Why a “Pause” Points to Higher for Much Longer. CRE Blowups & Banks. CRE & the Housing Market. What’s the Deal with Inflation? And of course, New & Used Cars

Wolf Richter on This Week in Money, at HoweStreet.com

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  129 comments for “Why a “Pause” Points to Higher for Much Longer. CRE Blowups & Banks. CRE & the Housing Market. What’s the Deal with Inflation? And of course, New & Used Cars

  1. J-Pow!!! says:

    Fyi planning pivot speech tomorrow.

    • Leo says:

      Congrats J Pow, you got Nasdaq to rally more than 30% using only your words and a temporary pause when everything thing else pointed to lower future earnings.

      Also, you managed to break all records with the obscenity of this rally, at a time when the masses are getting robbed by inflation every day.

      • Fed Up says:

        Yep. This corrupt country deserves to go down. There are many days I don’t care if it does, and those days are becoming more frequent. I hope Wolf is right and it means higher for longer, but I’m not convinced since our leaders don’t care about what’s good for anyone but themselves. No sense in applying logic to an economy that is no longer rational and hasn’t been for many years and is getting much, much worse. I don’t agree with this country’s consumer-driven economy, never have, and will continue to rebel against it. I’m spending on necessities only.

        • Escierto says:

          Me too. I spend as little as possible and believe me, that is not much. I am not starving or anything but I’m an old man with everything paid off and few desires other than seeing my children and grandchildren.

      • cas127 says:

        “you got Nasdaq to rally more than 30% using only your words”

        In the long run, numbers matter a lot more than words to the financial markets.

        With Treasuries now double of what they were (in the Strangled era), they provide a much, much more attractive alternative to risky (clearly overvalued) equities at any given moment. That is simply more and more tinder for any (well deserved) equities panic.

        I don’t know what is holding the Wiley Coyote equities mkts up right now, but I do know that the shift from equities to Treasuries/fixed income can happen very quickly and much easier the higher interest rates are.

  2. Wolf Richter says:

    In terms of consumer spending shifting from goods to services — to “experiences” such as travels – which I touched upon in this interview, I’ll just add this:

    We came back Sunday night from three days of hiking at Yosemite. I have never seen it this packed. One time a few years before the pandemic, we made the mistake of starting the long weekend on the 4th of July. And that’s usually the worst time to go. And it was bad. But this weekend was just nuts. Total traffic jam inside the Valley, and getting into it.

    We arrived Friday mid-day, it wasn’t that bad. The wait to get into the park wasn’t huge. And traffic in the park was dense and slow, but it moved. We found parking in a ditch about a 1/2 mile from the trailhead (Four-Mile Trail to Glacier Point), which was pretty good, with hindsight.

    But Saturday morning, it took us 90 minutes of waiting in an endless line of cars that started at El Portal to just get to the gate. Then it took another 90 minutes to get within a mile of the trail head (found a spot in the ditch).

    A gazillion people in the park. Every slot in the ditch had been taken, and the one that wasn’t taken, we took. The lower portions of the most popular trails (Mist trail to the top of Nevada Fall; and the trail to the top of Yosemite Falls) were packed with people. The steepness soon weeds out a bunch of people, usually at the first big view point, but there were still crowds afterwards.

    Sunday at around 2 pm, when we left via 120, there was an unspeakable line of cars inside the park, waiting to get into the Valley, and then another even more unspeakable line to get to the park. There is no parking for this many vehicles anywhere.

    This was another tiny piece of the overall puzzle: Going to Yosemite is expensive for most people. Some people fly and then rent a car. Lodging inside the park and anywhere near it is expensive. There is some camping inside the park, but even that isn’t cheap. Most people stay in lodges or cabins inside or more or less near the park, or they stay in vacation rentals. Yosemite is an awesome experience. And people are spending money to visit it. But this was just totally nuts.

    I’ve heard other stories of travel “experiences” that were packed with people. This is NOT a recessionary environment. People are spending like drunken sailors on services. And we have seen this stuff pan out in the data of all kinds, including inflation.

    • Hubberts Curve says:

      I though everyone left California and moved to Florida and Texas. How could there be enough people left to cause all those crowds in Yosemite?

      • Arnold says:

        They might be in search of cooler weather, Texas heat index is hitting 120°.

        • Escierto says:

          Ten day forecast for San Antonio. EVERY SINGLE DAY temperatures in the 100s with heat index of 120. Of course these fools don’t believe in global warming but eventually this place will be uninhabitable.

      • William Leake says:

        They are coming from Florida and Texas /slight sarc. California, outside of the urban and built-up areas, is still very attractive.

        • Wolf Richter says:

          “urban areas”

          San Francisco is packed with tourists from all over the place. The only group of tourists that has not yet come pack are tourists from China (due to the massive travel restrictions until not too long ago). They used to be #1 by far. Now they’re scarce. But they’re starting to come back.

        • cas127 says:


          “San Francisco is packed with tourists”

          If that is true in aggregate, then it is hard to see why SF hotels are going BK (“turnaround stories” usually result in loan workouts instead of handing over the equity to the lenders).

          Personal impressions can be misleading because,

          1) They (by definition) can’t be comprehensive and

          2) They really can’t peer into internal financials of any given project (what rates are used to fill rooms, what are breakeven rates, what required maintenance is pending etc.).

