Inflation a Stickier Problem than Markets Realize

Wolf Richter on inflation, consumers, the labor market, and when will these drunken sailors finally stop throwing money around, with Adam Taggart on Wealthion:


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  110 comments for “Inflation a Stickier Problem than Markets Realize

  1. JeffD says:

    The Fed and government dropped about $10 trillion into the economy in what was effectively a step function. Amortized over five years, that works out to $166 billion a month. That is an incredible monthly forcing function on the economy that is still out there circulating. With approximately two more years of zero money supply growth, we *might* return to the pre-pandemic trendline. The inflation/spending will still be out there until return to money supply trendline, however we get there.

    Also, the Fed will soon be at equilibrium and will have to choose between who to focus on: (1) debtors who need low interest rates to produce “growth” or (2) earners who use higher interest rates to increase consumption through wage increases or through buying now to avoid even higher prices later. Historically, they have chosen to cater to (1) which benefits the asset holders but they are now being *forced* to focus on (2) which will further destabilize the economy. Expect interest rates to be hiked further to slow down the people in group (2) by taking jobs away.

    PS The Fed has repeatedly said they now are buttressed to ignore a period of pain, so once job losses hit 400k/week, don’t expect the Fed to react to it for quite a long time, probably somewhere between one and two quarters.

    • Jon W says:

      The Fed might ignore 400k job losses per week, but will the govt? That is the conundrum we will face next. The govt just showed that it can pony up trillions to pay everyone’s wages during a huge economic crisis. How does it now turn about and say ‘sorry we can’t do anything for you – you’re just going to have to lose your job, house etc’.

      Even if the incumbents push this line, it will create a wide open door for a populist to come along and say ‘they’re lying – they found the money before, they can do it again’.

      In some respects, it’s just a continuation of the erosion of moral hazard by the central banking systems since (ironically) deregulation. Big companies and banks are apparently free to make huge mistakes and get bailed. Now the public wants a bite of that apple.

      • JeffD says:

        Good point. But on the other hand, if the government does this, the Fed will have to *really* start hiking rates to tamp down inflation. If the government just hands out “normal” unemployment benefits with no forbearance or any other kind of stimulus, then the Fed can get the economy down off its high much more quickly. An extra 200K/week jobless for a quarter or two is a much lower price to pay than the alternative. There is no good outcome from where we are at, “we” meaning the entire world.

        • joedidee says:

          I hope some of these folks lose their jobs
          we are bidding on(likely getting about a 2-3 year project)
          long term plan to improve run down property with over 50% vacancy
          after the initial budget we’ll get to use cash flow for continual fixup
          gonna need some low cost labor to boost our ROI

        • Tom S. says:

          The Fed doesn’t have to do anything except keep 5 or so gigantic banks in business. Everything outside of that is a sideshow. Nothing I’ve seen makes me think otherwise.

        • 91B20 1stCav (AUS) says:

          Joedi – makes me wonder where we can find us some ‘low-cost management’…

          may we all find a better day.

        • NBay says:

          Agree with sentiment 100%….a good point by itself about this sick society and insane wealth/wage gap.
          However big picture aside, this particular guy usually makes up a lot of BS…sometimes he is evil, sometimes he is a working man’s hero….”Took whole crew to lunch on the clock”, etc.
          Personally I just think he is senile or just a drunk. Maybe even a kid.

      • longstreet says:

        The higher interest rates, a result of both fiscal irresponsibility and irrational monetary policy, now pulls money from private sector (and banks) to the hands of the government.
        That is formula for loss of productivity, for the govt creates nothing (expect minting)

        • NBay says:

          Yeah….burn the whole useless gov’t down and install a savior/dictator in your own image….that’s inverse Biblical talk, BTW, I guess.
          Actually you are describing Plato’s “Philosopher King” (who will never exist, even Plato knew it) but you don’t know it. Or much else.

      • perpetual perp says:

        There’s no ‘irony’ in our current system. All that is going on is best described as ‘unethical.’ We have an ethics problem. The gyrations the Fed goes through with interest rate manipulation has what is called an ‘allocative effect’ said effect allocates (as in transfers) wealth from labor and the middle class up to the super-rich class. Both in the ‘boom’ and in the ensuing ‘bust’ of our chronic ‘boom and bust’ episodes. The cure for this nonsense is to re-install progressive tax rates, to apply the anti-trust laws. And to impose some ethics in the markets, which are essentially casinos today, having very little to do with accurate price resolution.

        • AGelbert says:

          Agreed. At the root of, not just the economy’s problems, but most of the socially destructive actions presently causing the degradation of our biosphere and the reduction of average human life span, is TPTB’s love affair with Social Darwinism. Social Darwinists believe that ethics based principles are ‘limitations pretending to be virtues’. To them, ethics are ‘feel good illusions’ that humans invented to pretend our species has empathy. To Social Darwinists, empathy is irrefutable evidence of inexcusable weakness. To them, all who are guided by ethics are deluded fools that should be eliminated from the human ‘apex predator’ gene pool for the “good” of our species.

