Stepping on the brake with one foot while putting an arm around the baby to keep her from hitting the dashboard.
By Wolf Richter for WOLF STREET.
The FOMC raised its five policy rates by 25 basis points, bringing the upper end of the range to 5.0%. The Fed has now hiked by 475 basis points in 12 months, far more than anyone had publicly imagined a year ago. The vote was unanimous. It hiked:
- Federal funds rate target to a range between 4.75% and 5.0%.
- Interest it pays the banks on reserves to 4.9%.
- Interest it charges on overnight Repos to 5.0%.
- Interest it pays on overnight Reverse Repos (RRPs) to 4.8%.
- Primary credit rate to 5.0% (what banks pay to borrow at the “Discount Window,” part of the liquidity support for banks).
Further rate hikes are likely, according to the statement: “The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
The phrase on the last statement, “ongoing rate increases will be appropriate,” was replaced by “some additional policy firming may be appropriate.”
QT will continue on track, with the Treasury roll-off capped at $60 billion per month, and the MBS roll-off capped at $35 billion a month, same as in the prior months.
The “dot plot.”
Four times per year toward the end of each quarter, the Fed releases its “Summary of Economic Projections” (SEP), which includes the infamous “dot plot,” The last SEP was released at the December meeting. Today, the Fed released its updated SEP.
The median projection for the federal funds rate at the end of 2023 remained at the projections from December, at 5.125%: One more rate hike in 2023, to a target range for the federal funds rate between 5.0% and 5.25%.
No rate cut in 2023, same as the December dot plot.
But seven of the 18 participants saw a rate of 5.375% or higher at the end of 2023, with four of them seeing 5.625% or higher:
1 expects: 4.875%
10 expect: 5.125% (median)
3 expect: 5.375%
3 expect: 5.625%
1 expects: 5.875%.
They raised this terminal rate at each of the SEPs since 2021. This was the first SEP that did not raise the projected peak rate, but kept it at 5.125%.
The new regime: Tightening monetary policy while providing liquidity support for banks.
By hiking rates and continuing QT while simultaneously providing liquidity support for the banks, the Fed made a clear distinction between monetary policy (rate hikes and QT) and liquidity support. And the Fed will be doing both at the same time.
This distinction between monetary policy and liquidity support is the new regime among central banks.
The ECB, at its meeting last week, said that there’s “no trade-off” between fighting inflation (monetary policy) while providing liquidity to the banks, if needed. It hiked by 50 basis points and promised to provide liquidity to the banks, if needed.
They’re following the Bank of England which last fall provided liquidity support to the gilts market that had threatened to go into a death spiral under the pressure from pension funds facing margin calls over the infamous LDI (liability-driven investment) strategies that were imploding due to the surge in long-term yields. The BOE bought some long-dated bonds, which calmed down the gilts market and gave pension funds breathing room to clean up the mess. In November, it started selling those bonds it had bought in September and October. By January, it had sold all of them. And the tightening of monetary policy continued with rate hikes and QT. That was a pretty slick demonstration of how to pull off this new regime.
This new regime of tightening while providing liquidity support to the financial sector is like a driver in the good old days stepping on the brake with one foot and putting an arm around the baby to keep her from hitting the dashboard.
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So we are copying the british model?
They just had a 10%+ inflation. Good times ahead.
10% UK inflation? I wish🤣.
Increases on the year:
Car insurance up 20%
Council tax 9%
Bread 50%
Yoghurt 90%
Fish 100%
Beef 70%
Dentistry is up about 400% as it’s now impossible to see an NHS dentist so you need to go private.
I was thinking that when I visited the supermarket before work this morning. Food must be up 70% in the last couple of years. Energy, rents also.
Some things may have dropped in price but you can’t live in them, eat them or keep warm.
It’s at least 70% on average but my local co op ( 711 type shop for you Americans) has price rises that are off the scale. 150% + price increases are common.
I forgot to mention that energy prices up 250%
Fortunately our Fed favors the Core PCE, meaning we can EX out food and energy.
I am certain the wealthy have evolved beyond needing such base accoutrements.
I hope to evolve to be wealthy, only needing to feed off the weakness of those around me 🤦♂️
Yeah I’d say wage inflation has become utterly embedded now.
This show won’t stop now until a deep and hard recession let’s companies cut staff and wages.
It’s going to be grim in 6 months time.
Can it get more grim? I lived through the 70’s and that was like heaven compared to this.
Wage inflation is there for lower wages, not for higher or mid wages.
Jobs paying $10/hr in my neighorhood are now paying $17 or so.
I’m in the dental field in a small community in the USA and can attest to the same situation here. Many of my dentist colleagues are scheduled out for many months also. That in itself would not necessarily cause any fee increases. The fee increases come from the fact that none of us can recruit any staff. One of my top established dentist colleagues had 7 staff members before covid. She called me a few months ago to tell me she was working alone except for her administrative office staff. She had no back office assistants. This slowed down her production by at least 50%. I’ve heard this from many dentists. After covid, no assistants wanted to come back to work, so the only solution was to double the offered wages for dental staff but even that hasn’t even worked to recruit staff. I’ve seen many of my older colleagues (me included) become completely disillusioned with trying to run a dental practice so they just retire. So now we’re seeing a shortage of dentists. When that happens, and their schedules get overloaded, many stop contracting with dental insurance companies which necessarily would limit dental fees. Without price caps, dentists prices go up to pay for all the increased expenses of running a dental practice and to attempt to recruit more dental staff. A new dentist starting a practice in the area told me he is spending over 1.5M USD to build out a small dental practice. It used to cost a small fraction of that but its labor intensive so the cost is high. This is leased space so he doesn’t even own the real estate. Me? Like my old and retiring colleagues, I’m 65 and done trying to deal with all these headwinds so I’m closing my clinic and moving to tropical Asia full time (where I’ve been spending 1/2 my time anyway) to hang out with my 22 year old girlfriend and live on the beach to surf, dive and party for a total of $500/month. From my perspective, there is no way in heck that another 25 point rate hike is going to reverse the ridiculous labor shortages that are paralyzing our society. Absent opening the borders to low cost workers like the Australian government is wisely doing, the Fed is going to have to destroy demand with continued rate hikes.
Ben – It is much more simple than that. The Fed needs to be reducing the balance sheet by MUCH MORE than the tiny amount it does each month. Cut the balance sheet by the same rate they built it up, so they can get back down to 4 trillion in a few years.
” I’m 65 and done trying to deal with all these headwinds so I’m closing my clinic and moving to tropical Asia full time (where I’ve been spending 1/2 my time anyway) to hang out with my 22 year old girlfriend and live on the beach to surf, dive and party for a total of $500/month.”
Lol. Sounds like what interests most “65 year olds”. Ben, don’t forget to collect your $3k/month social security check.
Ben . Staff shortages is a common problem in a variety of industries. My question is where do they go , how do they afford to live .
Re immagration, be careful what you wish for . In Canada immagration has overwhelmed the health care system , and is going to cost the country far more in social entitlement spending than it will ever recieve in tax revenues . We can’t afford the social services we currently enjoy and the government response is massive immagration which just passes the burden on to future generations. The solution is increased productivity not increasing immagration.
Ben,
I responded to an ad in my area offering teeth whitening for $300. They did disclose they would have to clean and xray my teeth before the whitening treatment. After 10 xrays they informed me my cleaning would require 2 appointments and cost $750 not covered by insurance. Since they had already taken my xrays, I asked them to just do a regular cleaning, which is covered by my insurance, they said they could not do a regular cleaning because it would be malpractice.
I expected the “whitening” treatment to be more than the advertised $300, but not $1000. I felt totally ripped off. This is why people avoid the dentist, and most doctors too. I declined their $700 total ripoff cleaning.
Ben, there is no Fed policy rate that is going to make those assistants come back. You ought to be smart enough to realize that.
Go enjoy your time on the beach — you earned it, I guess …
In Canada we now have 500K new immigrants coming in per year with a total population of about 40M, we’ve always had high levels of immigration and it’s not solving any labour shortages here. The best companies and most attractive fields are scooping up people, but in ticketed trades it’s a slow rolling disaster, almost every company I’ve spoken to struggles to hire. People don’t want to work dirty jobs, or travel out of town, they have other options and are taking them, our company is not struggling as much to hire office staff for instance, but we’ve steadily lost field staff over the last few years to the point we can’t bid on jobs we would normally do. My dentist is having the exact same issue as you describe, he’ll have working interviews booked with potential assistants that don’t even show up, they’re in demand so they obviously pick better paying offices or more convenient locations etc.
Immigration can solve some shortages eventually if new people come in enough numbers, but there is a turnaround, people also need to be trained in these professions you dont just show up and know what to do, and that’s the other issue, with very high churn employers refuse to train because it costs time and money and by the time that investment should be paying off those newly trained hires jump ship to a better situation.
So I think the only thing that actually solves anything at this point will be a recession, the very thing central banks are trying to avoid with their “soft landing”, I don’t know if that isn’t just a pipe dream, either we’re stuck in a cycle of constant inflation or the economy craters is what it looks like to me.