        • Wolf Richter says:


          1. Hotels are NOT going bankrupt. Read my article, for crying out loud. Hotels are operated by companies that pay the landlord for the property. The companies operating the hotels are doing fine. The hotel properties — the two we were talking about and others too — are owned by overleveraged hotel REITS split off from the Hilton LBO, that loaded up the decades-old hotel properties with interest-only CMBS mortgages; and those gangster executives of those hotel REITS decided to walk away from those mortgages, and stick pension funds and your bond mutual funds with losses.



          2. You’re also ignorant of the biggest concept in tourism ever: vacation rentals, in SF this means condos and rental apartments used for vacation rentals. With rental apartments, that may be a rent-controlled unit or not, where the tenants don’t live there but make money on the units as vacation rentals. This is called “rental arbitrage.” Look it up. Vacation rentals is a huge thing here, and their figures are not included in hotel occupancy rates. I’m surrounded by vacation rentals. Do you live in the wilderness with no access to the internet to google stuff like that?

          3. Why do I have to keep reading and wasting my time shooting down this dumb BS here?

    • Z33 says:

      Yosemite is gorgeous! I was there July 4th in 2015 and went up the cables of Half Dome. We got lucky to get lottery selection for the hiking passes after trying a couple days…4th of July specifically…and it didn’t rain that day but did day before a lot. Not sure I plan to ever go back again, but everyone should do that once in their life.

      Re: “experiences” and travel this year it is anecdotal, but I am doing as much of my bucket list items this year before I lose the time, energy, and money to do so (I’m a millennial). Also before travel disruptions become more frequent like protests in Paris with trainlines shutting down (thankfully my trip to Paris in Feb I landed a day after RER was shut down due to protests). I just got back from France for Roland Garros + 24 Hours of Le Mans and both were packed and a decent number of fellow Americans were there at both. Going to Teton and Yellowstone in a couple weeks for 4th of July and hope it’s not crowded (probably will be). Almost done with all my trips since nearly all were Jan through July…maybe 1 more in me in October for Japan (Fuji Speedway for a GTR festival) then done for a few years.

      • Mike G says:

        Go in the winter. I went mid-December a few years ago when fires were choking the air on the coast and crowds were light. Temps in 30s are quite bearable when the sun is out and there’s no wind. The only concern is potential snow/ice on the roads but there was none at the time.

      • Mt dreamin says:

        YSNP is packed now, in 2 weeks it should be at a standstill.

    • Redneck_Millionaire says:

      Would love to comment about the National Parks, Camping, Outdoors. This retired, full time, RVing couple know all about the weekend warriers. THEY pack into State Parks, National Parks, Outdoor Places every weekend. Reserving areas months in advance just about every weekend. During the week, we have no trouble going just about anywhere. The lockdown changed folks also, RV sales went through a huge upswing if memory serves correctly…… Sign of the times………….

    • RAY LAULETTI says:

      Under no circumstances can this corrupt government fund its wayward spending and deficits with high interest rates. Throw out the dot plots and anecdotal travel experiences and rest assured that the Fed – already starting the decoupling of wages, employment and inflation – will redefine its inflation target and soften the rate stance. None of the previous high interest rate environments that have occurred in our lifetime have ever had to tangle with this mound of public debt.

      • Wolf Richter says:

        “…the Fed – already starting the decoupling of wages, employment and inflation – will redefine its inflation target and soften the rate stance.”

        People who promote a higher inflation target need to understand this: a higher inflation target means permanently higher short-term and MUCH higher long-term interest rates.

        The Fed pegs policy interest rates to inflation. If inflation is at the target of 2%, and the economy is growing, policy rates are going to be “neutral,” meaning at about 2%. But if core inflation = 5%, and the Fed raises its inflation target to 5%, and the economy is growing, the Fed’s policy interest rates are going to be at around 5%.

        And LONG-TERM rates will explode. Now bond market investors are still pricing in 2% long-term inflation. But if the inflation target is raised to 5%, they will price in 5% long-term inflation, and the 10-year yield might then double to 7% and mortgage rates might go to 9%. That’s what high inflation does. That’s why Powell has brushed off a gazillion times any suggestions to raise the inflation target.

        • David Nerenberg says:

          Wolf, very interesting and intriguing article. Truth is no one really knows where the final numbers in inflation and rates will top off and for how long. Unemployment continues to defy the pundits as does device inflation. Having lived through the 60s and 70s, I rennet inflation well and also Paul Volker! My guess is inflation will keep coming down more slowly and mortgage rates will be somewhere around 6-7%. This will be sustainable as long as employment stays healthy. No Armageddon

        • BENW says:

          We ALL know core CPI inflation isn’t going back to 2% anytime soon sans recession. Furthermore, I haven’t read anyone calling for the Fed to raise its core PCI inflation target to 5%, but 3 to 3.5% sounds very reasonable and possibly likely by early 2024.

          And I for one would love to see mortgage rates stay above 6% for many years to come. The Fed can’t directly bailout stock markets, but they sure can backstop banks which would help in case of a GR type meltdown.

          This entire mess we find ourselves is completely centered around housing. The Fed will go to enormous lengths to keep GR2.0 from happening.

          Take that to the bank.

        • cas127 says:


          It may be time to repeat that “How DC can survive high interest rates despite huge Debt” post from a few months back.

          I think a lot of people may not have fully internalized the logic yet (I’m probably in that camp).

          My recollection was that there was a lot about how certain DC debt ratios were still pretty low…but I don’t know if that logic holds as “higher for longer” resets more and more DC debt each month.