          Until TPTB recognize that their love affair with profit over people and planet, otherwise known as “corporate fiduciary responsibility”, is ruinously socially destructive, things will get worse.

          Learn more:
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          Rob Johnson is not your average economist, and this is not your average economics podcast. Every week, Rob talks about economic and social issues with a guest who probably wasn’t on your Econ 101 reading list, from musicians to activists to rebel economists. A podcast of The Institute for New Economic Thinking (INET).

          Thursday Mar 16, 2023 PODCAST

          Historians Naomi Oreskes (Harvard University) and Erik Conway (Caltech) talk to Rob about their just-released book, The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market.

          Naomi Oreskes and Erik Conway: The Big Myth of Market Fundamentalism

        • AlphaChicken says:

          “Fed goes through with interest rate manipulation has what is called an ‘allocative effect’”

          The Fed is able to not only directly deliver currency to various entities, but it is ALSO able to affect the purchasing power of that currency.

          The ability to change the total purchasing power (currency + purchasing power of that currency) of entities and groups of entities I think is perhaps the Fed’s most powerful ability. And perhaps the most liked and disliked as well.

        • DownFed says:

          I would describe it as unconstitutional. Back during the 2% inflation window, the discount window where banks could borrow was set at 0.25%. So, banks didn’t need depositors’ monies, so, wasn’t offering interest. That resulted in a negative real (inflation – interest) rate on deposits which are an asset.

          Under the 16th amendment, there is no tax on assets by the federal government, so, the real return on savings that is 100% constructed by the federal government functions as an asset tax.

          The Fed itself gave this to me. There was a discussion on negative interest rates, and someone opined that is an asset tax and unconstitutional. I make the same claim on the real or effective interest rate, while they made the claim on nominal interest rates only.

        • 91B20 1stCav (AUS) says:

          AG – ‘social Darwinism’, along with ‘the white man’s burden’ were the rage amongst the wealthy/governing classes of the West in the Gilded Age of the late 19th Century, with varying amounts of ‘trickle down’ into larger society, resulting in a significant pushback in the form of various Socialist or Communist movements (…well covered in Tuchman’s classic ‘The Proud Tower’).

          So rolls history’s wheel…

          may we all find a better day.

        • 91B20 1stCav (AUS) says:

          …should have added ‘Anarchist’ to the ‘movement’ list, but forgot (probably because anarchy always seems to wind up extinguishing itself…).

          may we all find a better day.

        • NBay says:

          Yeah, they used “horse and sparrow” rather than trickle down. (wasn’t even camouflaged by Milty for the Reagan script writers as “supply side”)
          I expect they have advanced their agenda far enough that they plan to soon start using it again.
          The “pushback” is likely to be much more nasty, this time, though…like you said, Anarchist.
          Like Steinbeck, I just don’t get how these educated people who know history just ignore the inevitable.
          I keep coming back to the mental illness notion.
          What scares me most is that they have a plan…like swarming drones….which of course is conspiracy theory which Wolf doesn’t like at all, so this comment is likely gone.
          Maybe if I say he really did a good job with some tough questions?

        • NBay says:

          I have a great drawing from c1900 of Uncle Sam and John Bull struggling up a rocky hill with large bags of non-whites…..”the white man’s burden”. Wish Wolf would post it just to show the thinking back then.

        • 91B20 1stCav (AUS) says:

          NBay – great link. The thinking stubbornly remains, reality notwithstanding…

          may we all find a better day.

    • Truth says:

      The moment payrolls start showing losses in the hundreds of thousands is also the moment inflation stickiness dissolves.

      This isn’t a supply side inflation environment any longer. It is demand based. The last leg demand stands on today is labor market strength. Once that is gone, with people concerned over their jobs (not just depleted cash balances but lost cash flows) we are going to see deflation hit.

      What will drive that is when companies start seeing projected earnings materially miss outlooks. Tech saw first and acted first but the rest aren’t immune.

      • Not Sure says:

        “…we are going to see deflation hit.”

        Chances are we won’t. Think about it… Americans born in the mid 1930s who passed before 2008 lived into their 70s but NEVER experienced anything that even looked like meaningful deflation. Even the oldest Americans alive have never experienced any kind of drawn out deflation of the dollar.

        Besides, economic collapses brought on by debt implosion can be deflationary, but this next economic collapse would be in the face of the most aggressive world-wide money printing exercise in human history. Economic catastrophes brought on by money printing tend be inflationary or hyper-inflationary.

        This is going to be much closer in look and feel to the 70s, where recessions were mostly inflationary. Despite awful economic conditions, the median house price nearly tripled. Car prices exploded. Hamburger helper hit the market to help housewives stretch their meat budget at the grocery store as food costs multiplied. Even the stock market largely did OK in nominal terms but, like everything else, poorly in real terms. And we just conjured up 10+ trillion dollars (half of all dollars in existance) in only about a decade. And since we refuse to control our spending and pay our debts with tax revenue, we will be taxed via inflation.