Go out of country for dental work. Thailand, Costa Rica, etc. Top notch work, 1/10 the price.
I’m very happy with my dentist in Guadalajara, Mexico. Cleanings are about $30 and she never tries to “upsell” services. Takes a conservative “wait and see” approach with minor issues instead of scare tactics to start immediate treatment. Can always get an appointment within days by messaging the receptionist on WhatsApp.
Yes I do this, India and Vietnam have some very good prices with Top Notch professionals. I had a half crown done $490 (USD) in Kerela and enjoyed my stay on the beach at the same time. 360 degree Xray, full clean, one ceramic filling and the Crown total $720. Accommodation for 3 weeks + local food and drinks + sightseeing ran $3879 + airfares.
Going to have to call you out on this.
British dentistry? Come on now.
Just kidding…
Good think Brexit happened, eh? Otherwise you would be forced to zip across the Channel and an EU dentist right away and for “free.”
I am surprised that fish is up so much. I thought that the UK fishing industry was struggling to export because of Brexit. I suppose that has been sorted. What’s a pint of bitter today?
Yeah, I don’t see the British action as “slick.”
Official inflation in double digits, real inflation in the 20s, shortages, standards of living dropping, etc.
Should have been a lesson learned of what not to do.
That’s exactly why the BOE will continue to tighten, and why the brief liquidity support was just that, and NOT QE.
Inflation this high takes years to wrestle down. Last time it took over a decade.
Agreed. The Fed had better get ready for sticky inflation over the rest of 2023. The good news is with no cuts planned, all of my brokered CDs are going to roll over this year at still high rates giving me the chance to lock in 5% returns for 3 years. When the market tanks, I’ve got some cash ready to deploy into 5-8 great long-term investments.
NICE!
“The Fed had better get ready for sticky inflation over the rest of 2023.”
Not just 2023 – we’ll be inflating thru most of the 2020s at this rate.
Could there be a storm brewing, something that will blow the shed over? A light breeze and small stimulus cloud is what.
The shed will be fine..
Well, it is always hard, historically, when the predominant economic game plan is proven to be a loser. You change it if you want to win or continue to take comfort in your valiant loss.
The generals of the current battle against inflation is the number one priority that it should be.
I just can’t keep my mouth shut about a disturbing sensation I had while listening to Dr. Siegal’s rant on a business propaganda channel. I had the sense that he was selling his book rather than the Fed’s wise decision, IMO.
There is a crime wave in America and it is white collar with no police force squeezing their shoes. Just saying ….. love is the only thing that will save us.
The world economy is a pile of sand waiting for the mass of that final grain of sand that precipitates a sand avalanche. In spite of the decades of warning signs.
Wolf’s phrase to describe the fireworks, consensual hallucination is beginning to gain consensus. Although, reading through the hundreds of comments from Wolf’s new found friends, they don’t seem to accept that philosophy other than, perhaps, an irritant.
Good byline…you left out the five white knuckles of the other hand, struggling with the wheel as the car swerves toward a crowd of drunken sailors.
Great for the “Baby Huey”. Might not be so good for all the passengers launched through the windshield. But, hey, the Central Kontrol Klass does get to demonstrate their ever increasing ability to exercise power over all who venture onto the roadway, especially if there’s federal funding of this superhighway with agencies, administrators, social value programmers, and speech editors at every level to assist. Whoopee! Mr. Toad’s Wild Ride for the mere price of exchanging pocket change for a theme park coupon deposited into your forthcoming digital display account. Trust the experts…”For Your Good” is now really “by (buy) our design”. Let this sh*t fall apart and sort it all out on its own merits. Don’t tell us crap is sweet cream butter.
“might not be so good for all the passengers launched through the windshield…”
Ha! We are all passengers now.
The bugs hitting the windshield inside the car.
> struggling with the wheel as the car swerves toward a crowd of drunken sailors.
When it becomes a zero sum game, hit the drunken sailors first. Wages of moral hazard, y’know.
So the baby is the .1% right? FED is trying to slow inflation while saving the rich?
The rescue of the mess they made I assume will be messy.
There is a general misunderstanding of the purpose for raising interest rates as the antidote to general inflation that is currently ravaging at least 98 pct of Americans, making them poorer like a metronome draining the savings from the accounts of old couples together for 50 years
The current level of interest rates are not a problem for the 98% of American families that cannot afford to buy an overpriced asset. The retraction of the bubble to an equilibrium price which I estimate is 40% below it’s current level is the obvious path that the four simultaneous bubbles should deflate.
My preferred resolution of the problem of not enough regional banks is too break up the existing, too big to fail, the legal banking cartel. The mob that runs things.
The American culture is the honey pot. Like a living person in conflict with themself, oblivious to the cataclysmic repercussions that may lie ahead. The very epitome of throwing cation too the wind.
Why ? Because they’re Americans who believe that their elected government insures that their way of life is at the highest potential.
Blessed with the reckless grace of optimism.
I think the FOMC did the best they could. After all, we give trophies for participation.
I give them a C plus or less for not emphasizing an awareness, at least, that the white collar crime wave is threatening our national security and that they are the designated policeman that stands between the complete loss of one’s life savings or that one’s funds are secure from the machinations of the PE and Hedge Funds executing a coordinated financial strategy to suddenly defund the 1xth largest bank in the US.
The last comment that I may make, would be about the incompetence of the US military, unable to account for all the cash flowing through there at a velocity that, according to their version of events. made it impossible to keep track of.
Under civilian control is a common military complaint mumbled into the foam of the first alcoholic beverage.
I think this move will be bullish for crypto and stocks in the medium term.
We may see volatility on short-term treasury notes, at least reflecting the rate hike, but overall, this will open the tap for liquidity.
I love the new “dovish hike” narrative being spread everywhere.
Which part was bullish for crypto lol?
The rate hike or the clear dismissal of rate cuts? 🚀
The keyword here is “medium term”
Short term the rest of the crypto exchanges will end up like FTX.
Fresh shot of hopium.
QT remains too little, too late and too reverted. I expect higher inflation going forward based on following metrics
1. The 1 year dropped to 3.44%.
2. Real interest rates still very negative with official inflation at 6%.
3. Fed decreased its balance sheet to $600 billion in 1 year and then pumped it up by $300 billion in a week.
4. Speculative crap like bitcoin rallied 30% to $27K.
Jerome Powell continues to try to perform some sort of fantasy miracle, where he brings down raging inflation while stopping short of raising the fed funds rate above the rate of CPI. Never in history has inflation above 5% come down without raising the fed funds rate above it.
This can be construed as a willful dereliction of duty and yet another attempt at allowing inflation to become deeply entrenched – as if it isn’t already. Gone today was the FED’s tough talk. Jerome Powell is wilting as always. He does not have the constitution of Volcker. He is Arthur Burnes redux.
Powell should be fired immediately. He is a horrible chairman. We have not had a decent Fed chair since Volcker. They are all just patsies of the bankers.
Volker, Volker, Volker! I’m sick of hearing about this a-hole. He was involved in an organization promoting Japan. How did that work out for Americans? As far as I’m concerned, put him with the rest of the pile of treasonous bastards that should have been hauled out to hangman’s hill. It’s been a sell out all along. Screw ‘em all!
What’s your problem with Japan? Americans seem to like the cars, many of which are now built in America. Having a stable ally in East Asia since WW2 has also worked out well for America.
I’ve owned all Japanese cars for the last 30+ years.
The Pony Express was good too. We should have kept it going by just having the government regulate better horseshoes imported from Argentina with side impact pillows required. No, that trancontinental railroad stuff was a baaad move. We’re fifty years behind where we should have been going already. But, hey, people need to park their fat assess on cushy seats moving five miles in two hours while burning up every drop of oil. Don’t want those future Mouseketeer’s to have anything to work with. They can just suck on radiation from the nuke plant. And, yeah, the Japanese didn’t go along with that plan to destroy the other populations of Asia. We owe ‘em big time and have to ensure they make a living as long as they say we’re your buddies and won’t pull the same stunt again down the line. God knows we need them to build kick ass trucks so all the jerkwads of the Middle East can drive around killing people over there. Hooray! Let’s keep this same pile of shite going on for another century. It’s good for business and certainly hasn’t hurt the rich squatter’s building mansions on what was public land intended for the general welfare of the citizens who protect their goat smelly assess.
Japan has gradually become the premiere where durables design & manufacturing is concerned, including having a dynamic enough collective imagination to go back a few a takes and reprise techniques which yield superior results versus retooling the shop for the sake of faster/cheaper. I like ‘em.
BuySome,
Thank you, that helps clarify the soundness of your opinion of Volcker.
In all fairness to Volker, the entire US economy, military, political system and intelligence community was put to work promoting Japan after WWII. The US poured billions into Japan, created and maintained the one-party system, and promoted the keiretsus that dominate Japan’s economy to this day.
Volker also took rates to 20% by personal fiat! Ballsy!
Right on, BuySome — the revisionist hagiographies of Volcker are as ahistorical as they are nauseating. Volcker’s explicit goal was to crush labor in general and construction labor in particular. He succeeded, along with triggering a massive recession.