          I think there was also a fair amount about employment rate/income tax revenue increases outstripping debt service increases but again I think the devil is in the details and “higher for longer” would seem to drain more and more sand from the foundations of that viewpoint.

        • Wolf Richter says:

          “It may be time to repeat that “How DC can survive high interest rates despite huge Debt”

          Well, that’s not what I said. The title back then (January 14) was: “Can the Government Pay for its Spiking Interest Expenses? Time to Look at Interest Payments against Tax Receipts”

          Then on May 29, I wrote an update with Q1 figures and some additional stuff. All you have to do is read it:


    • bulfinch says:

      Permanent plateau?

      YOLO/FOMO mindset drive by once-in-lifetime factors?

      Perpetual halcyon days?

    • Einhal says:

      Same everywhere I’ve traveled in the past year and a half, both domestic and international.

      Until people are worried about their jobs (or their stock portfolios), inflation ain’t going anywhere.

      • old school says:

        People still feel wealthy because of asset bubble and government debt blowout, but real after tax cash flows for most assets are very poor.

        • HowNow says:

          I think that the payment moratoria for rents, loans and mortgages have been underestimated. Huge enrichment for people who avoided making payments for three years running.

        • Publius says:

          Did you see Vanguard’s report on the drops in average and median 401k balances? More people are withdrawing funds and/or reducing retirement investments, despite record employment. Eat, drink, and spend, for tomorrow…

        • Wolf Richter says:

          Or just a huge wave of retirees beginning to withdraw their funds, including as required under IRS rules of minimum distributions? That’s what 401ks are for.

    • gametv says:

      I believe that COVID lockdowns and work from home and massive monetary stimulus have temporarily changed people. But once monetary stimulus recedes and asset bubbles pop, there will be a whole lot of early retirement people that realize they are fundamentally worse off, not better off than in the past. And then they will be stuck with no income and not enough assets to fund their lifestyle and the spending will come to a pretty sudden stop.

      Look for student loan repayments to take a bite out of certain discretionary spending (like iPhones). But a housing drop is really the thing that could change spending habits.

      • Redneck_Millionaire says:

        Kash will always be King with some folks. Yes, we know saving Kash is silly because of inflation, blah, blah, blah. Some of us are just that way and never trusted the stock market…….

      • old school says:

        If you combine housing, public stocks, private equity and government debt the world is in a big feel good bubble. We all know bubbles burst, you just don’t know the pin.

      • bulfinch says:

        What if, somehow, the opposite could be true? What if Americans — sorry, infernal consumers — simply fail to RSVP to this oversold recession and decide instead to simply lob a bird at the reaper and retire early? Or work fewer hours so they can go hiking or screw around in their garage? What if there had been a murderous virus — potentially of malicious manufacture — which scythed across the globe, killing friends, family & lovers and turning most everyone a little schizoid? Or a crazy little man in the East wagging his nuclear arsenal around like it deli ticket that’d just been called? That kinda stuff might just provide enough psychic oomph to effectuate a change in the collective mindset from dithering and hedging and fearful to letting the hell go and being.here.now. Add free money & EZ money slushees to the mix and you’ve got the makings of an interminable happy hour in Babylon.

        • Augustus Frost says:

          Your opening statement is only possible due to an asset mania and the loosest credit conditions in history, both of which are entirely psychological.

          The country isn’t that much wealthier than it was in the past. Doing what you suggest at large scale is just more eating of the country’s seed corn.

        • Pandora says:

          Only in America could a pandemic bring a boom, and multiple bubbles. Still standard of living and wages are losing ground, life expectancy has collapsed. Neo-Feudalism next?

        • bulfinch says:

          Augustus — we planted that seed corn ages ago; now it’s a perpetual harvest festival.

    • Val says:

      Work from home” also contributes to increased amount of traveling

    • Depth Charge says:

      But “pause” made sense. Uh-huh………

      • Wolf Richter says:

        Depth Charge,

        In your many I-hate-the-Fed comments, you have expressed your wish for an instant total collapse of everything, or similar, and anything short of that isn’t going to make sense to you, I get that.

        The Fed seems to go back to the hike-every-other-meeting, which it did in 2017/2018 — when it hiked even as inflation was at or below its target. It makes sense to go slow now. The Fed already blew up a bunch of banks, and it’s blowing up CRE, and it’s blowing up CMBS, and it’s blowing up a bunch of stuff. So hiking at a much slower pace to let banks, consumers, and companies adjust to the higher rates makes sense to me. And it means rates will stay higher for longer.

        • LIFO says:

          By “blew up a bunch of banks,” I assume you are referring to SVB, etc. I can’t recall all the details of SVB’s downfall, but seem to recall that greed, in the form of the bank’s failure to hedge interest-rate risk, played a large roll. I want the Fed to blow up the housing market before it goes slow.

        • Wolf Richter says:


          Anytime the Fed hikes rates fast and by a lot — from 0.25% to 5.25% is proportionately a far bigger move than from 5% to 10% — banks take a hit, first via losses on their long-term securities, and then via loans defaulting due to those higher rates. These are the two shoes that drop, one first, and a while later the other.

          Banks are regulated to withstand these two shoe-drops, in theory. So we have stress tests too. But none of the banks that failed this year were stress-tested. And if they had been stress-tested, it wouldn’t have helped because losses on securities due to higher rates weren’t part of the stress tests.

