Our drunken sailors “hate inflation, hate it,” and are in a foul mood, but are in good shape and keep spending.
By Wolf Richter for WOLF STREET.
I still have no idea why the Fed has not yet implemented my suggestion – made publicly multiple times in 2023, including here, here, here, here, here, and here – to equip Powell with a Taser that he keeps under the lectern during the post-meeting press conference, and when a reporter asks a stupid, repetitive, or hypothetical question, he pulls it out, aims, ZZZZZAPPP, and “Next question.” That would be immensely helpful and would cut the press conference from the current hour or so, down to 15 minutes.
The Fed today held the top of its policy rates at 5.50%, and the dot plot indicated that there will be one more hike in 2023, to 5.75% at the top, and in a shocker, it indicated that at the end of 2024, the rate would still be 5.25%, only two rate cuts in 2024, instead of four as projected in June. So that caused a slew of Taser-questions.
“Carefully,” dude.
The key word at the FOMC post-meeting press conference was “carefully.” Powell said it 12 times, and even said, “…proceed carefully, as I keep saying.” That was Powell’s theme today. The reporters had other ideas.
“We’re in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate,” he said in the prepared remarks to set the tone. And, “Given how far we have come, we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks.”
Rates have gone up a lot, and they’ll go up a little more, and once they stop going up, we’re not going to cut them for a while, inflation has come down a bunch from the peak last year but is still way too high, stuff is unpredictable, monthly data bounces up and down, and we’ll just have to wait, but we believe we’re on the right track, and we take our time with the rate hikes and “proceed carefully.”
For markets, the Fed isn’t proceeding carefully enough, though: Late afternoon, the 10-year Treasury yield spiked to 4.41%, in sort of a delayed reaction, and stocks fell broadly after the press conference, with the S&P 500 index down 0.9% and the Nasdaq Composite down 1.5%.
Upward drift of the dots continues.
Today’s dot plot which was part of the Fed’s “Summary of Economic Projections” (SEP), continued the trend that was started in the fall of 2021 that each dot plot is more hawkish than the prior ones, each one projecting higher rates for even longer, and this upward drift of the dots has not been broken yet.
So in the press conference, one reporter after another, from this angle and from that angle, tried to push Powell into saying something dovish about the missing rate cuts, but to no avail. A Taser would have performed miracles. ZZZZZAPPP. “Next question.”
When are rates restrictive enough? “You know ‘sufficiently restrictive’ only when you see it.”
“Real interest rates now are well above mainstream estimates of the neutral policy rate, but we are mindful of the inherent uncertainties in precisely gaging the stance of policy.”
“We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective.”
“What we decided to do was maintain a policy rate and await further data. We want to see convincing evidence that we have reached the appropriate level, and we have seen progress, and we welcome that, but we need to see more progress before we will be willing to reach that conclusion.”
“Real interest rates are meaningfully positive, and that’s a good thing. We need policy to be restrictive so that we can get inflation down to target, and we are going to need that to be the case for some time.”
“That’s what we need to get to. And we have been moving toward it, and as we have gotten closer to it, we slowed the pace at which we’ve moved. I think that was appropriate. And now that we are getting closer, again, we have the ability to proceed carefully.”
“We understand that it’s a real rate (adjusted for inflation) that will matter, and that needs to be sufficiently restrictive. And, again, you know ‘sufficiently restrictive’ only when you see it. It’s not something you can arrive at with confidence in a model or in various estimates.”
“But let’s say if we get to that level, then the question is how long do you stay at that level, and that’s another set of questions.”
“For now the question is trying to find that level where we think, we can stay there. And we haven’t gotten to a point of confidence about that yet.”
The economy is surprisingly strong: so higher for longer.
“Economic activities have been stronger than we expected, stronger than I think everyone expected, so what you’re seeing is this [policy] is what people believe as of now will be appropriate in order to achieve what we are looking to achieve, which is progress toward our inflation goal as you see in the SEP.
“We have learned all through the course of the last year that actually we needed to go further than we had thought. You go back a year, and what we wrote down, it’s actually gotten higher and higher.” The upward drift of the dots.
“It’s a good thing that the economy is strong. It’s a good thing that the economy has been able to hold up under the tightening that we’ve done. It’s a good thing that the labor market is strong. The only concern, and it just means this, if the economy comes in stronger than expected, that just means we will have to do more in terms of monetary policy to get back to 2%, because we will get back to 2%.”