No friend of working people for sure, though he was right about one thing: the only legitimate innovation in banking over the last century was the ATM …
The guy at the Bank of Canada is the one who should be fired. Pausing interest rate hikes while the rest of the world hikes. Anything to save the housing market at the expense of inflation should be grounds for him being ousted immediately.
Canada should have learned from the USA’s ’08 fiasco, right?
…don’t have a Tiff!
The orgy of market reaction when they hear Powell talk is proof of his ineptitude that you mentioned. It is getting ridiculous.
Someone pulled the rug out from under the market at 2:49 pm
I’ve got to find out the exact phrase that caused that, LOL
Yellin by Yellen, no deposit insurance for the unconnected plebes I heard.
“Let them eat cake” Yellen basically defenestrated any bank that isn’t too big to fail.
Powell said they are not considering cutting this year. Stock market was slow to react.
Futures started to mini-crash when Yellen stated the Treasury is not considering or working on a unilateral expansion of deposit insurance.
Many thanks to Yellen as she set up a gain of around $3,500 per sold E-mini SP500 contract, from around 4043 level to 3973 level at close.
She attempted to rectify the reckless comment yet the damage was not reversed. Sometimes I wonder if these monetary wizards are trading futures as their thoughtless babble is very predictably profitable.
“She attempted to rectify the reckless comment yet …”
LOL, the comment wasn’t “reckless” at all. It was maybe a little late. She should have been saying that every day for at least a month and stick to it.
The market was reckless in assuming all bailouts would just continue, and assuming that there would be rate cuts and QE. That was reckless. This type of reckless market is no longer investible, imho. Short-term bets, sure, but not investible.
Did you find it yet? I suspect it was the moment during the Q&A when the reporter, whose name I’ve forgotten, noted that markets were now pricing in rate CUTS by the end of the year. Whereupon Powell stopped just short of laughing out loud while clarifying that no, this was very unlikely.
FDIC has only $128 Billion to cover approximately $10 trillion in deposits below the $250,000 limit according to Bloomberg. In total there is around $19 trillion in deposits. To insure the other $9 trillion would mean they only have to accumulate another $100 billion in FDIC funds?
Either insuring all $19 trillion is easy as $100 billion is tiny compared to what has been printed already, or is 1.28% set aside to cover the $10 trillion is not reasonable and just smoke and mirrors?
Seems suspect as why not just cover it all $19 trillion in deposits with another $100 billion set aside, or is the $128 billion to cover the existing $10 trillion just a joke on us?
That is why I thought it was “Reckless”, as it doesn’t make sense to even comment on the matter, as half is already covered for only $128 billion. And I agree, market is no longer investible long term as I sit 60% in short term treasuries. That said, I did sell a couple E-mini SP500 contracts for a very nice gain on Yellen’s comment, yet I don’t trade as many contracts now as the schizophrenia 50-100 point Fed news days are too volatile, and not worth the risk of massive losses if something goes wrong with your internet connection, brokerage platform, etc, IMHO.
Yort 2.0,
Your whole calculus is nonsense. It assumes that banks have ZERO assets. Why are you still spreading this BS?
When the FDIC takes over the bank, it automatically takes ALL its assets. Banks of LOTS of assets, and they collapse when there is a relatively small shortfall in assets, but they still have LOTS of assets.
Don’t you ever read ANYTHING on this site?
The FDIC estimates that its loss at Signature Bank is just $2.5 billion that the fund has to cover, not the amount of $90 billion in deposits. It has made deals to sell most of the assets, and from those deals was able to estimate the losses.
So that gives a loss ratio of 2.8% of deposits. And the FDIC covered ALL deposits at the bank (beyond the $250k limit).
https://www.fdic.gov/news/press-releases/2023/pr23021.html
Indeed. It seems we are way past the year or so grace period that might have been allowed for those two trend lines to describe what is reasonable economic policy.
It’s more cakeism. Kicking the can down the road. Whatever.
Powell is just another ivory tower hack who has no concept of the real economy, getting lost in the weeds of central planning and entrenched corruption.
A proper Q & A session after his speech would involve real questions from real people, not some dog and pony show where hand-picked “reporters” who are vetted beforehand ask him softball questions as they fawn over him.
Let’s put him on the spot:
“How much is the price of a dozen eggs at your store?”
“How much is a gallon of gas?”
“How much has your car insurance increased the past couple years?”
“What’s the average monthly payment on a new car?”
“What’s the median annual income of US workers?”
I guarantee you Powell has no answers whatsoever. Jerome Powell has no idea what’s really going on in the economy, because Jerome Powell himself is a CON.
Let’s put him on the spot, yes, with real questions. It’s irrelevant whether he knows the prices of any of those goods. That’s what the zillion inflation stats are for. And I’m not sure any “street knowledge” would make him a better Fed member.
“Let’s put him on the spot, yes, with real questions.”
Those are real questions, because it would show he is hopelessly out of touch.
But you’re the same guy who was saying that the economy isn’t overheated. You’re not really somebody I can take seriously.
Yep.
The “Peter Principle” applies. Powell has reached his level of incompetence, along with Yellen, Bernanke Greenspan et.al.
b
Greenspan and Volcker frequently commented on excessive Federal spending. They did it many times. J Powell dodged the question today again from Mr Lawrence a great reporter. Without Federal Spending curtailed from the reckless path it has been in the last few years nothing the Fed does will work. In fact, for the most part, the interest rates hikes are just being passed on to the consumer, and are contributing to the inflation. He is an empty suit and needs to go.
Powell is a lawyer, not an economist. He never studied economics and it shows. Yes, he was part of the elite at The Carlyle Group and knows alot about finance, but he is basically a liar, excuse me, lawyer.
“In 1993, Powell began working as a managing director for Bankers Trust. He left in 1995 after the bank suffered irreparable reputational damage when some complex derivative transactions caused large losses for major corporate clients”
It is pretty obvious who his clients are now.
The Secretary of the Treasury is an economist in theory. So was Bernanke. Didn’t help us any.
JP didn’t even address, when asked, about the impact of massive Federal Spending which the Fed has monetized and has been the driving force in this inflation.
Having him as Fed Chief is like having an arsonist in charge of your fire department. He should hand in his resignation. There are plenty of good people out there like John Williams, or Judy Shelton who could do the job.
He swatted that question away very quickly… disappointing.
He swatted it away quickly, and appropriately. He’s the Chairman of the Federal Reserve, not the Speaker of the House or President of the Senate. As he correctly noted, the Fed simply has to work with the fiscal policy that is thrust upon it.
Judy Shelton: ‘During the Obama presidency, she advocated for a tight monetary policy, but reversed her position during Trump’s presidency, when Trump advocated for a loose monetary policy (lower interest rates).’
Wiki
He addressed it, actually. Quite nicely.
QUESTION: “Inflation has been rather sticky. So, do you need help from the fiscal side to get inflation down faster?”
POWELL: “We don’t assume that. We don’t give advice to the fiscal authorities. We take fiscal policy as it comes to our front door. Stick it in our model along with a million other things. And we have responsibility for price stability. And nothing is going to change that. So, and we will get inflation down to 2% in time.
FOLLOW-UP QUESTION: “The spending that’s happened is working against what you are doing. Right? It’s prolonging inflation?”
POWELL: “You have to look at the impulse from spending. Spending was, of course, tremendously high during the pandemic. Then as the pandemic programs rolled off, spending actually came down. So the sort of fiscal impulse is actually not what’s driving inflation right now. It was at the beginning, perhaps, part of what was driving inflation. That’s not really the story now.”
WOLF: What he implied with this is that fiscal policy DID but is NO LONGER driving inflation, but that MONETARY POLICY (the Fed) is now driving inflation, which is why the Fed has to tighten the financial conditions further.
I would just point out that I dont think he really implied that Monetary Policy is now driving inflation. I dont think he has ever admitted that Monetary Policy is driving inflation or caused inflation in the first place, he merely says that it is his job to reduce inflation. There is a big difference between admitting you caused the inflation and saying that you are responsible for bringing it down.
I still dont hear ANYONE talking about whether inflation can be decreased while that massive balance sheet remains so high. Why doesnt someone ask if the pace of QE (not rate hikes but selling the balance sheet) should be increased?
My guess is that the massive balance sheet is necessary to keep asset prices up and everyone in the financial community knows that, so it is Dont ask, Dont tell
Powell is wrong to give a pass to fiscal policy as a cause of the current inflation. Yes, spending was high during the pandemic, consistent with Keynes. But the part of Keynes that politicians like to forget is that spending should come down once an economic emergency is over. Thus, the question is not whether spending came down, but whether spending came down enough to avoid crowding out the private sector in a rapidly recovering economy in the context of a fragile supply chain.
Excessive fiscal stimulus is making the Fed’s job harder, and will require the Fed to raise rates higher than the Fed would have had to if fiscal policy were less stimulative.
J Powell is much worse that A Burns. He’s more like Dr Havenstien.
Markets love it. Dollar down and gold sharply up. They smell his lack of resolve from a mile.