          So the Fed knows that sharp rate hikes kick the banks, and the bank managers knew, and should have prepared for getting kicked. But that’s not what they did. They believed the no-rate-hikes-till-2024 mantra, when they shouldn’t have. And they were infected by short-term-ism and more worried about their bonuses and stock options than prudently running a bank for the long term.

        • BENW says:

          To you point below, the Fed raised the FFR 900 basis points over 7 short months in 1979 or 1980/81, I believe.

          Today’s 500 over 14 months is quite tame by comparison.

          Yes, they need to slow up, but 3-4 banks isn’t a BUNCH. It’s less than a handful.

          And one can easily argue that a piddly 50 more basis points in the next 6 months isn’t going to break anything that isn’t already broken by just waiting for the shoe to drop.

          If a severe contraction in CRE is what it take to bring on a recession, then so be it. The good news is that EVERYONE sees it coming, so Michael Burry isn’t going to make a ton of money of it this time around.

          All joking aside, moderate deflationary pressures is needed sometime in the next 12 months to start getting us out of this inflationary mess. And JPowell really needs to start taking about the national debt way more in every FMOC meeting.

          When Biden leaves office the national debt will have grown by $12T in 5 short years, including Trump’s last year in office. That’s light-years beyond sustainable.

          I’m with Depth Charge but maybe not to the cataclysmic extent he seems to posit.

        • JeffD says:

          The Fed really backed themselves into a corner with “too low for too long” rates. Even the tiniest move down in rates over the next two years would cause a tsunami of inflation. I’d hate to be under 30 yo, and be at the mercy of a Fed that is 100% certain to fumble this at some point.

        • Occam says:

          Each month that goes by, inflationary psychology and behaviors become more entrenched. 25 basis points every other month is an invitation to long term stagflation. The dollar is losing its reputation as a store of value; psychology is very important in moving markets. The long term effects of the Covid panic on public attitudes towards spending vs. saving and aggregate demand are being underestimated.

    • SOL says:

      Bend is a complete zoo today. I guess it is a holiday weekend though.

      • Redneck_Millionaire says:

        Big Bend TEXAS? Love that place…..

      • Hubberts Curve says:

        I remember the good old days, when I was a kid. Bend was still a quiet lumber town. You could raft the Deschutes from Bend all the way to Maupin without seeing another soul along the way. My guess is once the RE crash really get under way, and WFH dries up Bend will be a lot quieter.

    • Albert Ciampi says:

      I e been saying the exact same thing!

    • Naveen says:

      This looks better than memorial day weekend. When we visited Yosemite on memorial day weekend Saturday, the wait time to get inside park was 3 hours at 3PM. After waiting for 2 hours in queue we quit and headed to our stay.

    • Softtail Rider says:

      Your write-up reminds me of a motorcycle camping trip out west some years ago. It was during a time when the dollar had shrunk, and Europeans could travel in the US for less cost. At one campsite we were the only Americans. I’m sure at least one of the commenters can list the year.

      I’m just an old rider and I’ve never belonged to a 1 % group though I’ve met many over the last 60 years. It’s mostly about respect and companionship but never needed to belong.

      During a gas stop my buddy mentioned I was being photographed by numerous visitors. I was dressed like any experienced motorcyclist with all the needed leather goods.

      One of which ask to photograph me and offered to send the news article from a French paper.

      Rent America RV’s had a banner year, for that I’m thankful.

      Here in flyover country I noticed a change in my small village tonight. The wife and I stopped by the local bar and grill for a couple drinks and a bite. On Monday night they have a local band playing and I do enjoy a cold one and the music. It’s not always the best but mostly enjoyable.
      What I noticed was the new wait staff and the small size of the audience. In the past there were the normal wait staff and many locals in attendance. Tonight, it was entirely different. Everyone seemed to be new and from out of the community.

      I suspect the free money is beginning to run out and hard times are around the corner.

      • 91B20 1stCav (AUS) says:

        Softtail – old sportbike/sport-tourer here. Concur with your timeline re: foreign motorcyclists starting around 1980 (fondly remember camping in Moose Jaw on a Trans-Canada/USA trip and spending the evening with some non-Anglophone German and Belgian riders), and into the middle of the decade, (a group of Swiss, neighbors still, bought an old resort close to the Russian River and ran a thriving stay/ride business for Euros with H-D’s and XS650’s). Best.

        may we all find a better day.

    • Richard says:

      Petco park/padres:

      “celebrated our 27th sellout of the 2023 season at Petco Park, a new all-time Petco Park record.”

      People in our neighborhood spend money left and right on brand new cars, changing landscape in FY/BY, fancy vacations, etc..

      Totally agree, this is the opposite of a recessionary environment.

      • HowNow says:

        Consumer Reports stated that at this time, the average purchase price of a new car is $48,000 and change.

      • Rudy says:

        Long Island, New York has a high percentage leasing rather than buying, trying to keep up with the neighbors. The payments are absurd. Seems the sedan is a forgotten mode of transport. Kids don’t walk to school anymore. The line of SUVs dropping off their precious darlings snarls traffic. Fortunately school is almost over.

        Looking forward to the day those leases come due.