Why is the economy so strong, despite higher rates? We’re guessing.
“I guess it’s fair to say that the economy has been stronger than many expected given what’s been happening with interest rates. Why is that?”
“One explanation is that household balance sheets and business balance sheets have been stronger than we had understood, and so that spending has held up in that kind of thing. We are not sure about that. The savings rate for consumers has come down a lot. Questions whether that is sustainable. It could just mean that the data effect is later.”
“It could also be that the neutral rate of interest is higher for various reasons. We don’t know that. It can also be that policy hasn’t been restrictive enough for long enough.”
“There are many candidate explanations. We have to, in all of this uncertainty, make policy, and I feel like what we have right now is what’s still a very strong labor market, and there are many candidate explanations. We have to, in all of this uncertainty, make policy.
Where the heck is the neutral rate?
“Stronger economic activity means rates; we have to do more with rates, and that’s what the meeting is telling you. In terms of what the neutral rate can be, we know it by its works.
“It may, of course, be that the neutral rate has risen. You do see [participants] raising their estimates of the neutral rate. And it’s certainly plausible that the neutral rate is higher than the longer-run rate. Remember, what we write down in the SEP is the longer-run rate. It is certainly possible that the neutral rate at this moment is higher than that.”
“And [the possibility that the neutral rate moved higher] is part of the explanation for why the economy has been more resilient than expected.”
Soft landing, ZZZZZAPPP.
When asked if he would call “the soft landing now a baseline, an expectation,” Powell said, “No, I would not do that. I’ve always thought that the soft landing was a plausible outcome, that there was a path to a soft landing. I have thought that, and I’ve said that since we lifted off.”
“It’s also possible that if the path is narrowed, and it has widened apparently, ultimately this may be decided by factors that are outside of our control at the end of the day, but I do think it’s possible, and I also think this is why we are in a position to move carefully, again, that we will restore price stability.”
Then later, Bloomberg News asked, “I was surprised to hear you say that a soft landing is not a primary objective.”
Instead of pulling out his Taser for the nth time today, and ZZZZZAPPP, Powell replied, “To begin, a soft landing is a primary objective, and I did not say otherwise. I mean, that’s what we have been trying to achieve for all of this time.”
External factors: energy prices, strikes, student loan payments, you name it, we got it.
He was asked how list of external factors would impact the Fed and the economy.
“There is a long list, and you hit some of them. It’s the strike, it’s the government shutdown, resumption of student loan payments, higher long-term rates, oil price shock. There are a lot of things that you can look at, and so what we try to do is assess all of them and handicap all of them. Ultimately though, there is so much uncertainty around these things.”
“The strike, the thing about it is it’s so uncertain. We have looked back at history. It could affect economic output, hiring and inflation, but that’s going to depend on how broad it is, and how long it’s sustained for. And it also depends how quickly production can make up for lost production. None of those things are known now. It’s very, very hard to know. So you just have to leave that uncertain.”
If we don’t get inflation under control now…
“The worst thing we can do is to fail to restore price stability because the record is clear on that. If you don’t restore price stability, inflation comes back, and you can have a long period where the economy is just very uncertain, and it will affect growth, it will affect all kinds of things. It can be a miserable period to have inflation constantly coming back, and the Fed coming in and having to tighten again and again.”
“So the best thing we can do for everyone, we believe, is to restore price stability. I think today we have the ability to be careful at this point and move carefully. That’s what we are planning to do.”
The people who are “most hurt by inflation.”
“The people who are most hurt by inflation are the people who are on a fixed income. If you are a person who spends all of your income, you don’t really have any meaningful savings, you spend all of your income on the basics of life, clothing, food, transportation, heating, the basics, and prices go up by 5, 6, 7%, you are in trouble right away; whereas even middle-class people have some savings and some ability to absorb that.”
“It is for those people as much as anybody that we need to restore price stability. We want to do it as quickly as possible. Obviously, we would like the current trend to continue, which is that we are making progress without seeing the kind of increase in unemployment that we have seen in the past.”
The drunken sailors “hate inflation, hate it,” and are in a foul mood, but are in good shape and keep spending.
“It’s a very hot labor market, and you are seeing high nominal wages, and you are starting to see real wage growth [adjusted for inflation] is positive by most measures. So I think overall households are in good shape.”