        So wait for deflation at your own peril… History is screaming at us, telling us in plain numbers that we have nothing but inflation ahead.

        • NBay says:

          The Vietnam War set off a chain of COSTLY economic (and social) “disturbances” and bad policies that plagues us to this day.

          From the movie Troy, “Old men talk and young men die. You know this to be true”

          There is a “Vietnam” going on as I write.

          Is there someone in charge, or is it just the collective human insanity Nietzsche spoke of?

        • NBay says:

          “The aim of science is not to open a door to endless wisdom, but to put a limit to endless error”

          -Bertolt Brecht

    • JC says:

      If what happened can be viewed as a step function then this is a golden opportunity to attempt to characterize it.

      You seem to be completely ignoring what happened since 2010ish.

      • JeffD says:

        What happened around 2010 was an unnecessary panic of pushing interest rates down to zero to push asset prices into the stratosphere at the expense of creating 130% debt to GDP. Go back to 1998 (or maybe even 1996), and that’s where the brain trust is Washington really set the country on a path to destruction.

    • BENW says:

      Including what Joe Biden has approved, it’s closer to $13T.

      And how much of all the cash out refi money is still slushing around out there?

      Oh, and let’s not get the $1.5-2T extra spending Uncle Sam signed us up for this FY.

      Can wait to watch the national debt explode $700B over the summer. That’s going to be a ton of demand for treasuries. High demand means higher prices & lower yields, right?

      • SocalJohn says:

        I think you have this backward. When the debt ceiling is lifted there will be an increase in the supply of treasuries since the government is borrowing more. That normally leads to an increase in rates, unless something causes the demand to grow more than the supply, and that seems unlikely.

        • BENW says:

          Heavy demand leads to higher prices which pushes down yields. $700B is a ton of treasuries to be sold in 6-8 weeks. The gurus are speculating that this will put pressure on stocks, since money will flow out of stocks into treasuries. Like Wolf says, higher yields typically solves demand problems. This would suggest yields are going to move lower but them may turn higher by late summer. One of the reasons yields have moved higher since the banking crisis has started to fad is the fact that the Treasury isn’t auctioning bills, notes & bonds due to the debt ceiling.

    • gametv says:

      I would argue that this is basically a wealth effect that cannot be reversed until the Fed gets more realistic about reduction of those huge balances.

      Want to kill inflation? Sell off the MBS and Treasuries at twice the pace and see long term rates higher and once the economy falls into recession, owners will finally sell homes and that will stop the wealth effect

      Actually, the BOJ and ECB are far worse than even the Fed and markets are fungible, so the Fed needs to fight not only their own balance sheet, but balance sheets of crazy countries.

      Canada was smart to get ahead of the curve in selling off the balance sheet. They can get it done before an economic downturn makes it tougher to accomplish

    • Finster says:

      If we’re seeing 400k job losses a week, stock prices are probably down 20+% and the Fed will finally have the tightening in financial conditions it’s been looking for. Consumer inflation will follow asset inflation lower. As long as it doesn’t repeat the past mistake of staying too easy too long and inflating new bubbles, the worst could be behind us.

  2. James Charles says:

    “Sven Henrich
    May 17
    Btw, so everyone is clear: Central banks have been bullshitting everyone with their grand monetary tightening narrative.
    Fact is global central banks balance sheet reductions ended in October of 2022 and surprise! Markets bottomed in October.”?

    • Stegelberg says:

      There is a lag in the results of monetary policies, post hoc ergo propter hoc and all that.

    • Wolf Richter says:

      James Charles,

      “Fact is global central banks balance sheet reductions ended in October of 2022…”

      Your “Sven Henrich” is an effing bullshitter. Why do you drag these braindead manipulative lies designed for utter morons into here?

      This is not a garbage dump for worn-out BS!!

      • Guy on a Buffalo says:

        The steep drops in the market happen when rates are starting to drop lower historically. Things begin breaking and the FED has to drop rates.

        Best way to try to discern the future is by looking at the past and making your own decision without being influenced by others.

        Let these people that are bullish keep thinking October was the low. We will se me whose right very soon.

        • longstreet says:

          The Dow is 4000 pts of its recent low.
          The S&P and Nasdaq doing better…
          Long rates still do not cover inflation…
          It is easy to spot those who werent around for Volcker.

        • Cas127 says:

          I’m not arguing anybody’s position, but you do have to wonder who exactly thinks that a bunch of companies in the SP 500 with PE’s in excess of 25, 30, or 40 (implying huge growth rates, despite those companies already being huge with huge mkt penetration) are a better/safer bet than hemi-semi-normalized Treasuries/CDs at 3%-5%+.