Zirp has a lot of people sleep walking. In 2008 SP500 dividend was $40. You could have plugged that into a simple dividend discount calculator, with 4% 10 year treasury rate that year, 7% dividend growth rate and 3% risk premium and got about 700 for SP500. That was basically the bottom after things broke.
Today 15 years later SP500 dividends are just $70. The higher Powell raises short term rates the more its going to dawn on people that 5% on cash is worth more than the promise of 5000 on SP500. With 3.44% 10 year you get SP500 is worth about 1400 once the gambling stops.
Pure dividend payers are where its easiest to see. Duke Energy pays 4.1%. Why bother, when you can get a much higher rate on cash?
Correct and this is what the Banks are also suffering. I now get 4.5% with no hoops with my preferred bank and the savings account 0% but no fees at all (so I figure that is about 1.5 % saving) My saving account has only a 3 months of living expenses and the Investment savings account just under insurable range. I will wait on the LT bonds to peak like I did under Volker the 30 years I held averaged 14.25% because of the two peaks around 1980. I have taken the hit 8 mnths ago and sold all bonds for a small loss because you could see the “Transitory Inflation” getting cooked The S&P will adjust in time as will housing as long as the Government does not offer Incentives like last time.
I think this was probably the right decision. No rate hike would have signaled a reversal of their inflation-fighting stance, and 0.5% hike would probably have caused too much turmoil in the bond market.
I would, however, like to see them accelerate QT. I’m not sure how much effect it’s had so far, and I think they could stand to tighten quicker, especially since it’s unlikely the MBS rolloff will ever hit its max rate without overt selling of securities.
I’m not so sanguine that the liquidity extensions will go so smoothly. That would entail the banks learning from this near-death experience, cut dividends, bonuses, and use every dollar they earn to shore up their capital balances and reduce the maturity of their fast-dropping treasuries. Sure, one could do that and face the wrath of Wall St for tanking quarterly profits, not to mention an exodus of your top traders who care only about their bonuses.
Or… you could essentially dare the Fed. What will the Fed do if the banks *don’t* use this year-long term loans to clean up their balance sheet and instead use it to hollow out the bank and then let the Fed clean up the mess in 1 year.
We already saw SVB’s executives pay out their bonuses literally days before their bank went bankrupt. Why should we expect that CEOs will behave any more responsibly with the lifeline they’ve been given?
The only way that happens is if the Fed puts some real teeth into its regulatory role, and come down hard on any bank that doesn’t do the right thing. We’ll have to see if the Fed has found religion on doing its regulatory job as forcefully as it’s now doing its monetary job…
It is NOT the job of the Fed chairman to care about turmoil in markets, it is his job to bring inflation down to target. Price stability should be the ONLY thing he cares about.
I think that not cutting rates further now and causing a recession is going to doom us to higher rates for much longer, which means that asset prices are even more overvalued at the moment than if they would just raise the interest rates further now.
I also would say that there are some Fed members who are being very political. For the average peak to remain unchanged this month, those members had to offset the members who were projecting much higher interest rates by end of the year. So there are some idiots at the Fed who actually believe that rates will be lower by year end.
Still, I dont hear anyone talking about the massive balance sheet and how slowly it is being reduced. The pace should be doubled.
Long term interest rates are being held down by the debt ceiling battle because the Treasury is not issuing new (incremental) debt into the marketplace. Once that gets resolved, there will be a massive issuance of debt and that will hit in July-August, so it will coincide with further economic weakening and we will see long term rates rise dramatically. Just in time to destroy the end of the real estate selling season and lead to major price declines in the second half of the year.
We keep kicking the can down the road and need to Man Up and get things moving in the right direction now. An ounce of medicine today will prevent twice as much problems in the future (and if they had done it in the past we would have no problem in the first place).
Higher interest rates for longer would be something I’d have to see to believe. I don’t believe it but in say one year from now interest rates will likely be slashed wholesale.
So here is the dot plot:
1 expects: 4.875%
10 expect: 5.125%
3 expect: 5.375%
3 expect: 5.625%
1 expects: 5.875%
total participants: 18. Median means the middle expectation (not “average”), so 9 from the top, or 9 from the bottom, which lands at 5.125%.
I updated the article with the figures to make it clearer.
not paying attention to median and mean, my bad
China is selling treasuries to buy gold,300,000 acres in South Dakota,packing houses fertilizer plants.Who knows what else ,wait till they take our food supply home .Chinese really hate USA .Might already be to late to save the EMPIRE
There aren’t enough ships to haul the land across the Pacific. Those investments are susceptible to seizure if China seizes US property, invades Taiwan, etc.
The fed pobably hopes that we get a decent downturn/recessioin to help them with inflation; though they won’t say it out loud. The unemplyment will need to go up.
Wall street needs to accept that the economy can’t always be accelerating with financialization creating debt ratios and income disparities that are not sustainable.
“a decent downturn/recessioin(sic)” will result in stagflation. I don’t look at this situation as helping with inflation.
It would probably come down before it stags for a while, but still better than accelerating inflation into hyper.
The FED has a public goal of a soft landing [*coff*].
They do not hope for a recession, but are likely to privately believe one is unavoidable.
I am reminded of a robust Prime Minister from the 90s declaring: “Its the recession we had to have”.
Is it preventable at this point?
We should have had a small recession after the 2008 debacle, but they just prolonged it.
We are seeing the beginnings of the end of a civil society if this keeps up. I’ve noticed this on the street in my daily life. This happened in Argentina recently when Inflation took off. In Weimer Germany it was even worse. It was every man for himself. Read “When Money Dies” and watch what happened to a basically law abiding society when they had this kind of Inflation. People were fighting for necessities, and lawbreaking became common practice by nearly everyone in the middle class. Same will happen here if we don’t get this under control.
We didn’t run away to that kind of hyperinflation in the 70s, and with so many eyes on the situation I see no compelling reason to think we will now. And yes it was a good and scary book. Respectfully, Germany’s deep collapse after losing a war, the Versailles treaty reparations, etc., has many distinctions from us, now.
“We didn’t run away to that kind of hyperinflation in the 70s, and with so many eyes on the situation I see no compelling reason to think we will now.”
The FED and .gov just printed $10 trillion in a matter of months. That makes the 70s money-printing look like a rounding error. C’mon, depreciating assets increased in price by over 50% due to this largesse.
I’m not sure what you’re smoking, but you seem to be oblivious. What would it take, Phleep, $40 trillion to get your attention?
“The most dangerous creation of any society is the man who has nothing to lose.”
OTOH, Baldwin in the same tract also pondered, “Do I REALLY want to be integrated into a BURNING house?”
Wolf, is this Fed decision hawkish or dovish? The wording seems dovish to me, and I can’t understand why the Fed would go dovish when inflation is ripping.
Everything is always “dovish” if you want it to be dovish.
The Fed essentially confirmed the projections laid out in December — despite the banking turmoil!!!
I just listened to the press conference. Powell ridiculed the people that expect rate cuts in 2023. He laughed! These moron reporters kept asking him the same rate-cut question in different ways, trying to somehow trip him up so he’d accidentally utter couple of trigger words for the trading algos to react to. It was a joke.
He should just Taser each one of these moron reporters when they ask a stupid question, and say, “Stupid question. Next.”
“Reporters” ? For the most part reporters are just marketing and pr hacks for the mainstream marketing and pr companies which some people incorrectly refer to as “media” companies.
So Wolf, what do YOU make the odds of a rate cut this year?
LOLs. Nice one.
ZZZZAPPP “Next”
like bugs drawn to the irresistible blue light…
Stupid questions allow the speaker to rest and relax, so they have a function. They also fill the allotted time, so Powell can get out of the presser asap. Powell did not want to talk too much because he knows there is much he does not know, and does not want to appear too stupid.
His most important statement was no cuts in 2023. He did answer one question oddly. Someone asked if small and regional bank deposits are safe. Powell said they are safe. But in fact if you have over $250,000 in deposits, and your bank is not a systemic risk to the economy, your excess deposits can be lost.
And the financial media would turn that into a metric. Santelli: “What I ask myself first is how many people did J. Powell tase today, and what that means for future rate cuts.”
Dollar and yields reaction confirms he was taken as ‘dovish’ even though I agree he, surprisingly’ did well today.
I’m usually very critical of Powell’s performances at these press conferences, but if one kept calm and actually listened to what he said, it was very clearly not “dovish” but “hawkish, delivered gently.”
This is especially so when compared to what some prominent Fintwit personalities have been predicting for today, with absolutely straight faces, over the last couple of weeks–that the Fed would pause, or that it would raise 25 bp but then announce a definite pause, or even that Powell would announce the end of QT!
What the Fed did today should continue to put stress on banks that refuse to pay depositors a fair rate of return.
Either stop paying .25% on savings accounts, or people will move their money out into treasuries.
Almost as soon as I moved cash into treasuries last year I got an email from my bank touting their 3% CDs. It’s sad that banks can’t even pay a competitive rate on deposits.
I got a call from my banker asking if I was interested in a 3% 6 month CD. 6 month Treasuries were paying over 4% at the time so the bank was lagging.
Since my banker has done me many favors in the past with a Trust account, I did not laugh or even point that out. I don’t think he was intentionally trying to lowball the rates. I like him too much to even insult his employer.