    • NYguy says:

      The waterfall from all the rain was viral on social media, no surprise a ton of people in the largest state headed there to see it. Been pretty easy booking a late summer trip to Europe but airline prices are no joke

      • KGC says:

        Europe too is experiencing a large number of tourists. As Wolf noted the Chinese are not showing in the same numbers as pre-covid, but the Italians and other Mediterranean countries are being well represented. The Rhein is full of tour boats, the cities are full of buses, and I’m doing what I can to avoid the crowds.

        • old school says:

          I watched an hour interview on Australia. Banks are over exposed to residential real estate that is 13 times income on variable rate mortgages. Economy is very one dimensional and leveraged to China’s expansion. Maybe Fed policy will blow up banks in another country as western world is connected. IK is in bod shape too with residential real estate.

    • Pea Sea says:

      “This is NOT a recessionary environment.”

      It certainly isn’t. And I’m coming more and more to believe that those who claim it is–including some macro people whose analysis I had respected at some point–know perfectly well that it isn’t, but are trying to meme a Fed pivot into existence.

    • CSH says:

      Back in May, I took a trip to Minnesota’s North Shore and the Superior National Forest. This was right after the ice went out, so it was pretty quiet. But, the day I left, it was sunny & 70° outside. Driving down the shore I saw the largest crowds of tourists I had ever seen in that area. Every town and state park was packed beyond capacity. I repeat, have never seen crowds like this in the North country. And sometimes it can get pretty busy on holidays, but this was not one. I think it was post graduation mania and nice weather, but the tourist volume these days is just off the charts.

      Supposedly this is happening out west a lot as well. I would tend to agree that this is not a recessionary pattern. If that were the case, people would be canceling trips. Last summer felt much more recessionary, but I think that the lack of crowds then was because of the temporarily high gas prices.

      • vecchio gatto veloce says:

        Thanks CSH. That makes my day to read your comment.

        One of my bicycle racing friends from long ago, and his wife, own and run an “Outfitters” shop with sales and rentals in Tofte, Minnesota. Glad to hear that so many people are out and about along the North Shore. I’m sure their business is doing very well!

        • CSH says:

          I stopped for lunch in Tofte. You couldn’t get near any restaurants that day, 45 minute wait times. However, there was a food stand selling subs in Tofte. Then I also had ice cream from a stand there, and a cookie from the gas station LOL. They had said that was the first really busy day, but judging from how it went, I’d be surprised if they didn’t have a very strong season for tourism.

          The last time I visited the Lake Superior area was during covid in 2021. Duluth was looking pretty grim at that time. Many places had gone out of business. Now tourism has returned, although inflation is a major problem in that area. It was in 2021 and still is now. So we could say it improved a lot but it still has got a long way to go.

          I think there is a major tourism boom because people were locked in for 2 years, and gas prices are much better this summer. Would be interested to see if other people have stories to share from across the country.

    • TG says:


      Precisely why I went to Yosemite the week before Memorial Day, and entered by 7am each day.

      I think the NPS made a mistake in not using the reservation system this year; Frankly, I’m surprised they made that choice considering that both Yosemite staff and frequent visitors all agreed that it made things far more manageable last year.

      This year is a particularly busy year due to the snowpack and resultant waterfalls, which truly are breathtaking.

      I’ll echo your statement: elevation gets you away from most tourists. I like to hike Pohono and Panorama, which tends to weed out the weaklings and results in peace and quiet. ;-)

    • denisesail says:

      Wolf, I have never known so many people traveling abroad this spring and summer. Just got back from the EU and Americans are everywhere. We were on a tour for two weeks but the rest of our EU Vacation was all friends or points. All air, train and taxi travel for 2 where points. 10 days in hotels were points. I can not help but wonder how this is affecting the big money center banks. Our points were acquired over covid. We charge everything and pay our balances off monthly. Our right off charges were in the neighborhood of 6k. Multiply this by millions.. Banks must be draining there reserves. Any scuttlebutt on this? Thank you for your thoughts!

    • polecat says:

      Why not obtain a wilderness permit and pack in to a less, um, ‘populated’ trail destination. The Sierra is not just Yosemite.

      just sayin.

      • Wolf Richter says:

        Sheesh. Dumb comment of the year. My comment was an observation about AMERICANS BLOWING MONEY LIKE DRUNKEN SAILORS..

        This is what my comment said, verbatim:

        “I’ve heard other stories of travel “experiences” that were packed with people. This is NOT a recessionary environment. People are spending like drunken sailors on services. And we have seen this stuff pan out in the data of all kinds, including inflation.”

        • Denise says:

          Consumption is a lagging indicator. Income must decline first, and for that jobs must take a hit. Otherwise, only inflation is eating away at paychecks.

    • Paul says:

      In the beginning stages of hyperinflation everybody thinks they’re wealthy.

    • cb says:

      @ Wolf –

      People are very willing to spend their dollars because they see those dollars becoming steadily worth less. Why save?

      To spend is very rational behavior in response to a cabal that has proven no respect for sustaining the value of a dollar, past work or savings.

      To save hard in the face of a manipulative FED/GOV/Financal cabal is seen as a fool’s errand. Let some of the excess savings, that can’t buy sensibly priced assets, flow. Why deprive those around you of fun while it is to be had, when you suspect the worthless dollar of tomorrow will buy much less?

  3. Redneck_Millionaire says:

    Just FED facts Sir. Thanks Wolf. Great articles and explanations. OK, youngins, check your history, because this old fool is hearing Disco Fever louder and louder. AWFUL,,,,Double digit interest rates could come again. Will have to wait a few years to know but be ready…………

    • The Real Tony says:

      I’m expecting lower interest rates.