          I can think of at least 3 candidate groups with reasons…

          1) The companies themselves, whose insiders can (finitely) use corporate liquidity to buy back shares in order to prop up/spike their own incentive option grants,

          2) 401k contributors who are on autopilot and don’t really have much understanding of relative valuation,

          3) Potential fixed income investors who believe that rates are going significantly higher pretty quickly…which would drop value of longer term FI investments bought *today*…so they wait (albeit waiting in equity seems Russian roulette-ish).

          None of those groups is explicitly “pivot-ish”, they just have atypical motivations.

          I have to admit, I’m pretty surprised that the high PE SP 500 turkey has been able to fly this long – but it only takes one smallish panic to reintroduce (ironically) reality.

      • Depth Charge says:

        “Your “Sven Henrich” is an effing bullshitter.”

        Yep. And he is a regular guest on Adam Taggart’s program. I’ve come to realize that close to 100% of his guests are just charlatans talking their books. Their “analysis” is based upon what they need to happen to line their pockets, so their narratives are crafted along those lines.

        • Halibut says:

          Huh? Guests like Wolf Richter?

        • Depth Charge says:

          “Huh? Guests like Wolf Richter?”

          Nope, that’s why I said “close to 100%.” Wolf is the only person I really trust anymore. They’re all bullshitters.

        • Lucca says:

          Ivy Zelman has been interviewed on there and she seems credible.

        • rojogrande says:

          I don’t really have a problem with guests talking their book as long as they’re open regarding what their positions are, at least then they have skin in the game with respect to their analysis. I hate it when people are talking their book, for example claiming the Fed has overtightened and needs to pivot regardless of inflation, but assert they only want a pivot to help workers and consumers.

        • Halibut says:

          Admittedly, Adam has had some serious “duds”, but he has a lot of outstanding guests.

          Lacy Hunt, Stephanie Pomboy, Michael Pento, Ted Oxbow, Darius Dale…?

          Who cares if they sell a book if they have good insights?

        • billytrip says:

          You could say that about most financial “news”. Especially the stuff you can get for free.

          A lot of it is in-your-face horsecrap that no one who isn’t a sociopath could say with a straight face.

          Present company excepted, which is why I read here often.

        • Depth Charge says:

          “Admittedly, Adam has had some serious “duds”, but he has a lot of outstanding guests.”

          Why did you automatically insert Wolf into your first reply to me? What was that all about?

        • Halibut says:

          Because Wolf was just on Adam’s show a couple of days ago and you were running down the show.

          Adam Taggart is one of the very best financial hosts on YouTube and the majority of his guests are well worth listening to IMHO.

  3. Michael Engel says:

    1) Germany entered a recession. The German long duration are moving
    up. US bond market is x13 times larger than the one in Germany.
    2) The largest bond markets : US bond : 50T. // China : 21T. // Japan : 11T. France : 4.4T. // UK : 4.3T. // Canada : 4T. Germany : 3.7T. // Italy : 2.9T.
    3) If US gov rating decline US bond market still be the largest, the most dominant and by far and the most traded.

  4. old school says:

    Hussman’s April article had some interesting data on inflation. If I remember correctly raising rates and run of the mill recessions don’t normally slay inflation. I think his bottom line was inflation gets out of control when people perceive fiscal spending is out or control.

  5. longstreet says:

    What is real sticky…
    What is not even addressed as a problem to be solved…
    is the 20% inflation we have “baked in” in the past 3 years.
    No talk of price roll backs, or a welcomed “disinflation”…
    that 20% is accepted…and “Victory” is now described as lesser increases stacked upon that inflation spike.
    Reminds one of the debt ceiling discussion in which lesser increases are considered holding the line.

    • VintageVNvet says:

      Last advertisement I have seen for RAM pickups offered 15% OFF MSRP…
      Seems to me that represents ”price reduction(s)” longstreet?
      Last RAM purchased, 2019, after prolonged negotiation was at about 20% off MSRP, and was sold for about the same 3 years later.
      We are still waiting to see the 50% OFF of MSRP we paid for a new truck in 2009. Don’t really care anymore, since we bought an older truck with much less ”high tech” nonsense, and will likely utilize that one until the end, then gift it to one of the ”grands” if they want it or donate to a good cause.

      • longstreet says:

        small sampling

      • Depth Charge says:

        “We are still waiting to see the 50% OFF of MSRP we paid for a new truck in 2009.”

        While I’d love to see it, I seriously doubt we will ever see cuts that large. That being said, even 50% off a $90k truck is still a ridiculous price. Manufacturers got too greedy. They destroyed their customer base.

        • monkee says:

          Goods sellers have moved up the demand vs supply curve. They’ve all bet, and been correct so far, that fewer customers with deeper pockets is less overhead than volume and price competition. It’s almost the free-to-play model. Make 99% of your income on 1% of users. The economy as a whole is basically rotten, propped up entirely by a handful of whales. Which is fine (to them) when you refuse to pay workers, so you couldn’t even fully staff to cover demand if you lowered your prices anyway.

