forget that even if inflation went to zero tomorrow, this only means that prices have stopped going up.

    The economy was on reasonably sound footing before the Fed lost its mind and inflated the monetary supply by around 40% over the course of 2 years. To get back to pre-pandemic price levels will require a healthy dose of deflation.

    • Augustus Frost says:

      “The economy was on reasonably sound footing before the Fed lost its mind and inflated the monetary supply by around 40% over the course of 2 years. ”

      No, it wasn’t.

      Look at reported GDP “growth” after 2008 and compare to the marginal increase in outstanding federal debt versus pre-GFC. In the aggregate, (practically) all “growth” is correlated to increased federal debt.

      Next, consider what would have happened without QE and the loosest credit conditions in history after 2008. This is what inflated the already biggest asset mania even higher, source of the “wealth effect”.

      The economy was fake between 2009-2019, all of it.

    • Steria75 says:

      Desert Dweller,

      You wrote: ¨…The economy was on reasonably sound footing before the Fed lost its mind and inflated the monetary supply by around 40% over the course of 2 years. To get back to pre-pandemic price levels will require a healthy dose of deflation…¨

      I totally disagree with this statement. The madness started in 2008 at the latest.

      Wolf wrote a nice introductory article on the Wealth Effect, which shows your statement to be incorrect.


      Please read it, it does not take too long to read, and I highly recommend it.

      I am a believer that the Fed would ¨never let a serious crisis go to waste¨.

    • Daisy says:

      The federal reserve did subsidize interest rates and inflate the price of financial assets. But the Treasury created actual inflation.

      Giving money to poor people, creates inflation, because they actually spend most of their money. By definition.

      I wish Americans were smart enough to oppose all bailouts. But, it is the free money to people that spend it on food and cars and rent, that created inflation.

      • josap says:

        I hope you aren’t saying the poor should live on the street and starve. Maybe let them have a car to live in so the kids don’t get soaked in a rain storm.

        Now make a list of all the tax credits, bail outs to everyone from farmers to football team owners. Oil companies to manufacturers. Real estate tax deferment to large investor builders.

  43. Seen it all before, Bob says:

    IMHO, Inflation is the Fed’s and US Government’s short term friend.

    If the stock market and housing market prices are flat (or drops 10-20%) for next few years while inflation is raging at effectively 25%, equity holders and homeowners are not panicking even though the effective value of their assets have plunged 25%. If the stock market is flat, the taxable “on paper” value is flat.
    Many stock and house holders might even pay a taxable gain on sales of assets if they purchased before the last 1-2 years. The insanity in the markets since 2019 was unsurpassed.

    Meanwhile, the US Government can pay of the cheap debt they had accrued during this time at an incredibly cheap rate.

    It seems to me that the Fed is really not in any hurry to immediately drive down inflation. It only benefits them and the banks now lending out at a 7% rate instead of a near negative rate. BTW, a savings account at most banks is still paying less than 1%. E-Trade has started paying 3.15% on a savings account.

    The 10’s of millions of homeowners who refi’d at 3% (before the lenders laid off thousands that handled this HUGE refi demand) can sit back with a secure job and a low unemployment number and enjoy their house.

    Renters hopefully are riding the hourly wage inflation wave since inflation driven rent increases have screwed them.

    However, if inflation runs too long, voters will show up with pitchforks.

    • Seen it all before, Bob says:

      I just received a call from a major bank telling me that the money I have in a saving account there paying 0.1% could perform better in a 1 year CD paying 3%.

      I need to close that small account I use for Direct Deposit and put it in 4.6% 6 month TBills. I’d switch to E-Trade but the bank is much more convenient for paying bills and taking out cash.

      The Fed is the Banks. The Banks are raking in the money.

      • Swamp Creature says:

        I just bought a 9 month CD from my local credit union at 4%

        • Mendocino Coast says:

          I just bought a 9 month CD from my local credit union at 4%
          The General consensus about the ongoing interest rates is that they will flatten out by this time next year and perhaps become cut back once again, who knows how much. So CD’s are a good idea if you can get a Great rate that extends far beyondany Cut Back in rates toward the end of 2023 start of 2024 / Also you can place large amounts of Cash in CD’s. To divide them up into small amounts in case you have an emergency and need Cash is a good Idea also .you can Get over 4%  Liquid no fees right now with no immediate cut back in site yet >   You can get 5% right now with A ” Sallie Mae Bank 27 month no-penalty CD ”   That’s a Great CD .However I expect before Year’s end (2023) you’re going to see higher CD rates then that perhaps 6% and the longer they are the better because after 2024’s end they most likely will drop . as example a 5 Year CD at 6 % would be great . I am waiting with 4% Liquid funds for that Higher Rate perhaps until Feb / March for 5.5 or 6 % then Jump in and ladder several CD’s at least 2 / 3 year and 5 year

      • Gattopardo says:

        SIAB, Bob…

        Check out Schwab. Bill pay is reasonably easy through them. No worse than Wells Fargo. I just shifted money there for that reason, and it’s easy to move the money around between 3.8% money market and cash for bills.