However, from above, some CDs are paying around 5% now. Maybe the banks are catching up.
I am not really sure that a lot of smaller banks can’t go under. Seems like it is a tough business caught between credit unions that don’t need to pay dividends and big banks that have economies of scale.
Small and medium banks have too much exposure to commercial real estate, I think. As CRE needs to borrow at higher rates, with bank liquidity concerns, things could get interesting.
BRAVO Wolfman, making sense of the insanity. THANKS
Mr. Powell good job.
Mind you it’s early in the year, no election til 2024 and you have time for the hikes already made to make it through the economy.
Will it curb inflation? Be shocked if we get back to 2%, 3.5% may be the new normal.
I’m glad Joe is in office, not the former prez or else he likely would have backed off.
“Reporters” ? For the most part reporters are just marketing and pr hacks for the mainstream marketing and pr companies which some people incorrectly refer to as “media” companies.
So your only concern about inflation is that the Democrats might lose the election?
That sums up my perspective on Democrats. They dont care about the poor who are suffering from inflation. They care about getting the votes of the poor by pretending to care around election time. (I’m not saying the Repubs are much better, but their words and actions match up a little better on economics).
The only part of Congress that I partially respect are those Repub members who are finally going to refuse to vote for a debt ceiling hike unless they get cuts.
“So your only concern about inflation is that the Democrats might lose the election?”
You’re confused. Read the comment that you’re replying to again (assuming generously that you read it the first time). Danno is simply noting that the current POTUS doesn’t engage in the kind of public bullying of the Fed Chairman that the previous POTUS did, thus Powell didn’t feel the same pressure to cave, which is a good thing for everyone.
Biden doesn’t really have a choice – with inflation at multi-decade highs, he has to go along with Fed tightening.
Why are we pretending that Trump is the only president to pressure the Fed chairman to keep rates low? Many presidents, of both parties, have done this. It’s up to the Fed chairman himself to avoid caving.
If the chair caves, it’s the chair’s dereliction of duty, and POTUS’s lucky day.
Do yourself a favor and read the bill passed in 2018, S.2155, then check back in.
I think Fed got so far behind they will crash the economy straight into the ground. They didn’t even have the skill to stop a failure of Silicon Valley Bank even though they had multiple warnings about it. Oh, deposits moved faster than we thought.
The world is filled with millions of people with their finger ready to hit the sell or short button. Fed will get on TV saying no one could have seen it coming, but we have a printer to clean things up.
Not the feds ob to risk manage banks but to put in incentives and disincentives, to encourage construcfive behavior, which theyve done horribly. The FDIC should benpilloried for svb, those loans, bonus and stock sales better be referred to doj.
Ah yes, glad the lizard is in charge. Things are much better and everyone is much happier (and we even got ourselves into a new war!!)
haha will see how the market close today…so far we’re up and market and dip buyers probably just did a teenager “whatever…” to what Pow Pow said below…It’s kind of amazing to watch how optimistic the market is in general.
“The median projection for the federal funds rate at the end of 2023 remained at 5.125%: One more rate hike in 2023, to a target range for the federal funds rate between 5.0% and 5.25%.
No rate cut in 2023, same as the December dot plot.”
Watching Powell Presser,, Very Dovish tone emphasizing on dis-inflation.
Hence the market is UP and market participants know Powell care more about his friends and masters than the common people.
He really had an opportunity to raise by 50bps and increase QT but he didn’t show his spine here.
The reporters are well chosen to ask soft questions.
The whole system is rigged to the core for the wealthy.
here, here!!
“The whole system is rigged to the core for the wealthy.”
Always ~
The system is only rigged for the ones with insider knowledge. Not for anyone else.
Someone pulled the rug out from under the market at 2:49 pm
I’ve got to find out the exact phrase that caused that, LOL
Higher for longer?
I think the Fed is a joke, but the so-called market is full of clowns.
Powell touched his right ear….twice
Something just happened. It’s climbing again
What a joke
“The Market” hears what it wants to hear: confirmation bias. Just like those home owners who did not sell last year and only heard “rate drops in 2023.”
Now that Powell is providing liquidly to banks (learned from 2008) while moving ahead with QT and rates “higher for longer,” the stock and the housing markets will have their Minsky moment soon enough.
Someone hinted that 6 more banks were going under and needing a bailout?
Freaking PPT went bar hopping early today…this is what happens when you claim victory and slack off early..
They better get back to work tomorrow…rocket is not going to go to the moon by itself..
Some of the PPT members had stayed at their desks and were actively buying stocks until right before the start of happy hour at the bar around the corner, which starts at 3 pm, according to our source here, “Seen it all before, Bob,” and it takes a while to wind your way through the cubicle farm and down 44 floors by elevator that often gets stuck, and then head down the street and wait at the traffic light, etc. So they shut down their trading accounts at 2:49 pm and left to get to the bar by 3 pm. Yellen later showed up to tie one on, after what she’d been through. And they all got drunk together, according to sources who didn’t want to be named due to the confidentiality of the matter.
Isn’t that when Happy Hour starts? 3PM?
3 martinis for the price of 2.
I moved out of xbb.to Thursday morning last week and into hxt.to up in Canada. I’ve got money coming due April 13th this year. I bet against myself knowing rates have to fall before my money matures this April 13th and then when I figured the banking crises blew over I put it into hxt.to to bet against myself knowing the stock market has to go straight up before April 13th.
I agree
I spoke too soon but I still feel Powell was too dovish
What puller the rug underneath the market was.. rate cuts are not thr base case
Still less than an hour before market close and much liken a crack baby with ADD, market already flipped to the downside…
Like I said, it’s interesting to watch how people interpret Pow Pow’s tone, voice, message and with their own prediction
50 was never expected given the recent banking crisis. Thankful that they didn’t choose to pause. But should of definitely increased QT a lot more.
SVB was not a “banking crisis” in the traditional sense. It was a rogue bank and an amalgamation of fraud, greed, FED money-printing, lack of oversight and political corruption, with other elements thrown in as well. It is perhaps the greatest example of the FED’s recklessness.
And isn’t it ironic that this “bank” (that’s generous) blew up and is now forcing the FED to, AGAIN, abandon its mandate because if they continue to raise then the entire system will collapse? This is a doom loop. Only a collapse that the FED can’t tinker with can fix things. The FED is the cancer.
Did you accidentally watch the previous press conference? In that press conference, he must have mentioned disinflation a dozen times. Today? Not so much it seems.
He was asked about that today. Which was hilarious. Everyone laughed. Here is what said, and that’s true:
QUESTION BY HOWARD: “I want to go back to your February press conference. You mentioned the word, disinflation, I believe nine or ten times… Is disinflation still occurring in the U.S. today?
POWELL: “What actually happened, Howard, is I got the question 12 times.”
🤣🤣🤣
The policy of “tightening while providing liquidity support” works best if you allow insolvent banks to fail, otherwise we are propping up zombie banks and leaving cancer in the system. Insolvent banks don’t need liquidity support, they need equity.
Exactly. In order for the forest to grow anew parts of it must burn.
But we have bank-run risk with a twitter speed we have never tested before. Stupidity now travels at the speed of light and becomes a self-fulfilling prophecy. That is a whole different dynamic because the fear hits what would be healthy banks. Anybody who vaguely looks like the weak ones gets summarily taken out and shot. And all money goes to the Big Four. Not an appetizing world either.
But there is technology already easily in place to spread your deposits above the insurance limit to multiple banks. The depositors at SVB were lazy propeller-head punks who think they can ignore basic cash management and finance in order to focus on their marketed “disruption” schtick. Those should have been allowed to lose, just on principle. But this screwup loomed up so ilnstantly, with new speed. So we can allow the regulators one mistake.
Lazy propeller-head punks, maybe. Maybe not.
(I started and run my business without using credit and am beholden to nobody. May sound weird to some, but it’s my preference after a few hard knocks.)
So… I wouldn’t know, but I can easily imagine a VC-funded world where the Angel Investor (or whatever they’re called) puts all kinds of strings on the funding, i.e.:
– You will keep ALL of your (our) money at this bank (kickback)
– You will use this accounting/payroll firm (kickback/kickback)
– You will use this advertising/IT/web-design firm (kickback/kickback/kickback)
– etc., etc., etc.
I do know that the whole SVB depositor bailout thing stinks to high heaven. But, what else is new in our world-class kleptocracy? These folks are happy to drink at the holy font of “Unregulated Capitalism” until the bills come due. Then, it’s suddenly our problem. What a scam. Sigh.
Fed pouring water on one end of a dumpster fire, while dumping gas on the other end!
It’s dumpster diving at its finest during winter. Soon to be more than a pastime if the job market finally gets knocked down for good. No good jobs, no inflation. It’s the only way.
Paraphrasing Mellon, liquidate labor, liquidate the farmers, liquidate every asset in sight, it will bring back rectitude and decency, it will reset the incentives.
I do realize the Fed wants to drain the fuel (QT) from the other end, but will they be able to continue, and make a difference?