“Surveys are a different thing. Surveys are showing dissatisfaction, and I think a lot of it is just people hate inflation, hate it. And that causes people to say the economy is terrible.”
“But at the same time they are spending money, and their behavior is not what you would expect from the surveys. That’s kind of a guess at what the answer would be, but I think there is a lot of good things happening on household balance sheets and certainly in the labor market and with wages. The biggest wage increases have gone to relatively low-wage jobs, and now with inflation coming down, you see real wage growth.”
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Why are you leaving out budget deficit as inflation driver?
The Fed is not allowed to discuss fiscal matters. That is Congress’s job, and the Fed religiously defers to Congress on fiscal matters. Powell is very clear about that every time, because every time he gets asked about it.
You should know that by now if you’ve ever listened to any Fed chairs getting asked that question.
What, no taser?
Lol!!!
The Federal Reserve has WARNED CONGRESS many times very explicitly about excess federal spending and deficits.
“Fed religiously defers to Congress on fiscal matters”
Render unto Baal.
Yes, however Volker did discuss fiscal matters. I am not sure Wolf is correct when he says “not allowed to discuss.” Also Bernacke also did discuss about the importance of fiscal spending to get on a sustainable path many times.
I have heard Jay Powell many times saying he will not go into fiscal matters, though it is the fed that is supposed to be independent, not the congress.
Bingo. The FED the past year has been trying to lower inflation and are trying to counteract the Fiscal Spending. The Fed stopped the monetary spending a few years ago and have been tightening the money supply.
Yeah
and the obvious creator of general inflation, asset inflation in stocks, bonds, housing, etc caused by the Fed QE Policy for bailing out the criminal banks.
As good as the drama of the FOMC deliberating, crafted by a news hungry press, may seem, they avoid speaking of a central issue: the cause of inflation. They will never admit that they’re policies created this monster yet, seek to reassure us pawns that they know how to slay said beast.
With drawl from an addictive stimulant is always uncertain. Rather than a tazer, Powell may say something like ” we have to move slowly so that the patient doesn’t convulse during the monetary stimulus with drawl period, which may take ten years.”
In other words, the average guy needs to work harder for longer. That’s what I think he is saying…
This year, the average guy is doing fine b/c of wage growth. Next year, things can change quite fast and lots of folks will be swimming in debt. Saving rate is already starting to come down. We will see. This higher for longer will also hit the US gov hard since the low yield bond will be roll over with higher rate.
Savings rate is coming down, but they’re still saving — meaning making more than they’re spending. So at this rate, they can keep doing it forever.
I guess saving rate is +ve in aggregate but a lot of people could still be drawing down into savings or going into debt.
It is always hard to know all these details. But if I remember correctly (and I think you also mentioned in one of your articles) that the annualized saving is some 800B. That is not a whole lot given income.
So I would suspect that while in aggregate saving is positive, the cumulative inflation is hurting a lot of people and likely going to result in slowing of spending.
I guess all this is too hard to predict.
How are the Drunken Sailors going to save their two million dollars for retirement if they keep spending like this? I’d like to know so I could do it. My solution to inflation has been to quit spending and buy only what I absolulely need to survive, like food. I have no debt, no longer can drive so I’ve jettisoned my car and all the expense that goes with it. My life went on HOLD when the FED discontinued interest payments on savings and I stopped spending there too, except for stocks. Most people couldn’t live like this, for me, being in control of my finances is everything.
” So at this rate , they can keep doing it forever ” Got goose bumps, this is me most of my life. Nearing the end now and will not save more, and spend everything extra coming in. Can t take it with you. Fun times for some of us squirrels.
Sober Sailor and loving it
I will point out that the “median guy” is much poorer (50pct?) than the “average guy” in this world of concentrated wealth.
The increase in the general wage level is great. However, when viewed through the lens of minimal gains in the real wage since the late 70’s, there is a lot of catching up to be caught before I can proclaim that they are doing fine. I suspect they are struggling.
Spending money they don’t have, like drunken sailors. Throwing caution too the wind, and betting that tomorrow will be better. Just like they did in the early 2000 to 2008 period.
And that’s one of the endearing features of Americans.