        • Tankster says:

          Section 179 of IRS provides that vehicles with a GVWR of over 6,000 lbs can be depreciated 100% in the first year. Why do you think so many doctors, lawyers, real estate agents et. al. are driving them around. Mainly US made so we support Murican jobs. The only hauling they do are golf clubs, and the only off-roading is when they take a right turn and roll over the curb. A long time friend of mine was killed by the extended side window of a monster truck while riding around Ft. Lauderdale.

    • Arnold says:

      Government default next week should bring about “disinflation”. Especially amongst consumer purchases as the first round of Social Security money fails to be deposited into accounts on June 8th.

      • SoCalBeachDude says:

        Social Security payments are issued on the 1st through 3rd of every month and will be in accounts well prior to June 8th.

        • Arnold says:

          They changed the schedule back in 1997.

          If you were born on the 1st thru 10th, you receive your Social Security payment on the second Wednesday of the month. 11th thru 20th, the 3rd Wednesday, after the 20th, the 4th Wednesday.

      • Lucca says:

        Never say never, but I’d be shocked if the government defaults next week. This seems like another manufactured crisis.

    • Cas127 says:


      One potential saving grace against the “inflation is gone once 20% price hikes become 5% price hikes” crowd…the internet won’t be bullshitted and has the tools to pop the DC/MSM bullshit balloons.

      In the bad old days, those bad old actors would simply repeat their unchallengeable BS until the general public was brainwashed into resigned compliance.

      But today the MSM is rapidly dying of its own intellectual/ethical decrepitude (thank you, liberating technologies) and for every “lower inflation is no inflation, ignore old inflation” DC sock puppet, there are 10 bloggers ready to stuff a sock down the MSM media sphincter.

  6. phillip jeffreys says:

    An interview with structure and data.

    Good job!

  7. polistra says:

    Inflation itself is not a problem that needs to be solved. Inflation is a natural part of a complex economy, along with variable interest rates. When both of these feedback loops are ALLOWED to operate naturally, the economy adjusts to external perturbations. For 20 years we froze up the interest rate loop; now we’re trying to freeze up the inflation loop. Both types of rigidity make real adjustment harder.

  8. Mike R. says:

    The Fed and the US Government will always do what they have to do at any given time to keep the lights on. With the mass of US dollars around the world, we have been able to keep the lights on at the expense of the rest of everyone else. Trillions of fake wealth (e.g., not earned the old fashioned way like most countries have to do).

    Much of the rest of the world is getting fed up with our greed, our diminishing values, and certainly our heavy-handedness around the world. The tide has shifted and will likely continue to shift unless much of the rest of the world starts to see a change in our behavior and values.

    Right now at this time in history, the Fed and new factions in Congress realize the existential threat against the dollar (and the US) that exists. You can analyze inflation, recession, etc. all day long, but I firmly believe we are in for a period of tighter monetary policy and tighter fiscal policy, including breaching the debt ceiling if that is what it takes to start getting our house in order.

    We’re at a crucial crossroads and I don’t think looking in the rear view mirror is going to be the correct approach.

  9. Guy on a Buffalo says:

    Major opportunity. Market is over optimistic rates hikes cease and will drop this fall. Since Tuesday, we saw it drop from 420 to 410 (then Nvidia happened in the after hours…. 200 billion in one night is insanity. We will see if they actually hit 11 billion next quarter)

    Long Puts on SPY.

    • old school says:

      Risks are very high in the market due to market breadth being very low and valuations being very high. My take is best risk adjusted play is being over weight 5% cash til Fed tightening wrecking ball does its thing to kill inflation.

      I think a lot of boomers feel like I do having experienced the market back to the 70’s, but our framework might be all wrong as world is always changing.

      • Guy on a Buffalo says:

        Agreed. I am young in 20s and am going the more risky route and shorting the market (long puts). Liquidated all of stocks a few weeks ago, the more risk adverse route would be to have everything cash and bonds make your 5% yield then buy once it pops.

        Expecting bubble to begin to pop later this year and for it to still be in a downtrend through next year.

        We will see how long this AI speculation will be able to hold

        • Andrew says:

          Both you guys are dismissing the risks of inflation. 5% is chump change when the real inflation rate is much higher. Valuations won’t be so high after a few years of 10% inflation compound.

  10. Tone says:

    Depending on your demographic…you may gauge on different information…I’m 4 years from retirement…if asset prices are going to decline…which is what was emphasized in the interview…I’m staying in short term vehicles and hopefully buy into low priced ETF’s to generate income.