Powell announces a 25 basis point increase and the 10-year interest rate moves down over 3%. So the market thinks the .25% increase is going to be completely reversed, and then some.
The market is doubling down on its bet that Powell is a flipping patsy.
Or….the expectation is that higher rates today kill off inflation low enough to justify that 10yr yield.
S&P 500: -1.65% at the end of the day, rug-pull, LOL
This is a far cry from the stratospheric rallies on the Fed’s 50 and 75 bps hikes in meetings past. Overall market sentiment taking a hit for real this time?
The strange thing is that at about the same time that the stock market was tanking, the DXY took a huge dive as well. For the recent past, when the dollar goes down, stocks go up but they both fell bigly this afternoon.
Thankful they at least stuck to their plan after the SVB debacle. Confidence in their leadership would have eroded heavily had they paused. It is a tough needle to thread, to drive down inflation and keep the economy afloat. Wishful thinking, in my opinion – but maybe they need to show that before getting too tough. One is only left to guess what happens next these days.. as the political forces try to get their greasy hands on the fiat printing press.
The Fed is performing on it’s true mandate which is to help the large banks and corporations gain more money and power. This is far beyond moral hazard, this is a systematic corrupt financial raping of anyone that isn’t already rich. All we’ve seen from this, just like in 2008, is a consolidation of money and power to the same bad actors that precipitated the problem in the first place.
The Fed is being blatant in its corruption and the government and society is quietly watching it happen.
My stimmies are still in my savings account. I kept my knees together and didn’t manufacture a world of beggardly need for myself, and resentment for technocrats. A little rectitude makes up for a lot of personal laxness, decadence and blame-shifting. I blame the guy in the mirror first. But I’m funny that way.
Hooray!! We are -2% Real Yield below Inflation! Yes, Negative 2%!
Fed minions are pretending this is the toughest Fed / Powell Ever . lol!
Is it too soon or too late to bet against a soft landing?
Every month that passes with the inflation problem unsolved decreases the possibility of a soft landing.
Soft landing is NOT happening.
No landing for now and violent currency collapse in near future. I don’t see any other option.
Soft landing a rich person term for getting to keep their gains on the poor. and it’s looking shaky these days….
Hurray everybody is poor now!
For what? To buy into the most overpriced market in history, except for the prior 15 months?
22 years of mostly artificially low interest rates. No methodone can take the edge off that.
No wonder so many people ended up poor. We see the poverty those 22 years created in Japan, Europe and now in America with so many living on the street.
Tony.
I feel for anyone homeless by their own choice or financial but according to a 2022 census .18 of the population of the USA is indeed homeless.
Let’s say it has doubled in the past year to .36. Sad but still under 1% of the entire USA population.
Ask anyone and hey claim 3-5% are homeless..look at the stats.
Well, looking at current treasury bond yields, the market ain’t buying the forward projections put out by the Fed. Granted, not by much but at least according to market yields there won’t be any more rate increases, with rate cuts starting within the next year.
However, with the 10-year at under 3.5%, one thing the market is believing is that Fed will be able get inflation to the 2% target and keep it there long-term (2% PCE ≈ 2.75% CPI, plus a modest 0.75% duration premium).
Treasuries are now a panic instrument for folks that are worried about their uninsured deposits. Rates don’t matter to these folks. They’re not even thinking about rates at the moment. They just want to bring their money onto dry land.
I am wondering why the worried folks are buying 10- and 30-year bonds that have interest rate risk. Would they also be buying short term treasury bond and bills?
My guess is that the sudden drop in long term rates is the market assuming a recession or slowdown is imminent, and would have the effect of reducing inflation.
Correct. The market is pricing in the effects of a large “bonus” hike courtesy of credit tightening (banking crisis). This means the Fed will absolutely back off after this meeting and likely cut.
Nothing is more deflationary than a good crisis of confidence on top of rapid rate hikes.
Inflation will be sub 3% by mid next year and the Fed will cut in Q3 if not sooner.
Watch the liquidity issue vanish over the next few weeks, just like it vanished in the UK within a few weeks last fall.
Agree, do you think the banking crisis will worsen as more money is pulled from those abysmal savings rates? FRC looks dead in the water. Emergency care package must already be depleted. I really can’t see more hikes unless the Fed wants to bail out everyone – or let them all fail
That’s an interesting question on several levels.
One thing we know:
SOME banks will have to respond by offering higher rates in order to attract and retain deposits.
But OTHER banks, such as JPM, are recipients of the deposit flight, and they’re not necessarily under pressure to hike rates now (though they might have been last year… I bought a 5% brokered CD from JPM last year, callable, so they also looked for deposits at that time).
So we might see a divergence in terms of the cost of funds, which his an important metric for banks.
I think we will see margins getting squeezed, and loan-loss reserves being increased, and bank stocks getting beaten up for a long time, and we’ll see a few banks fail every year (like they used to), but I don’t see that the banking crisis will get out of hand.
Did J POW giggle after being asked about the possibility of a soft landing?
The fact that the market hasn’t taken off yet might be telling. I think Powell actually did a good job of not saying anything dovish. Way better then last time IMO.
Sounds like no cuts and one more rate hike then the painful pause comes. Unless inflation keeps rolling then no pause. Either way higher for longer seems to be where we are headed. Yields need to get going!
We later learned that mothers who protected their children with an arm just prior to a crash actually increased the harm because the distance between baby’s head and dashboard was increased thus maximizing the velocity of impact.
It doesn’t help to have Yahoo Finance with deceiving headlines like this:
Federal Reserve ‘dot plot’ shows interest rates peaking at 5.1% in 2023
Anything to make people believe in an eventual pivot.
World is about 4 times more leveraged than the 70’s. 5% is the new Volker 19%. Give it time for the zombie companies to have to refinance to plus 5% rates. Only bright spot if Powell keeps raising he might get the 10 year to drop to 3% and people can get a 5.9% mortgage.
Listened to the whole press conference. It wasn’t dovish.
Long way to go, but this was a good day for Powell and the FED.
“rate cuts are not in our base case”
One of about four sane comments. These suggestions of raising rates several percent at one time…lol. You really don’t want to be flying a plane with a pilot who makes violent course corrections.
You would if it was nose diving straight to the ground.
His final comment (while shaking his head) was “Rates cuts are not in our base case…uh…and…uh…you know…so…that’s all I have to say.”
Maybe less people think he’s fibbing.
Tell Zerohedge that. Headline after headline about how dovish Powell was and that Yellen crashed the party. I still go to Zerohedge for a few laughs. Not a reliable site anymore. I agree, Powell wasn’t dovish, but I never think he is even when Nick the Pig, et al, are delusionally thinking otherwise and jawboning the markets.
What do we know with 100% certainty?
1) Developed nation’s % of old folks will continue to grow for decades(including China).
2) Developed nation’s % of working age people will continue to fall for decades(including China).
3) US and world debt will continue to grow, with no stop in sight. We can not grow enough to sustain this, and the current economic model is not sustainable.
4) The Treasury/Fed’s overrall reach will continue to spread, will continue to replace banks as the creator of “money,” and its influence over other central banks will continue to expand as their needs grow (recent bank events and today’s Powell &Yellen comments continue to support that point). The Fed is not a commercial bank, but rather has bank ownership and, and simultaneously functions as an unregulated government agency. Unfortunately, I have come to view it as an entity whose sole purpose is to launder the government’s dirty money, aka, its debt.
The reality is that we have used up 250 years of hard earned Aggregate National Treasure in a very short period of time, and we continue to use increasing leverage going forward.
Let’s hope it somehow works, although the current ineffective tactics are a Hobson’s Choice. They are a poor substitute of the long term strategy needed to provide a healthy future for our children and coming generations.
We are either going to cut some welfare/warfare or we are going to live with high inflation. If Powell sticks with 2% target then Congress will have to get their house in order as nakedness is going to show in next recession.
Exactly as forecast, the Federal Reserve ain’t gonna ‘pivot!’
Dow skids 530 points, stocks close sharply lower after Fed raises rates, says cuts unlikely this year
Why are we trying to fix a FED created problem with the FED? Who would let the thief be in charge of making the victim whole?
renntrade
Yep, agree 1000%
I will repeat an earlier post I made.
J Powell in charge of the Fed is like putting Count Dracula in charge of you blood bank.
Thanks Wolf for commenting on the press conference, no time to watch. But, I’m pleasantly surprised by the comments on future rate increases but I have low expectations. Sweet lord no its not enough to slow inflation but, given who he is, how does he not ease away the punch bowl.
If CPI numbers come in super hot I think he has to keep raising and with bifurcated approach, i.e. discount window operations appears more disciplined than before. Regrettably, thats a very low bar. I think he’ll have to keep raising and the real economy, thus far, has proven more resilient than the biz press would have anyone believe.
I hope he will begin selling MBS into the market but perhaps w/ assumed bad risk mgmt at Small to med size banks, perhaps thats too much to ask.
What is Yellen doing Today going on about Bank Insurance, does she want to kill the remaining confidence ?!