The average guy/gal won’t see any wage growth unless they change jobs. And don’t say “then they should change jobs!” Because it’s not that easy for many people. The immigrants I worked with in manufacturing, for instance. Dear old (major pharmco starts with an A) was keen to brag about profits during the Crovid orgy, but do you think the years raises even matched the sanitized inflation numbers? Even when new joes were getting paid more than the “veterans”? No. Wage slaves are captive workers, even (especially?) after 15 years of service.
Here I am making a comment on the previous article and I almost think you wrote this one for me. haha :) I made a comment some weeks ago about inflation and fixed income vs non-fixed income. That was one stalemate I was trying to figure out. Inflation can be absorbed by workers to an extent, who job-hop for higher wages (reinforcing inflation) if necessary but what about the rest of folks who can’t? No one likes to think Granny has no other option other than to trust Tom Selleck and get a reverse mortgage. Then they wonder why they have no inheritance. There were a couple more things here, but it’s late and I’m east coast and gotta work tomorrow. Cheers. And thanks wolf for another great article.
Amen. Some Americans can afford the inflation and we are buying now, because we expect higher prices. Most are getting squeezed. It is a matter of time when they wilk reach a financial breaking point if they have not already while bankers and wealthy company owners profit from the reductions of their liabilities, while they pass increased costs down to the consumers via higher prices.
Also, as to the reverse mortgage scammers, it is hilarious that many will soon regret having scammed grand parents out of their houses, when real estate prices correct. Americans’ decreasing, disposable income cannot pay both increased living expense prices and increased housing prices: something will eventually give, like an imploding submarine after it plunges too deep. Math is merciless. (I suspect it is foreigners buying US real estate, as they did in Australia and Canada, that have kept real estate prices so high so far.)
That was funnier than an Onion or Babylon Bee article, but with real quotes. I couldn’t stop laughing.
PS My favorite non-funny quote from Powell:
“Rates have gone up a lot, and they’ll go up a little more, and once they stop going up, we’re not going to cut them for a while”
Well it is journalists that he is talking to. He does have to be somewhat explicit for them to get it into their heads.
“Now, children, listen carefully. The first little piggy, Burns, built his house out of low interest rate straw, and the big bad wolf of inflation blew it all down. But the second little piggy, Volcker, built his house out of high interest rate bricks, and the big bad wolf huffed and he puffed, but he couldn’t blow it down. And now this little piggy is building his house higher for longer, and if you don’t get the message, the big bad Wolf Richter will taze you.”
Question for this forum: if I assume that the inflation and interest rates are going to stay high for a few years from now, where would you allocate let’s say $100k today? Stocks, short term treasuries/CDs, real estate, gold? Thank you.
Private art/design auctions…rarities & collectibles… vintage industrial goods/equipment…vintage motor vehicles… NOS parts & supporting components for vintage equipment, motor vehicles…
Action figures.
I shall cautiously assume some kind of a play is in motion here?
There are no good investments. There are only good horse trades. And that horse you hold better have some really good teeth because there’s an ever increasing group of people who seek to diminish the biting capacity from anything in the corral. The auctioneer ain’t really your best friend either. And the taxman will be working ever harder to hide under those seats shining a light up everyone’s butthole to see how many peanuts are available. Then, when all is said and done, you’ll discover the f**ckers are trying to settle with you in a pile of Confederate dollars that won’t be worth more than cheap wallpaper or pulpwood logs. You’d be safer holding old unopened cans of new white tennis balls with printed autographs of famous dead players! Of course, the Chinese are working out how to knock those off too.
Productive capacity, in all forms.
No one is able to answer that question without any financial background. Liquidity looks real important now. Diversification is always important. Make sure you are protecting your health. Material things are an anchor that weigh you down. I have been adding T bills because they were nonexistent in my mix as they paid nothing. Now they pay over 5 %. Physical Gold has gained value at a 7.5 % compounded rate for the past 25 years. It needs to be purchased regularly over a lifetime. 5-10 percent allocation is fine. It is way under represented in American investor’s portfolios. No day trading stocks. No one knows the future.
Buy a Bob Ross painting.
Short term treasuries.
Treasury Bills.
I am personally assuming inflation rates & inflation will stay high. My strategy is to ladder T-bills with durations between 3 & 6 months, and to reinvest each bill into something new as soon as it matures.
With this strategy, I’m chasing rates higher. My average yield to maturity is 5.36% right now.
NB: not financial advice.
Oops, that should have been “inflation & rates”
Ditto for a large part of my portfolio as well.