    • Bobber says:

      “The 10’s of millions of homeowners who refi’d at 3% (before the lenders laid off thousands that handled this HUGE refi demand) can sit back with a secure job and a low unemployment number and enjoy their house.”

      Not really. It’s hard to enjoy your house when you know the market value is dropping 1% per month. It doesn’t matter whether you have a low interest rate mortgage. ANY interest is too much for an asset that is declining in value. If anything, the low rate mortgage might lull people into complacency, as other sell and reduce home values significantly. The asset should drive the financing, not vice versa.

    • Augustus Frost says:

      Jobs won’t be as secure as you think for long. Give it time because it’s coming a lot sooner than you think.

  44. DR DOOM says:

    Blah,Blah,Blah…..Our buying power is still going into the crapper. The Congress ain’t thinking about thinking about not blasting out more and bigger spending. Fed can’t save the dollar because the Fed is Congress’s bitch and the Congress is the Constitutitional Keeper of the dollar and it is determined to kill the dollar because they believe it can not be killed off by spending and more debt. Old Ben the Philly Printer a few centuries ago said the Republic will stand as long as the treasury is not plundered for political power and greed. That ship has sailed.I hope the producing world will keep taking our worthless debt or its lights out. Merry Christmas.

    • WolfGoat says:

      Kill joy! Happy F-ing New Year to you too! ;o)

    • tom20 says:

      We have had our business for 30 yrs. Hard to imagine not being capable of putting a budget together for half of those years. 15 years unable to put forth a budget. And many believe the Fed will save/ or sink the USA.
      Crazy times.

      • Gattopardo says:

        Well, form an executive committee with 535 members to work out that budget. Let us know how it goes.

        • tom15 says:

          Sure. No budget, no tax collections.
          Fed may have to aim a little higher on rates.

    • Prairie Rider says:

      The ‘Currency Act of 1764’ was passed onto the Colonies by the Parliament of Great Britain in London. Ben Franklin as a Colonial agent in London lobbied for the repeal of the Act over the next few years.

      Yes, Ben the Philly Printer did indeed print the currency for each colony prior to the Revolutionary War, and he saw firsthand how competing currencies hindered commerce and business.

      One of my favorite quotes from Old Ben; on the Currency Act: “The refusal of King George the Third to allow the Colonies to operate an honest money system which freed the ordinary man from the clutches of the money manipulators was probably the main cause of the revolution.”

      Is there an honest money system today in the USA? Or, is there “The most reckless Fed ever!”?

      From Mr. Wolf Richter, 12 March 2022: “The Fed’s credibility shifted from Inflation Fighter under Volcker to Wealth Disparity Creator and Inflation Arsonist under Powell. And everyone knows it.”

      That was the underline of wolfstreet.com’s, headline: ‘Why This is the Most Reckless Fed Ever, and What I Think the Fed Should Do to Reverse and Mitigate the Effects of its Policy Errors’

      Wolf, it’s been said that the pen is mightier than the sword. You sir, have a sharp pen. It appears to have made its point — finally. Thank you.

  45. Do you remember back in June 2020 when Fed Chair Powell said “We’re not even thinking about thinking about raising rates”? Well, now he is saying the same thing about moving the target inflation rate above 2%. Don’t believe it. In theory, they may continue to mouth support for 2%, but in reality, as the 2024 election looms, a 3% or even 4% inflation will be tolerated. Even the Wall St Journal had an article speculating as to why the target needed to be 2%. Why not 4% or even 6%? Why not indeed? After all, with MMT in vogue, money printing doesn’t matter anymore, right?

    So, stop wondering why the financial markets never believe what the politicians or the Fed says. They go by what they SEE. When they actually SEE rates rising and staying there, then they will start reacting. One is tempted to say, “Well, the markets are tanking today, so now they must believe”. But the markets are overpriced under any scenario, so there are plenty of reasons why we should expect a market pullback.

    As usual, the best strategy is to pick value stocks and invest for the long term. All of the blathering aside, the politicians will keep debasing the dollar, and the Fed will be complicit in their efforts. As I stated a while back, due to the enormous debt burden in the U.S., the government CANNOT AFFORD high interest rates. They have no choice except to debase the currency. It would be best to focus on that FACT, rather than the “hot air” coming out of Powell’s mouth, the Treasury’s mouth, the President’s mouth, or anyone else in the political class. We are up the creek without a paddle, and inflating away the debt is the only way out.