If I did not take anything away from Wolf’s articles the last 12 months, the one thing that has remained constant is rate hikes and the simple mantra of “Don’t fight the Feds”. FWIW Wall St. cant say they did not see or nobody told them rate hikes were coming. What ever you say or think about Powell he has showed relentlessness reactive leadership in staying the course. Keep tightening to something breaks, and tighten some more. Much like rain flooding Southern California, can’t shit be done to stop the flooding…..and Yes inflation is now classified as transitory.
Powell kept rates too low too long, raised them too quickly in response to the resultant inflation, and failed to advise banks of the repercussions of the rapid increases. He has been consistently failing at providing financial stability. And he certainly didn’t project confidence at today’s news conference.
Things are going to get really tight, really fast. Powell needs to go and someone with more fortitude needs to lead us out of this.
Actually, Biden should have taken Powell out Day 1.
He has been the toughest Fed chair since Volcker. That may not say much though. The folks in Congress and the White House are going to crush him if he economy tanks. Sen. Warren is going to keelhaul him every single day. She already called him a “dangerous man” during the confirmation hearings. She’ll have a blast keelhauling poor old Powell.
Powell did get confirmation votes from 80 senators, so he must have bipartisan support despite Warren’s attacks. Powell can probably handle the Warren keelhauling since it appears fewer and fewer people are paying attention to her implicit support for higher inflation.
Did everyone hate Volcker back in the days too but he had the balls to them to F off and continue on course, to which now history fondly remembers him as the inflation slayer? (At least this is the cliff notes version that I read being repeated around here)
Just mannerism, does Pow Pow seem like the kind of dude that will tell everyone (WS, Congress, the next president) to go F off? If I were a betting man, I would say no. Although hiking this fast is helping his case a bit, then again Biden wasn’t pressuring him to back off before..guess we will have to wait it out and see. Real test will come soon enough.
I think the dems were pretty sure they could get $2 T more spending through and then it would be up to Powell to deal with the consequences.
He surely is already prepared for Warren’s sniping. Only a few out there take her seriously. Of course everyone on the receiving end of the gravy train (politicians) will join in when their money flow is threatened and make the problem (inflation) even harder to work out. But that will remain the essential task with or without Powell — and his support on the Federal Oppen Market Committee is unlikely to waiver.
Ja, but nobody listens to Warren. She’s merely virtue signaling to the radical left.
Warren has been kicking and screaming about Fed tightening for awhile now. Like a child having a tantrum.
I don’t think Powell even knew there were going to be repercussions with the banks. If anything, the banks should have known and offloaded the risk. The banks had ample time to offload their longdated treasuries.
No one should have to warn any bank of the consequences of increasing interest rates. Bankers who don’t understand liquidity and duration risk shouldn’t be in banking.
+1
+2
I think its a blind spot in finance. Just because statistics show that something is a once in a million year event doesn’t mean much. You can’t be vulnerable or its self fulfilling.
There is going to be an attack by a short seller or in this case a bank run. Ever how much cash you need, you better have more just in case.
Amen
Fed rate at 5%. Interest on the 10yr was 3.46% on June 14th 2022 & Fed rate was 1.75%. Fed rate now 5% & 10yr at 3.51%. The 10yr hasn’t added 3.25% of rate hikes, think about that, yet still the Fed isn’t increasing QT, there is so much leverage in the system & manipulation no tightening has occurred.
This market is gonna collapse so hard, the gambling & euphoria is so ingrained only horrific losses will stop this madness & lower inflation.
It will happen & when it does it’ll be a lesson that lasts a century.
It’s weird that the 10yr is so.
If even if inflation is at 2% – I will not put my money in banks that pay < 3-4%. Which mean that FED rate has to be 3-4% at least.
The last few years where FED rate is almost nil is just NUT. No wonder many banks are stuck with their investment at 3% rate for the next 10-30 years while I can't see FED rate less than 4%.
The FED is not going to get inflation to 2.5% until 2025 – according to their expectation. Expect FED rate to be at least 4% in the next 5-10 years. The banking crisis is just starting — this will drag out for the next few years while the FED rate is elevated.
Last time 10 year hit around 4.5% it was a tempting trade with dividend on utilities at less than 4%. Safe trade was at the front end of the curve though so that is where a chicken like me is. t-bills a good place to be if inflation is hard to tame.
Yellon is throwing out guarantees like confetti. No way this is legal under our Constitution. Congress has to approve spending on this magnitude. This came out during the J Powell Press conference and may explain the market crash. When it is realized that the government CAN NOT bail out the banks and make the deposits SAFE there could be a panic and more massive withdrawals.
She’s an idiot. It’s evident with the drivel that comes out of her mouth every time she opens it.
+1.
she’s a total backroom operator. she has also aged a LOT in her tenure at Treasury! That’s telling.
This is being silly but I think she is funny. Everytime I see her speak, I am reminded of what happens if a Pigeon gets its wish to become a human.
Same way how a wish was granted for McConnel to become a real boy from a rat.
Very funny!
All this just shows the stupidity of trying to centrally plan the cost of money. The free market should decide the cost of money based on simple supply and demand – not some dude attempting to fine tune a $26 Trillion economy using lagging indicators.
The execs at SVB may have done some idiotic things, but the Fed created the conditions for them to do those idiotic things. The blame for our current economic problems ultimately rests with the Fed.
The Fed’s interest rate manipulations just result in nonstop bubbles and busts (and inflation!) that get worse with each economic cycle.
Now what is the market value of a “commodity”, money, that is of unlimited supply?
“Now what is the market value of a “commodity”, money, that is of unlimited supply?”
There is no free market where the supply is unlimited. Much like, there is no free market in almost every industry where companies are allowed to consolidate without any restraint.
The free marketers don’t really understand that a free market should have a large number of sellers and a large number of buyers – so no one has the power to control the market. This is ECON101.
With a “commodity” like fiat money, only regulations limits the supply. And the regulations on accounting make the system viable as long as each money unit have no identity.
With serial numbers on each money unit, like bitcoin, fiat money may be viable without that many regulations. Not that it so far have worked out.
And when it was anchored to gold, we had a panic, banking crisis and multi-year depression about every ten years all the way through the nineteenth in into the twentieth century. That was when folks were spread out, and before we got 390 million+ firearms in private hands.
And you think that was worse?
If you do, that’s because you, as with literally practically everyone else, don’t believe this is all leading to a future catastrophic “fat tail” systemic failure.
There are no “wizards behind the curtain” at the FRB or USG and there is never something for nothing.
There is a future day of reckoning for the living standards of the average American who is destined to become poorer or a lot poorer. Almost certainly a combination of crashing asset markets, much higher prices of essentials, and a return to actually restrictive credit conditions where most of the population can no longer live above their means on credit.
I think government learned they needed an active central bank so they could print up money to pay for WWI. Worked so well they just kept the gig going for 100 years so that we all tune in to hear the words from the Fed messiah. But when your country is broke no Fed chair is going to save you.
JJ, the $USD is a monopoly — only the US government and its agents can issue it. Beyond about 3 months “the market” can price it, unless the Fed intervenes further out the curve a la Bank of Japan does with the yen.
“Stepping on the brake with one foot while putting an arm around the baby to keep her from hitting the dashboard.”
LOL I wonder if some of the younger crowd here even knows what that means? I remember my mother always holding her arm on me when stopping the car. It was in downtown Tulsa early 60s riding in the Studebaker, installed seatbelts were in very few cars then, with a darn hard metal dashboard. Elvis is on the crackling radio. I guess we lived through it.
My parents had a big 1954 Chrysler. Had the original hemi. I used to ride under the rear glass while laying above rear seat and watch the stars go by when I was a kid.
I’m going to be watching for reports on the SVB investigation results which Powell welcomes. Examiners issued SVB 6 Matters Requiring Immediate Attention (MRIAs) which apparently were blown off by SVB management. Who at the Fed was responsible for follow up on the MRIAs and what did they do? From my time in Banking, the Examiners have serious powers if a bank does not respond quickly and adequately to MRIAs including criminal charges against bank management.
I had Powell’s news conference recorded on DVR, and watched carefully to see when the market tanked. As others above had said. it was when he was asked about rate cuts later in the year, and he said rate cuts are not expected in 2023, and they are not the base case. The markets wobbled for a few minutes and then crashed. The forward rates indicate the market expects a decline this year.
Who told you about the MRIA’s? Reports aren’t public and bank management is not permitted to disclose exam results.
As for the rest, no, it’s not a crime to ignore it, if that’s what actually happened. Bank regulators have the authority to downgrade ratings and issue escalating enforcement actions which includes removing bank management but that’s different.
Frost,
Here’s a link among many. We’ll see what the investigation discloses.
https://www.reuters.com/markets/us/feds-powell-svb-management-failed-badly-weakness-not-widespread-2023-03-22/
The AIs were all a little taken aback, and a little discombobulated, but then they followed the alpha to the path of least resistence.
When was the last time Market was lower after the Fed announcement? 6 months ago?
At some point, doubt is going to creep into markets and narratives. The FED has shown during this mini bank crisis that investors/shareholders are fair game for losses. About that “FED put”..
Investors/shareholders absolutely should be fair game for losses. That’s the way it was always set up, and anybody paying attention would know it. Regulators (meaning our purse) as insurers for that risk is an abominable idea.