Buys time while other investment opportunities materialize. Sure AF don’t want cash in the bank. Increasing supply of debt is guaranteed, buyers of that debt, not so much…
Wait, are we the suckers? Insert that old poker adage here.
Well, I think bitcoin is the prince of potential QE era losses.
Remember, if you own it, it can only go to zero. If you naked short it, it can go to infinity.
With inflation, making money in the financial markets is very difficult, especially after taxes and inflation. While there are no good answers, some combination and rebalancing of various asset classes to include precious metals, and commodities, along with more conventional asset classes which might allow you not to make money after inflation and taxes, but to minimize your losses.
‘Thank you for your question. Fifty beeps. press conference over.’
Along with savings the average person also has to pay off any debt, and that’s going to get harder when inflation bites into the budget. Especially for anyone who’s not seeing an increase in wages or investment growth.
Except debts become cheaper under inflation. High inflation is the best thing that can happen to a debtor. Pay yesterday’s de to with tomorrow’s dollars. Hreat.
Housing costs are now proving to be the stickiest part of inflation and higher interest rates are not going to make that go away.
If it costs more to build more, because folks have to pay the fickle fiscal piper, these interest rates are going to be baked in for a long time, until someone doesn’t mind eating into their margins.
I can imagine this will even effect the other up-front investment intensive industries going through some changes now, like automotive.
Inflation might be slowing down, but now it’s being locked in for “the right kind of people.”
“Housing costs are now proving to be the stickiest part of inflation and higher interest rates are not going to make that go away.”
I agree. I wonder if it would helped to let all the holders of MBS actually take the loss…
Maybe Wolf knows. Mark all the MBS to zero, would that help?
Anyone remember Bernanke telling congress that he “would never monetize the debt”? What’s the punishment for lying to congress again?
I don’t think that the astronomical increase in rents has been caused by the recent increases in building costs. The increase in rents are much more correlated with the increase in home asset values, instigated and financed by the now humble Fed.
Invested money, especially when it is both cheap and abundant, creates the concentration of ownership that allows the imposition of higher prices for a scarce commodity like housing. The Fed funded this mess like they did the offshoring of American jobs. The Fed is not a helpless, benign branch of one’s local bank.
It is a powerful institution with the capacity to manipulate the distribution of societal wealth. The concentration of wealth is not an accident. It is the desired outcome.
I think wages are the stickiest part of inflation…
Hey, I think I get it.
When inflation starts making things too expensive, the solution is to make things even more expensive by having banks charge higher interest rates. This way they can make more money so they can keep up with higher prices, even though nobody else does.
It all works out.
Choice of postscripts:
“Increase the voltage. That should shut him up.”
“Taser away. I’m a begonia. Tasers have no effect on me.”
“Are people who say stupid things taserbait?”
“Do androids dream of electric sheep?”
Nope. You don’t have it.
Try again.
Wolf…question…
With the avalanche of new treasury debt coming, if this new supply starts to shake the market, would the Fed allow rates to rise higher than their Fed Funds range?
LOL! Allow? You are correct, an avalanche of new debt must be issued, at the same time the number of buyers is decreasing! What do you think HAS to happen to rates in order to attract more buyers?
Unless the Fed buys all that new debt, rates are definitely going up.
If some auctions go insanely bad, I think it might catch the Feds attention.
Guaranteed Those FOMC members who are against rate hikes going forward would suggest some action to tamp down rates
There is nothing the Federal Reserve can do about that.
Doubtful debt issuance affects the overnight fed funds rate much. I don’t think we need to worry about that pushing the Fed around.
Given the obesity of the Fed’s balance sheet, the Treasury issuance is oversubscribed by 4X. Especially when the Fed gets too bill the joe lunch buckets to subsidize paying the criminal banks to hold the excess. The Fed allowing the longer term interest rates to rise toward the expected, long term rate of inflation is part of the plan.
There is nothing less like a free market than the interest rate structure. That’s the function of the bloated balance sheet.
So basically he’s protecting granny with a fixed income. We don’t want her to pay an extra few percent in inflation. But anybody in the middle class and low classes, screw you, cuz we’re going to make you borrow money at a rate you can’t afford to pay it back
Most grannys ARE in the middle and lower classes, I think. Mine was, anyway.
You still believe the propaganda that low interest rates are good for the plebs. Might want to research a little more.