      • Augustus Frost says:


        Certainly not longer term.

      • Redneck_Millionaire says:

        FED could pull a Greenspan.

        • Augustus Frost says:

          Makes no difference longer term. Nothing magical about any developed country central bank. None of these institutions create any wealth.

          What you imply will work until it doesn’t, until the USD FX rate starts sinking like a stone versus currencies that actually produce most of the things people need.

      • Flea says:

        As it is spoken it will be written,uncle can’t afford interest payments. China is already in a depression.But getting out in nature is really good for physical and mental well being

        • Biker Chique 01 says:

          In ref to China economic depression … Nomura, and other similar large banks, has cut its forecast for China’s 2023 GDP growth to 5.1% from 5.5%…”
          FED is forecasting US economic GDP of 1% for next year.
          Is there a disconnect how economic depression is measured in China vs USA?
          When was the last time, other than the post COVID reopening period, that the the US economy was growing at 5% and classified it an “economic depression”?

        • Flea says:

          Biker clique do really believe anything: the Chinese say . They stold their way to prosperity with cheap ,slave labor .And hijacking American technology. Read on internet 500 companies have left ,some age groups are in 20% unemployment

        • Dolly says:

          Youth unemployment 20%, but the military is hiring. War is big business, and solves overcrowding.

  4. America Strong says:

    S&P@4800. The Bulls are off and running. The only Bears left are hungry from hibernating. Great to see Americans traveling and enjoying their money. I believe trees will still be falling in the forest, liquidating assets and closing shop. The reality setting in of higher rates and the end of QE. Get it while it is hot, price for used cars not going down for 2/3 years is a new frontier. Supply and Demand over run continues. The USA new motto is In DEBT WE TRUST. Hurricane season is here again.

    • old school says:

      Unless you can figure out when to sell, buying at 4800 is not nearly as good of a deal as buying 14 short years ago at 670. Paying 4800 probably will not beat t-bills for the next 14 years.

  5. William Leake says:

    The stock market is a lot smaller than the bond market. The stock market is for people who need to gamble. The bond market is for people who have enough money (although lately all sorts of people are piling in). Inflation affects people differently, depending how they consume. I am not a big consumer so I come out ahead with 5% rates.

    Glad to hear Wolf say “much higher, much longer”. It will obviously change eventually, but nobody knows when. I’m making hay while the sun shines. I have been harvesting since April 2022. Overall portfolio has a nice 5.24% yield which will go higher as older T-bills mature and I buy the newer ones at higher rates. I have a lot of I-bonds (bought and inherited) which skews my overall yield higher.

    I still don’t understand the Fed skip when the dot plot has shifted higher and two more rate hikes this year are the consensus. Seems contradictory. Bank runs seem under control with the Bank Term Funding Program, so it is not a worry about banks. Oh well, it is just one month.

    • Wolf Richter says:

      The Fed seems to go back to the hike-every-other-meeting, which it did in 2017/2018.

      • CCCB says:

        An earlier commenter stated that the 500 basis point increase is tame relative to the Volker era increase to 19%… WRONG!!!

        On a percentage basis, our increase from 0% or .25% or .50% (take your pick) to 5.0% is actually much higher than the 1975-1980ish increase from 5.0% to 19.0%

        Do the first grade math.

        And Depth charge may get their apocolyptic wish, but I guarantee you he/she wont be happy about it when it happens.

        • andy says:

          Good point. I’m triyng to calculate percentage from zero rate, but calculator keeps crashing. Also, in Europe they started from negative rate. So they left Volcker in the dust as soon as they started.

    • Frostbitefalls says:

      Though true many people who need to gamble use the Market, but many people forced to be in it when most places of employment rid themselves of pension responsibility and said “here is a 401K or equivalent . You are on your own.” The Wealth Effect Theory is real. The Powers that Be certainly want to keep certain plates a spinning. You watch how things will change when all those paper profits go poof!

      • 91B20 1stCav (AUS) says:

        Frosty – excellent observation on the evaporation of corporate/business pension plans (despite the myth of their broad existence seeming to remain firmly lodged in the zeitgeist – any wonder that some/many would find government employment attractive?) since the 1980’s…

        may we all find a better day.

  6. Redneck_Millionaire says:

    Glad to hear Wolf say “much higher, much longer”.

  7. One and a Penalty says:

    Speaking of drunken sailors (no offense to all the sailors out there), there are plenty in our area. I have two friends that separately received large inheritances from relatives that passed during covid. They are buying expensive cars, boats and even indoor golf simulators. More power to them if they have the $. Wealth transferred from the older generation that saved every penny till the end, to the young that spend like crazy as soon as it hits the bank account. I guess that’s been happening since the beginning of time though….

    • Bobber says:

      That could explain a lot. People getting inheritances and spending like fools, with no consideration of the hard work necessary to earn and save that money.

      If monetary velocity goes up, and M2 is near all time highs, 5% inflation is just the launching platform.

      But what about those hard working folks who don’t get inheritances and have to earn their money?

      • spencer says:

        Powell was wrong about the money supply. But he was right about M2. M2 contains a lot of “gated” deposits. It is not “means-of-payment money. Money has no significant impact on prices unless it is being exchanged.

        But velocity is a problem. The ratio of our transaction deposits to total deposits is rising. I.e., the “demand for money” is falling (velocity rising). People are spending their savings (dis-saving).