  11. SoCalBeachDude says:

    MW: Selling pressure gains momentum in Treasuries, sending 2-year rate up to 4.46%

  12. Redneck_Millionaire says:

    Stayin Alive, Boogie Wonderland, Funky Town, Night Fever, Thats the Way, Blame it on the Boogie, hope you youngins know your history. These titles were an awful time in history. Looks like Disco Fever is about to make a comeback. Years to go before we know for sure.
    Brought to you by the FED and FEDeral Government.

    • NBay says:

      You mean “awful time” as in the “disco sucks” movement, of which I was a solid part of? :)
      It’s just music….to each his own….you probably don’t dig Robert Johnson and all that came out of his music, which I love.

  13. rojogrande says:

    Great interview Wolf. I guess you couldn’t avoid housing completely, but I’m glad it didn’t dominate the interview. I do think you made an important point when you said continued inflation may moderate a nominal price correction in housing.

    • Juliab says:

      I admit, I haven’t listened to Wolf’s interview, but what I think is that he has always argued in his articles that it’s high inflation that indirectly lowers house prices because it forces central banks to keep interest rates high.

    • Lucca says:

      I thought Wolf said housing would have a “moderate to severe”price correction by the time it’s all said and done, but that it would take a few years, not months.

      • Wolf Richter says:

        Correct, all of them, I guess. I said something to the effect that lots of inflation may soften the decline to a moderate/severe correction.

  14. Depth Charge says:

    I am shocked that Wolf, with all of his insight, is in favor of a pause by the FED, knowing that inflation is ramping back up. I don’t understand it at all. It’s just destroying the poor and working classes.

    • Redneck_Millionaire says:

      Maybe Wolf knows rates need to be double digits and too soon too high is not possible?

    • Wolf Richter says:

      Depth Charge,

      This inflation isn’t just going away overnight, unless the economy collapses, and I don’t want that, and I’m pretty sure you don’t either. The risks associated with higher rates from here on out are now with the banking system. If the banks massively get in trouble all at once, the economy will take a serious hit, and then the whole shitshow of 0% and QE starts all over again.

      So I just think it’s better to take some time with this, let the economy adjust to these higher rates, let the banks get their balance sheets sorted out, give it some time… Anything can be worked out over time. It’s a sudden shock that would be a problem.

      One more hike in June or July brings the upper end of the policy rates to 5.5%. That’s not a bad place to rest, take a deep breath, look around for a while, and let everyone get used to it.

      And if inflation persists, or if there is a second wave, then rates can be taken up from there with less risk because 5.5% will by then have been baked into the economy and will form the foundation, rather than 0% being the foundation.

      I understand that you would like to see this big cataclysmic economic collapse overnight that would put an end to all this. But all you’d get is the same shitshow of QE and 0%. Wall Street would love that.

      • Depth Charge says:

        “If the banks massively get in trouble all at once, the economy will take a serious hit, and then the whole shitshow of 0% and QE starts all over again.”

        QE was a failure which has caused ALL of these problems. It is a reverse Robinhood wealth extraction operation sold as “the wealth effect,” falsely claiming that if you make the rich richer, their juiced asset prices will result in a trickle-down effect which stimulates the economy and raises all boats. It’s a lie. It makes the top 1% extraordinarily wealthy at the expense of everybody else.

        Yet, you accept that it is now a permanent policy and expect more of it going forward? So, they’ve managed your expectations to accept this. This is a serious problem, especially when people like you are our only hope.

        “This inflation isn’t just going away overnight, unless the economy collapses, and I don’t want that, and I’m pretty sure you don’t either.”

        That doesn’t square with this:

        “I understand that you would like to see this big cataclysmic economic collapse overnight that would put an end to all this. But all you’d get is the same shitshow of QE and 0%. Wall Street would love that.”

        I don’t want a full scale economic collapse, Wolf, but I do want an about face in the way everything is handled. When I say I want to burn it all down, I want the recipients of QE to lose all of their gains. ALL OF IT. It’s ill-gotten loot. That’s what we need – a great reckoning in asset prices. We need all of them to go back to 1990 levels, adjusted for inflation. We need massive deflation in most things.

        But the opposite is going on, because the FED is mortgaging the future of the young to protect the net worths of the wealthy. They stole the future and they are not going to give it back without a fight. Well, there needs to be a fight, even if it is angry mobs outside the Eccles Building screaming for a pound of flesh. Enough is enough.

        • Bead says:

          Oh, let’s just enjoy this coming AI bubble. The inequality is now baked in and it’s too late to do anything about it so we may as well party on. Fed doesn’t seem too unhappy with their “wealth effect” policy. Bail out banks, bail out commercial real estate, bail out gamblers who lose.

        • BP says:

          Hear! Hear! DC. Real estate and housing has choked and destroyed so many other parts of our economy. Owning houses needs to become a very unattractive investment for a long time.

        • Guy on a Buffalo says:

          This right here. Asset prices are out of control. We need a reset.

          Most of my friends in their late 20s cannot afford houses. They were saving up for the big “American Dream” (which isn’t a reality at these prices) and then the past few years hit. Really the past 18 months with inflation.