Yes, the people Earl is concerned about should be saving their money and earning 5-6%, not wasting money like drunken sailors. The practice of incurring debt to buy overpriced items will put people in an unstable financial position, potentially for life.
Incurring debt to purchase unnecessary items is particularly unwise.
You must be imagining Granny as a wealthy asset owner but most won’t be, they’ll have just enough to get by in their retirement years, inflation in long term will crush people like that. On the other hand, “middle class” workers are able to get bumps in wages and based on labor statistics are getting them, their borrowing costs are higher but if they know how to budget they are actually able to do something about the situation, fixed income people are generally F’d unless they’re already wealthy.
Seba, I didn’t say earn 5-6% entirely on fixed income. I’ve always recommended 20-30% stocks in a portfolio as a hedge against inflation. I wouldn’t go higher than 30% during these times of inflated stock valuations. In times of low stock valuations, I’d bump it up to 70%.
Inflation does not benefit the middle class.
Depends. When most inflation cones on the form of wages, then the middle class benefits greatly.
“we’re going to make you borrow money at a rate you can’t afford”
No one is forcing you to borrow money. Pay cash and live within your means.
Actually, the Fed hasn’t given a fig about granny for the past 15 years. The last consideration for what they are currently doing is granny’s welfare.
They are much more concerned with the welfare of the granny molesters.
The Fed has been crushing Granny since 2008.
Blah, Blah, Blah…
Trade deficits and DEBT matter eventually, and that time is quickly approaching.
Hedge accordingly.
Forward guidance is meaningless. Bailey of the BoE has also come out with the “high for longer” line, this is all to manage expectations. I mean what Powell is saying well actually I’m not raising rates, but! in the -future- I will be doing something that has the same effect.
Hopefully he is just pausing to get a more accurate dataset of the economy. 10 year treasury yields are trending up still, or put it another way at a yield of 4.4% enough people wanted to offload them because they aren’t enough compensation for inflation expectations, the price went down.
I don’t know so well the stress tests for the US but for the UK we are getting uncomfortably close to the level that the banks were stress tested to for their mortgage and commercial loans i.e there is a point at which the banking system breaks and we are getting closer to that point, not further away. The reality is that he is risking an absolute disaster if inflation accelerates away but is not raising. I think this is because they don’t think they can raise rates without stuff breaking.
Anyway the announcement seems to have been a calming success but I bet behind the scenes they must be praying for good data.
The UK and the USA are not comparable. The UK is like a bed time story while the USA is more like the winner of an Olympic gold medal.
The UK is a small country, with a whole lotta expectations that they are special. While they are special, that only gets one so far.
I am surprised to hear that Powell is surprised about why the economy is running hot. I have the answer for it already. They printed exorbitant amount of money. This ginormous amount of money is circulating around and driving economic activity. As a result of this ridiculous money printing, asset prices almost doubled in last 5 years. Now, the middle-class feels richer than ever thanks to their housing equity and spending like drunken sailors. So the inflation stays up.
I love that Powell can’t say the obvious.
“The people who are most hurt by inflation are the people who are on a fixed income. ”
Where was he when interest rates were pegged at near zero to March 22 to help rich asset holders and speculators while people on fixed income could not get a dime on their savings which they packed away over the years for their retirement. He was the one that did that.
Having Powel manage the Fed and the nations monetary policy is like putting Count Dracula in charge of your blood bank”
He was in a room asking how they can buy MBS even thought they have no remit, because his top priority is to raise asset prices above wages to force people to work longer for the same thing. He then asked if there’s any way he can raise asset prices and suppress wages to the other government officials present and they said they have several ideas around that, including education propaganda, endless immigration, slowing building permits and filling the press with stories about property ‘moguls’.
After that he went to spend some quality time with his kids, then read a bit of a novel.
All this endless fed speak is boring, meaningless and has zero relevance to the average person. Phd’s spend more than a decade in college and don’t have a f**king clue how the world works. Their models and data are pure crap, made up crap at that. Powell and his Phd’s just threw another bone to the grifters they work for.
Here is my boots on the ground observation on why people are spending and where the money is coming from: I took SS early because I had to to survive. I am spending it to fill in the gaps wages haven’t kept up with. Some is going to savings but most goes on bills and f**k it spending. I did this because I had observed others I know do the same, retired and working. Some took pensions, others withdrawals from retirement accounts. Almost nobody is getting significant raises.