Janet Yellen response. Not Fed Powell
J-Pow attempts quarterback sneak from the 27 yard line.
😆
Good call if first down is on 26 yard line.
And scores, after snipers in the stands pick off every defensive player on his way to pay dirt.
I’ve listened to the Fed conf. It is abundantly clear that the only thing the Fed can do is react to data, and when pinned down a few times, Powell’s response was, “it’s working,” and “we will look at the data” and react. They have absolutely ZERO idea about what and how much risk is out there. This is simply because almost all of the money printed and “Fed” to the banks was invested in stock or real estate in one form or another. Many of these instruments are suspect, and the population en masse cannot afford the residential or commercial space or stocks for that matter, unless of course, there is even bigger wage inflation. The latter is the Fed paradox, as well as monetary tightening, as this will only add to the cost of borrowing for the “en masse” folks that most of us are. Moreover, the Fed and their mouth-piece-attorney leader are struggling to figure out how to end the ponzi scheme without any damage. this too is an insane paradox because in the end, everyone but ponzi loses.
“They have absolutely ZERO idea about what and how much risk is out there.”
Exactly. Almost every stock sports a severely bloated PE. And real estate is totally out of whack. There is no way to sustain these prices. They have to come down. How Powell and his Fed are going to manage the descent is to be seen.
I think Fed is reckless with risk because they can mop things up with a money printer. I think if any of us knew Zirp was going to be around 10 years we would have made different decisions.
Wolf, that was a great metaphor! Powell is trying to do two things at once! Like you’ve done! I think I get it.
So much for GS’s published prediction of a “pause.” They may be super smart, but are never super honest. No one should take ANYTHING they say publicly at face value. If I ever saw a loss on my statement with GS the counterparty, I’d call the banker and thank him for his restraint shown to a civilian.
Anywho, I think you’re right that we’re likely to see a pause soon. Like you, I doubt we’ll see any cuts soon. Only thing I would quibble is whether another 25 basis hike is a certainty. Inflation, that confounding beast that it is, may come in soft and we’ve yet to see equities really wrap their head around the idea we may be in a high Fed rate world for a while, so tech will have to make money like everyone else, with the valuations to justify the price. Powell may want to take a breather, at least, early.
If the banks are the baby, the W2 workers are the dead squirrel with tire marks over it.
Boomers and their two footed driving! Am I right?
Yeah, we needed the second foot for the clutch.
What’s a clutch?
IMO…….Powell is now doing the exact opposite error…..his ego cannot accept being caught short twice halting inflation……must dream every night about “transitory” being featured in the textbooks in 2045 with his face displayed prominently.
As it stands now, the bank prime rate will be 8% plus and most smaller companies borrow at prime plus 2 or 3. Which is 10 to 11 percent. The big guys raise their own capital but main street still uses banks. This will put a huge brake on community bank lending. A real cost to borrowing…..and as inflation drops……a greater cost.
Inflation is starting to ease. Heck, eggs at my Walmart were 1.92 last week.
Butter back to 3.00 per pound at Costco. Oil has dropped. Most indexes are providing depression level readings. Advance indicators are signaling a slowdown. With all the announcements, employment IMO will show serious weakness in a few more employment reports. Monetary policy moves very slowly so even a modest cut now will not help until next year. Now that government is divided no more whopper spending bills have much of a chance of passing to save the day.
Inflation back to 2% is nonsense…..get used to 3-4% for the next decade……the Chinese solution for exporting inflation has hit a brick wall.
As for the bankers……got a crazy idea to slow the deposit run……how bout paying your customers the interest rate they deserve. Of course this reduces profits and you might have to cut your bonus……how crazy….just to think of it. Stop robbing grandpa……because everybody else is buying brokered CD’s.
Do away with all FDIC insurance. But at the same time, open the books of banks to the public, see what they are doing with deposits, see how much management is making, see their statements on a daily basis, see how much they make on the spread. Then customers might be able to make an intelligent decision about where to keep their money, and bankers will have to be very careful about how they manage.
“The principle function of deposit insurance is to promote confidence in the banking system and thus financial stability. With such guarantees, depositors and creditors have no reason to run—not when
problems occur at banks other than where they place their money, nor when they suspect their own bank might fail. However, such guarantees and the associated loss of market discipline, as a check against institutional excess, invite systematic excessive risk-taking: the moral hazard effect.” (Thomas M. Hoenig, Vice Chairman of the FDIC, Oct 11 2017).
Yellen said the FDIC will bail out all depositors at any bank whose failure would lead to systemic risk to the banking system. I can easily imagine the smiles on the faces of management of Systemically Important Banks. Excessive risk-taking takes off. At the first sign of danger, management sells its shares, large bonuses are forthcoming, after a time the bank fails, and then all the depositors are bailed out. Privatize the profits, socialize the losses.
When will the 5-year Canadian Bond yield go up again?
Canadian speculators are steaming mad today at that rate hike.
The market tanked around 2:52pm on Yellen’s comments, plus Powell’s comment that “if we need to raise rates, we will”. Then he doubled down with a response to a question on runs on non-bank financial institutions, and large unrealized losses on bank portfolios. In particular, he appeared somewhat nervous, and talked about “unhedged long positions in long duration securities that have lost value”. The supervisory team in the case of SVB missed the risk of a super charged run on the bank, the speed of the run is different from the past. The Federal Reserve Board appeared to know about this, and in particularly the case of SVB, as far back as 7 weeks ago or longer. Let’s see if he really comes back with clear answer as to what did the Fed know, and when did they know it. My take is that this issue with SVB is not “unique” as Powell tried to pass it off, or as Yellen appears to be trying to spin it. If so, Bill Ackerman is right, and we will see other runs on banks, and non-banks, probably driven by Family Offices pulling money fast out of shadow banks (Private Equity, Hedge Funds, and others).
The bank run on SVB was not unexpected. It was a consequence of poorly managed duration risk. SVB had too many demand deposits on the liability side and too many long-term bonds on the asset side. And this was an intentional overly-greedy reach for increased profits.
A competently managed bank would hedge that type of interest rate risk, but hedges reduce earnings. Because SVB’s stock was a high flyer, management thought they needed to show increased earnings, and they decided to scrap the hedges, knowing darn well that might blow up the bank.
The people who approved the duration risk should be banned from banking and excoriated publicly. The regulators in charge appeared to be incompetent or captive, as they failed to provide basic supervision.
If banks were required to maintain higher equity balances, the bank run would have been avoided, and there would have been much less need for regulators. But this cure would pressure bank earnings, executive compensation, and shareholder returns. In other words, banks would have to earn their money, like everybody else.
Too many investors seem to believe the Fed will return to fighting deflationary forces like they’ve been doing since 2008 with ZIRP and QE. But juicing credit markets with debt has only made global deflationary pressures worse. The Fed can pause their interest rate hikes but they cannot blow up their balance sheets with new trillion$. The debt overhang must shrink to avoid risking a depression and that can only be done by allowing a little wage inflation while managing the deflation of asset bubbles and writing down some of the excess debt. They should let weak banks fail in favor of banks with strong capitalization and allow real interest rates to rise to the point that private lenders come back to the market. Gamblers and speculators need to relearn what it means to lose and go bust.
No, sorry, I don’t buy this “brief liquidity support” explanation.
All that happened was that they went from “I swear not one more drop” to “Just one little drink with the buddies”. You know what comes next.
Are there rate cuts expected in 2024?
As per dot plot, yes.
Sorta off topic, but I suspect that Japan will have to abandon ZIRP soon and face the music. As for Son of Volker Jerome, I suspect he realizes that “data dependent” means driving and steering by looking in the rear view mirror. He seems a little nervous about that but he puts out the story and hopes others will believe it. I think that the terminal rate / 10 year bond rate will not see the decline that many others expect, in part because inflation will be here for longer than many expect, unless there is a massive Fed depression.
Why would the BOJ have to change anything? Didn’t the value of yen just go UP over the past couple of weeks?
“Powell noted that the upward pressure on supply and demand in the job market will ease over time, he added that there are not enough signs of progress in the key non-housing services sector inflation being driven by labor conditions. “That’s 56% percent of the index and the story is pretty much same … the data we got pointed to stronger inflation,” he said.”
Pretty much what Wolf has been saying all along!
Wolf says: ¨…This new regime of tightening while providing liquidity support to the financial sector is like a driver in the good old days stepping on the brake with one foot and putting an arm around the baby to keep her from hitting the dashboard…¨
I really like this analogy. It fits really well.
Adding liquidity for the banks and tightening is just another way to screw labor by raising rates but ensure that the SIBs and G-SIBs socialize their losses.
Credit Suisse = Bear Stearns
? = Lehman Bros.
? = AIG
SVB = WaMu
Signature Bank = IndyMac
Signature Bank = Indy
? = Lehman Bros.
? = AIG
Love! Keep em coming…
“This new regime of tightening while providing liquidity support to the financial sector is like a driver in the good old days stepping on the brake with one foot and putting an arm around the baby to keep her from hitting the dashboard.”
Lol