    • bulfinch says:

      Yep — would be interesting to see a chart on inheritance windfalls YoY.

      Golf simulator…that’s damn’d unfortunate, and maybe the most compelling argument for pissing it all away before you die. I’d have to come back from the dead and slowly thwack junior’s melon down to a nubbin with his favorite 9 iron.

      I’ve never known anyone who inherited well who did anything noteworthy with the spoils — including in my own family.

  8. patrick says:

    support for “sticky” services inflation- had dinner with our neighbor – she just got back from 4 months in Paris france ( all wfh!) no vacation time taken – she is vp of admn for a large regional accounting firm (400 or so partners) she said their starting compensation packages are up 38% NOT counting sign on bonuses and retention bonuses which are up 47 % – no push back from customers they tend to be slightly less expensive then the large national/international firms – that’s STICKY !

  9. ru82 says:

    Just reminiscing with a neighbor. We were recalling how we used to think 6.5% and7% mortgages were cheap. We were laughing because some some of our current coworkers think those rates are really high.

    Also, i still remember when sales tax was 3.5%. It is 9.5% now and going up.

    Anyway, i think current rates or higher are in our future but then i read China is seeing deflation and just cut rates. Also Europe is heading into a recession from what I hear so ihave no idea where we go from here.

    • Augustus Frost says:

      The majority of Americans are destined to become poorer or a lot poorer, regardless of specifics.

      The current situation isn’t remotely due to organic economic demand. The economy was also mostly fake prior to the pandemic. No economy mostly shuts down (in 2020) and then magically comes out better off on the other side. That’s what someone has to believe that this is “normal”.

  10. Gary Fredrickson says:

    What happened to all the different Visa programs that brought in the World’s best workers to help with our shortages. There is no reason to hear this sticky job inflation.
    The second part of this job problem are the companies themselves. Perhaps there is some non goods and services economic factor driving this employment; e.g., grow the companies in public relations reports with people and offices getting bigger all over, but really doing nothing but a false future appearance to boost stock prices and sell out.
    Until we solve this catastrophic problem of excessive jobs we are never getting rid of inflation. Meanwhile we are apparently going to have to suffer in a cold swear every increasing number of the accursed jobs.

    • Arnold says:

      Those visa programs brought in cheaper workers to lower wages.

      The programs are still around.

    • Augustus Frost says:

      The US doesn’t need more people. That’s nuts.

      There is a worker “shortage” due to unprecedented government created distortions through monetary and fiscal policy,

      • ru82 says:

        Your really correct on that point regarding people. But ….all cities and states want to grow though. But they only want the growth of high paying jobs.

        Low paying jobs usually need to be subsidized with entitlements like food stamps….etc.

        • 91B20 1stCav (AUS) says:

          ru – and blithely and disingenuously hiring illegal immigrant labor (not blaming those immigrants, here, as most seem to find work…).

          may we all find a better day.

  11. Volvo P-1800 says:

    Visited the Koster islands on the west coast of Sweden recently (a maritime national park, Google it!). Hiked for a couple of hours and met all of two (2) people!

  12. Micheal Engel says:

    Commercial RE : offices, industrial, medical offices, multi families rental…
    Housing start : 1.63M est 1.4M.

  13. Micheal Engel says:

    The rental mania might deflate rent and the CPI.

  14. butters says:

    Breaking news.

    Fed to start cutting rates and another round of QE in the hopes of reducing inflation as rate hikes and QT are not reducing liquidity as expected.

  15. Sean says:

    Wolf quote :”But yes, the trillions of dollars that the Fed printed are circulating and will continue to fuel inflation, as will the huge government deficits. The Fed should definitely speed up QT, and the government needs to reduce the deficits. Both of those would help a lot in getting inflation down.”

    Wolf, I have been stating on this site for many Months, while you have been busy praising Fed for making tiny $90 B reduction per month, or effectively maybe $60B after discounting the banks rescue.

    Fed has been purposely late and dragging their foot in fighting inflation, even today we still have Negative Real Interest Rate, but here you are, just praising Fed.

    Sometimes I wonder why were you becoming BLIND for the last 6+ months? Did Powell printed $USD and buy 100K Mugs from you?

    • Wolf Richter says:

      Why the heck do you want to cause a collapse of the financial system? Just to trigger more QE and get NIRP? Is that it?

      I’m getting really tired of these let’s-blow-up-everything-so-that-we-can-get-QE-and-NIRP-again comments… that’s what you’re advocating.

      Removing liquidity out of the overleveraged financial system is already blowing up all kinds of stuff. This MUST BE a reasonably slow process if you don’t want the financial system to collapse. Everyone knows that.

      I don’t understand your attitude. What’s wrong with having many years of slow methodical liquidity withdrawal and higher interest rates and no financial-system collapse?

      • Tamara says:

        I would be really happy to lose everything and live under a bridge if I take all the billionaires down with me. Justice has long been forgotten in this country but in the end will prevail.

      • Swamp Creature says:


        I think what he, Sean, was saying was that the unwinding process is so slow that at the current rate it’s going to take many years to unwind the balance sheet. Before that happens we are going to be in another recession anyway and then the Fed will be pressured to start QE all over again. It’s always easier to get into debt than to get out of it.

        Some things are going to blow up if we want to solve the overall inflation problem. There’s no way around it at this point.