Unemployment is bad, wages in tech are dropping, and jobs are scarce. You should come with me on my morning walks in the park, to see all the guys pushing baby carriages and playing tennis and disc golf, they don’t look happy. Right now these young people outnumber the usual old retired regulars. I know some have already used up their 6 months of unemployment insurance.
We are in a grifter economy, the money class is asset stripping with a vengeance and nobody in charge is stopping them. The poor are desperate and disconnected, the middle class are just hoping they can outlast this madness.
Condolences.
Yes, the laws of men are meaningless and the laws of physics and nature ultimately rule the day. The earth’s population just past 8 billion. Take a second to think about how much energy and resources go into providing a person with a decent standard of living.
The fact of the matter is, innovation and a decent standard of living require real resources and consumable calories (calories that a locked away are useless), so no matter how much DEBT or currency governments around the world issue, I don’t expect the big picture to change much.
Same as it ever was, hedge accordingly.
The middle class are hoping they can outlast it by joining the rentiers in the game.
> if I have a rental property my kids will be okay
Nope, it’s killing society and your kids will get sucked into it.
The only thing that can restore a healthy, wealthy society is rewarding wealth creation more than rentier activity.
That hasn’t happened for over two decades.
Petunia,
“Unemployment is bad, wages in tech are dropping, and jobs are scarce.”
Petunia, you’re full of it.
“…all the guys pushing baby carriages and playing tennis and disc golf, they don’t look happy.”
Is that you get your economic info? LOL. You don’t even know what you’re seeing. “They don’t look happy?” Jeeesus.
You’re extrapolating from your tiny world (a park?) that you don’t even understand (“don’t look happy,” LOL, I just cannot get over that), onto the rest of the country. Jeeesus, Petunia!!!
Wolf,
No offense, but you rarely mention the disaster going on in your own backyard. Nobody wants to go near SF but no one would ever hear that from you. I would much rather read about the reality that is now SF then anything you write about the fed. Sorry.
“Nobody wants to go near SF…”
LOL. “Nobody goes there anymore. It’s too crowded?” The place is packed and hopping. Sorry to disappoint you.
What happened to you, Petunia? Why are you suddenly posting all this BS on my site? In three of your comments today? I mean you could spread the BS out a little, and have more regular comments in between.
Hey, I see lots and lots of guys in my area walking dogs and baby strollers. And guess what? They look super happy! I’m the grouchy one among the 50 or so in our ‘hood who do those walks.
“Phd’s spend more than a decade in college and don’t have a f**king clue how the world works.”
Really? I think that’s actually the opposite of reality. Most Fed PhDs and staff aren’t rich, and they live out in the world just like you and me. They are upper middle class earners. I’ve seen the compensation levels for senior Fed jobs and the pay was poor relative to similar private sector roles. People take a discount to work there because it’s a fairly prestigious place to be.
WSJ sounds the consumer alarm today – How U.S. Households Got Turned Upside Down by Higher Interest Rates. All is not well.
Things are just hilariously worse than 2019, real wages down, housing costs up, everything more expensive. Now credit getting crushed. Time to pay the piper.
“Now credit getting crushed”
That part is nonsense.
“real wages down,”
They were down in 2021 and 2022. This year, they’re up, especially at the lower income levels.
“Time to pay the piper.”
Yes, but not the way you expect, but via inflation and higher rates.
Healthy society starts with production or wealth creation, and that’s been handed to immigrants and what follows that hand off is rentier society or more broadly investment in basic necessities. And just like production thru immigrants, investment thru renter destroys quality of life and despite these realities those that are suppose to ‘protect’ the money turn and destroy it, openly since 08. If and obviously taxes aren’t enough, you get human trafficking thru gov, money destruction thru gov, over regulation thru gov, and finally inflation of basic needs welcome merica at the bottom of the ocean or is it Atlantis. Return gov to protect what was written and it flips, return to gold, return to local production
More clueless people whining about immigrants.
Here is a question for you to figure out:
Is illegal immigration up or down from 10 years ago?
Stop using sources of information that take advantage of your biases and try to scare you.
“Unemployment is bad, wages in tech are dropping, and jobs are scarce.”
Objectively untrue. Why do people take their anecdotes (“they don’t look happy”) when Wolf fills this website with actual facts/data on unemployment, wage growth, and job openings???