          The few friends that were able to buy a house in the past 2 years bought at the worst time possible, in a massive bubble so they could have low rates. Too bad when this bubble pops they’ll realize how really screwed they are.

          it is shocking at how many people are living pay check to pay check and did not save any of the stimulus or are spending any savings they have now to get by with the insane inflation we’ve had.

          When unemployment rises and all of these younger folks like myself are laid off….
          90% are not prepared. And do not have savings for 12 months.

        • phusg says:

          > That’s what we need – a great reckoning in asset prices. We need all of them to go back to 1990 levels, adjusted for inflation. We need massive deflation in most things.

          That would also massively hurt the prudent middle classes who’ve been saving for their pensions, as well as restarting the easy money cycle again, as Wolf already pointed out.

          What’s wrong with more progressive taxes if you want to claw back some of the ill gotten gains of the ultra wealthy?

        • Swamp Creature says:

          The only way to bring down inflation is to curtail demand dramatically and create a recession. These 25 basis point Fed increases are having zero effect. In fact they are actually increasing inflation as all of these increased financing costs are just being passed on to the consumer in the form of higher prices. A soft landing ain’t gonna cut it. I say, we have to do what the commander in NAM once said:

          “We have to destroy the village in order to save it”

          Paul Volcker did it back in 1981 and J Powell needs to do a Paul Volcker 2.0. END OF STORY

        • Swamp CreatureS says:

          DC hit the nail on the head once again.

      • Swamp Creature says:

        Housing is starting to re-inflated here in the Swamp. Prices are going up again. There are NO houses for sale. If one comes up, it is “GONE”. Slimeball Realtors are even putting that sign on the property after it sells. “GONE”!!!!!. Implying that your family is stupid for sitting back and waiting for properties to come down in price. Some properties are selling for all cash before even being listed. I would say that anyone who thinks the Fed is on a path to bring inflation down, must be living in an alternative universe. There is not a single sign of recession or even a slowdown anywhere here. I believe my own eyes.

        • NBay says:

          Could be worse. They could put up “Too late, LOSER” signs.
          All sales types are slimeballs…….as Dick Gregory said, “If you have something really good, you don’t have to sell it to people, they will steal it from you”.

        • Wolf Richter says:


          LOL. You know that car thefts are a HUGE problem, used cars especially, and that cars and auto dealers are equipped with all kinds of safety features to prevent thefts; and yet there are lots of used-car and new-car sales consultants, or whatever they’re called now. Because the people who steal cars and people who buy cars are not the same people.

        • NBay says:

          Actually Gregory was referring to religious door to door proselytizers and not “things”…..I used him out of context….but not all that far out……

  15. ru82 says:

    It looks like since the beginning of 2023 the places to have been invested has been in Tech and housing.

    Both are on a tear.

    Energy, commodities, financials, health care, and consumables have gone down or nowhere.

    • bulfinch says:

      Maybe on a teardrop about to go splat.

      An ice cube seems like an ember in the middle of the tundra.

    • ru82 says:

      I know housing is always a big topic because everyone lives in a house or rents. In contrast, not everyone owns stocks or bonds.

      I know housing is regional. But the inventory in-balances are crazy.

      I think I posted before the mismatch of existing homes for sale to new construction in my area. Inventory is still low but now new construction is now up to 87% of the inventory. A few weeks ago it was 82%. Average is usually 20%.

      The census bureau says the median home value in my city is $330k. But the average new home listing is $632k because almost all of the inventory is new construction. The average sales price is $495k. There are 296 homes for sale. If I do a search for all homes under the Median price of $330k, I get a list of 7. That is 2% of inventory.

      I do believe that the median value home (not for sale) in my city is still $330k. That is the number that would be supported by the median household income but right now the average home sale prices are coming in at $495k. I cannot find the median price. What I see is nobody is selling their homes valued under $330k. I know because I am looking for a house for a family member. Impossible to find right now.

      My thought is with such low inventory and low home sales, a lot of data current data is sort of skewed right now to the high side. Of course, nothing scientific in this analysis and it can be wrong.

  16. bulfinch says:

    Interesting to get to see you working through your thoughts in real-time, complete with the occasional wincing reticence on certain subjects — specifically the mild to severe sliding scale offered by Adam WRT housing.

    Guessing severe in this case means a protracted but steep overcorrection, which seems most likely.

  17. William Leake says:

    How increasing rates increase inflation: Assume a retiree has about $2 million, mainly in savings. He is crazy conservative. A year ago his annual interest income was around $20,000 with rates around one percent. Rates have increased to five percent so his annual interest income now will be around $100,000, assuming rates do not drop much in the next few months. This increases his disposable income, and potential spending substantially, in about one year (at zero risk). He pays off his credit cards on time. Otherwise he doesn’t borrow.