  16. spencer says:

    Greenspan got rid of the transaction’s concept of money velocity in September 1996 (the G.6 Debit and Deposit Turnover release). Then, the FED’s longest running time series.

    Powell destroyed deposit classifications when he eliminated the 6 withdrawal restrictions on savings accounts in April 2020. This didn’t have the same impact as the “time bomb” in 1981 (the widespread introduction of NOW accounts), which propelled N-gDp to 19.9% in the 1st qtr.

    But this now allows the smallest savers to hold any temporary surplus cash in an interest-bearing account which can be shifted at little or no cost, and no loss of accumulated income into demand deposits or currency.

    Next month, we’ll have FedNow; payment and settlement outside business hours and on holidays, at all participating institutions, speeding up cash flows, and at lower transaction’s costs.

  17. Redneck_Millionaire says:

    Housing starts explode higher? Saw this elsewhere, and if true, more proof that higher for longer is a new reality for folks. Saving some of your money is always a good idea. You should have always been able to earn some interest on your savings. BIG mistake for Government and FED to allow ZIRP……

    • William Leake says:

      Redneck, housing starts skyrocketed. A lot of single family units under construction are probably the build to rent that Wolf talks about. As I have said too many times, 7.76% is the average rate on a 30 year fixed rate mortgage 1971-2022, which is higher than today’s 7% rate. Powell has much work to do to get to his 2% target. I figure he is hoping his lags (of unknown length and strength) kick in.

      My personal experience is that, yeah, I could buy a house for $500,000 cash, but I would lose $25,000 annual interest. If I didn’t buy I would have the $25,000 annual interest (which covers my rent) plus the $500,000. Last year the interest loss when buying a house was not part of the equation. Add in all the other crap when buying a house (closing costs, property taxes, HOA fees, insurance, lawn upkeep, sewage, water, maintenance, potential decrease in home value in an era of rising rates, neighbor moves in with barking dogs, a nearby house becomes a meth lab, neighborhood declines), I’d rather rent. I can be out of here in 30 days. If mortgage rates get to 9% or so, we may then see a significant reduction in prices.

      • ru82 says:

        Good points. It is always good to weight the pros and cons of owning versus renting.

        I read a big 400 to 500 SFH built to rent was just approved to be built in my city.

        • Morbaine says:

          John Burns website just updated their rent vs own analysis which I found interesting.

          I believe he’s guest written here in the past, might be worth having him do a guest post about that analysis.

      • bulfinch says:

        All those costs of ownership you outlined are baked into your rent as well.

        Still — unless you’re just dying to blow your wad, I wouldn’t buy a SFH in most any city for at least 2-3 years.

        • William Leake says:

          Many of them are baked in. But a really big advantage for renting, which is rarely mentioned, is the ease of moving out in 30 days. Houses are not exactly liquid, in fact, they are pretty much the definition of an illiquid asset.

  18. Mike R. says:

    I think we’re underestimating the impact delayed student loan payments have had on people’s “discretionary” income.

  19. Not Wolf says:

    When J Pow retires I hope he gets a job as a spokesperson for Viagra. “It’s going to be harder for longer”

    • Redneck_Millionaire says:

      I am pretty sure Greenspan, once leaving the FED, received a board position with a company which made Billions shorting RE products.
      Should have given Greenspan the Nobel for that one……

    • butters says:

      When J Pow retires, he will get a PE wing on hist left and Nobel wing on his right.

  20. Micheal Engel says:

    LBJ & Nixon multi rental trail deflated for decades. The Bronx was bombed out. The downhill is a bitch. The 2020/2023 Single and multi housing units ULTRA marathon breached the 1973 peak. Owner rent might deflate in nominal & real terms. The bitch will smack the banks hard : multi rentals, industrial, medical, empty offices…including the primary banks.

    • William Leake says:

      I remember driving on a freeway through the South Bronx in the mid-1970s while touring the East Coast. It looked like Hamburg in 1943 after the firestorm. It was unbelievable. I was glad I was on a freeway going away from it. But apparently it has recovered somewhat and money has been made from its “restoration”. Maybe it was a “buy low” opportunity, but I didn’t have any investment money back then.

  21. Swamp Creature says:

    We’re back to pre-pandemic activity in the home purchase market around here. People have gotten used to the new reality in the mortgage rates and are out there putting RE contracts on every piece of crap that goes on the market. Gone are the quality new builder renovated properties. They’ve been snapped up. Inflation in housing is back and this will show up in the data in the very near future. J Powell’s plan to slow down inflation by raising rates in a lethargic matter has been and will continue to be a total failure. He needs to go back to the drawing board.

    • bulfinch says:

      It’s a suckers rally. A zag and then a zig all the way to hell & back. Happens all the time, dude.

  22. Morbaine says:

    Didn’t mean to double post that, not trying to come across as spamming/thread jacking.

  23. dang says:

    It was a good presentation of the facts and a great presentation of the most important component, humanity.

    A crash is not in the best interest of anyone. The transition from 15 years of QE is akin to the awakening in the morning with no idea where you are and how you got there.

    • d says:

      I see it a bit differently. I think the Fed just made the same mistake that Volker made which was to pause in the face of raging inflation which the so called markets interpreted as monetary laxness and they kicked his ass by raising prices to an unprecedented extent.

      The FOMC finally realized that they were the patsy, like now. And they imposed a Taylor like protocol that increasing prices will be met with an increase in interest rate. Which exceeded 20 pct before it was all over.

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