    • Wolf Richter says:

      The Longer View,

      Hahahaha, talking about “facts,” as you say…

      Make sure you understand what a higher inflation target means: higher tolerated inflation = higher yields to compensate for higher expected inflation, and higher yields = lower asset prices across the board, stock, bonds, real estate, etc. .

      Right now, markets are delusional about inflation, thinking that it will go away any moment now. Ok then, let’s just add to the sell-off by stating that inflation is going stay high forever.

  46. FDR says:

    “And the labor market has been very tight, and labor costs are surging, and this is fueling the non-housing “core services” inflation.”

    In November of 2019, hence before the pandemic per the Household Employment Survey (HHS),total employment was 158.504 M. In November of 2022 the same survey has total employment at 158.470M or zero growth.

    In November of 2021 total employment per the HHS was 155.324M and in November of 2022 it was 158.470M or a gain of 2.0% Y/O/Y.

    At the same time the civilian labor force has grown by 4.688M since 11/19 or 1.8% and 2.679M since 11/21.

    Similarly the average work hours has remained in the same range since 2019.

    If this is defined as a strong labor market, we are in truly in Orwellian times.

  47. Cytotoxic says:

    It’s behind a paywall but I’ve noticed a recent flurry of mainstream commentary to effect of ‘QE skeptics and haters were right’. Bloomberg had one such article and although I could only read a little of it, it’s still jaw-dropping. A paradigm shift and big victory for the good guys.

  48. PonderingPA says:

    So where does all this leave us in the hard vs soft landing debate, if those are even useful categories?

  49. Xaver says:

    So far Powell is doing much better than in previous years. It’s a start. Of course he has to fight the lost credibility.

  50. eg says:

    I don’t doubt for a moment everything that the Fed has said about its intentions where its rate regime is concerned, and like many here it’s been amusing to me watching all the market bobble-heads finding new and exotic ways to convince the punters why fighting the Fed is supposedly a good idea. Where I am less persuaded is the veracity of Powell’s genuflection to the apparently obligatory claim that inflation hurts the poor “the most” — the poor are always hurting: how much more pain does this inflation cause them? They don’t have any savings to begin with, so there’s no loss of value there. What level of pain must it get to before the government is forced to subsidize the poor because the alternative is social unrest? Inflation also hurts creditors — how many creditors are there among “the poor”? I’m guessing none.

    Next up for my amusement is the “soft landing” crowd …

  51. cb says:

    Large landlords love inflation ………….

  52. SpencerG says:

    It is interesting reading the comments to this article by Wolf. For the first time following a Fed hike this year, the “Fed will Pivot” crowd seems subdued. Now the Eternal Pessimist debate is over whether the Fed will renounce the 2% Inflation Target policy.

    As it happens, I think the Fed will be thrilled with getting Inflation down to 3%. I don’t expect them to FORMALLY renounce the 2% target policy… to do so would undermine their psychological inflation-fighting efforts… but it will not be a factor going forward. It was only an unofficial policy from the mid-1990s until the Great Recession anyways… and didn’t become formal Fed policy until 2012 when the Fed was saying it wanted inflation to go UP to 2% rather than down.

    Quite frankly , it is more of an “Aspirational Goal” than an “Actual Policy.” As an actual policy it has pretty much been a failure throughout its history. Inflation was rarely BELOW 2% when the Fed wanted to hold Inflation down… and rarely ABOVE 2% when they wanted to boost inflation. But the Fed could say “we are aiming to hit 2%” and that would give the markets a signal of what direction they expected to take in the near future.

  53. Ev Last says:

    Someone just tweeted a headline image dated Sept 27, 2021: “Fed’s Williams predicts US inflation rate will taper off to 2% in 2022”. Bond market morons are still drinking “dot plot” Kool-aid. Rates above CPI will be needed to get inflation down to 2%. Look at Brazil and Mexico if you are under 60.

  54. Jackson Y says:

    The Federal Reserve has done a heck of a job this year, and I really have to give them credit. Wall Street might be kicking & screaming, but the economy has held up well.

    What I find disturbing is it’s quickly becoming the Progressive Democrats’ consensus position that all fiscal & monetary tightening = throwing people out of work = bad. Their argument is no longer about whether inflation is transitory, but that “full & inclusive employment” should be prioritized above anything else – and if the cost to society is high inflation, so be it.

    Of course, progressives are not (yet) a majority of policymakers, or even within their own party. But it does show the risks to the economy if someone from that wing of the political spectrum comes into power, with blanket opposition to rate increases under any circumstance.

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