    He may be unusual but I notice last quarter, real consumer spending skyrocketed 3.8 percent, the highest since 10/28/2021. Core PCE has been flat since 12/21/21, currently 5.0%. Boomers are a big chunk of the population. If many are like him, the Fed is stuck (or a word that rhymes with stuck).

    Wolf talks generally about high rates helping retirees at around minute 27 in the above video and later on about people spending like drunken sailors for this and other reasons.

    • tolkapiam says:

      your observation of retirees with most of their wealth (apart from own roof ) in cash are benefitting in FD interest rate hikes in the last 1 year. Yours truly a senior, living in a banana republic with 10-20 million pacific crap ($=80)peso’s all in bank 12/15/18 months FD’s at 7.5/8/8.5% interest rate getting better interest income indeed.
      we never had 0% interest unlike in euro /usa (which has come up from 0 to 5%in the last 12 months ) .still 2-3% additional FD interest income is a boost in income for people above 60 with a nest egg in cash to cope with stagflation in reality.

  18. Franz Beckenbauer says:

    Anyone talking about “Shrinking Money supply”, “Quantitative Tightening” and “Deflation” can certainly explain how some chip company can gain 200 billion-with-a-b market Cap in one day based on a “forecast”.

    This system was created to produce free Money. That’s what it does. That’s its function. There’s no way to stop this other than to break the whole thing.

    • dang says:


      I do not think that you are displaying the correct response that strengthens America.

      For instance when you say ” This system was created to produce free Money ” is not compatible with the generally accepted version of what they were doing.

  19. Michael Engel says:

    Puke AI.

    • Bead says:

      Never heard of them; is that an IPO? Do you suppose they can get the AI to write those smart contracts for the blockchain?

  20. Z33 says:

    Thanks for the video. I’m glad the TGA was brought up (before the 20 min mark if I recall for those that want to jump to it). Today it sits at a hair under $62 billion having dropped a little more than $54 billion from the week prior so almost run out (down $759 billion from a year ago). Should be interesting to see the markets soon once the debt ceiling is raised and money flows into the TGA via debt issuance and out of economy…look out!

    At the very end when you say moderate to severe, is that nominal dollars you’re referring to? I know you said inflation could lessen the drop so that would be in real terms, but nominally how low do you think it could go? I’m used to a 1-10% decline being mild, 10-20% moderate, and 20%+ severe in medicine (cardiac LV dysfunction) lol so maybe it translates…

    • Wolf Richter says:

      In terms of inflation and housing, I was referring to the higher wages that come with inflation (wage inflation), even if those wages don’t keep up with inflation: growing nominal wages will make it easier to pay for falling nominal house prices. That’s what I meant to say.

  21. dang says:

    Good presentation of just the facts and remarkable restraint in not offering an opinion. Very hard too do, I’m sure, but totally fundamentals of blocking and tackling with integrity.

    We romanticize inflation as if it had ephemeral qualities beyond our control. I conjecture that inflation is exactly what the Fed has been about since it’s inception as a tool of the various banking cartels, that have blown up the financial world, periodically, with their various ” get rich quick” schemes.

    The current instance will rank among the most egregious. Inflating asset prices by issuing currency to the bankrupt banking cartel to preserve their legislated stranglehold on the working people.

    • NBay says:

      Fractional Banking = printing money = “QE” (latest word) = Present (past) Econ messes

      I’d say all past messes were cleaned up in one way or the other by our (much hated) Government but I never took Econ 101 or Poly-Sci.

  22. dang says:

    Not to get carried away but I will point out that the only group that has been indemnified by the actions of the Fed since the GFC has been the ones that caused it.

    Hey, it’s Ivy League scholars that recommended and instituted the policies that govern such matters. The gestation of such a non sequitur is heating to a boil which always starts below the surface.

    Asset prices have to retrench significantly before inflation recedes. Stickiness of inflation is a shorthand description of the fact that asset prices have retained their nose bleed valuations.

  23. The Bob who cried Wolf says:

    “Sort of reasonably well behaved comments section”. You were very diplomatic in how you described us troublemakers. Great interview.

  24. dang says:

    The logical path of an incorruptible Fed would be to increase the FFR by 25 bpt at the mid-June meeting of the FOMC with a strong statement that interest rates will increase as long as the consumer prices are increasing.

    The problem might be that the Fed is corrupt, which the facts suggest is the obvious judgement. In that case, they will squirm while enduring the rancor their insouciance will create. They can do what they want. They’re in charge.

    • Swamp Creature says:

      The Fed will pause in June and then wait for inflation numbers to come out showing that nothing they are doing is working. Then they will increase by 25 basis points in July. This is my prediction. You can put it in the bank.

  25. z2b says:

    Hi Wolf,
    Long time reader, rare commentor here. Just curious what you make of

    Danielle Park who, like you, is a frequent guest of Ross Clark referenced it in a recent blog post.

Comments are closed.