I’m one of those fathers fortunate enough to be able to take my kids to the park in the middle of the day thanks to the beauty of WFH and being able to take Teams calls on my device. And my income has gone up 3x over the past 5 years.
Maybe the reason they “don’t look happy” is they’re running into a sour puss while enjoying fresh air and quality time with their children.
JD – that last sentence. LOL. Thanks, made my day
JD,
Your comment about working from home with kids in the house doesn’t ring true to me. My son worked from home for awhile and it was hard on me because I could not make much noise or it interfered with his calls and meetings. Never mind WFH with kids running wild or just being kids in the house. Maybe you have a nanny and a McMansion and I just live in a regular house in the real world.
Yeah right. During the periodic non-consensual unemployment of my 45 years in the mining business, it was never enjoyable. It was harsh.
Especially when I was with my kids.
Petunia
“…Their models and data are pure crap, …
Janet Yellen said the models they chose to follow were flawed.
Notice, it was not she who was wrong for choosing them…
In the real world, this excuse would not halt an immediate dismissal.
” a grifter economy ”
well-said.. very on point.
the majority is trying to ‘get theirs’, regardless of the potential consequences for society at large. can they really be blamed? nobody wants to be left behind. the endless tune of MORE, MORE, MORE! is constantly being played,. and those who already have boatloads of money, seek even more boatloads.
for example, patrick mahomes.. the quarterback of the KC chiefs. in 2020 he signed a 10 year 450-500 MILLION dollar contract to play football. in no way, shape, or form does this man EVER have to worry about money again for the rest of his life. yet, every other commercial on TV he is ‘spox-ing’ for state farm, or subway, or whatever.. as if half a BILLION is not enough already..
there comes a point when a person has ‘enough’ money. mr. mahomes (among others) has certainly reached that point, yet they just continue to seek out more. these are the people society ‘looks up to/worships/fantasizes’ about, so.. is it really any wonder that things are as they are? religious context/interpretations notwithstanding.. America’s priorities are money and power, above all else. that is the irrefutable reality.
I admit that I am grappling with the same equivalence imbalance.
I agree, Mahomes is a gifted athlete who no more deserves the wealth being reaped upon him than my Dad, shot in the face during WW2, who arguably payed for Mahome’s opportunity.
While my Dad worked 80 hour weeks for money to raise his family. Mahome makes more in a minute than he made in a year.
dang – seems many, many of us are blind to the reality of your second pp. This said, may they never, but perhaps always consider, actually occupying the point of the spear…
may we all find a better day.
Mahomes is Big Business. He supports a lot of people. There’s thousands whose rice bowls are with Taylor Swift. The rich and famous have always had entourages because of the quality of the crumbs.
Beats working.
Any of the punk/New Wave/alternative/speed-thrash groups that caught a promoter’s attention back in the day were immediately labeled as sellouts. The people doing the labeling were the same people who never paid a cover charge for the “free” music. skunks. Nothing’s free.
I love how back when interest rates were at zero for all those years, the Fed was like “well we think the neutral rate is somewhere around 3” but then they clearly had no real intention of taking rates to that level anyway.
Now that we’re at 5 suddenly they’re like, well maybe the neutral rate isn’t actually 3, as if any of it even matters now because its so painfully obvious they have no idea what “neutral” really is, or means, and even if they did, it doesn’t seem to factor into their decision of where rates should be anyway. At this point setting rates is like throwing a dart at the wall. A ridiculous crapshoot
The Petunia men walking a baby stroller has to be the absolute worst economic indicator I have ever heard of.
Why not go with well documented statistics about those earning wages?
Powell can say whatever he likes, nobody believes him.
Why don’t they believe him? Because he’s folded before.
He didn’t need to buy MBS.
He bought MBS.
You know how he got so high up in life?
I bet, like all the rest of them, it was by having no ethics, no morals and no principles.
He’s going to prop it all up in due course, because that’s how they force you to work for longer for the same thing earlier generations got easier. He’s going to squeeze you in concert with the government who have their own tricks to prop up asset prices.
He’s going to look through price inflation, yet draw the line at wage inflation.
And he’s going to do it all in a suit you cannot even imagine the price of, then he’s going to have dinner with people who are rich off the backs of the working class, with courses broken by sorbet to refresh his pallet , all served by immigrants.
And when you know none of it adds up, when you know you’re being cheated, all the media will come out and assure you, cross their hearts, that it’s the panglossian best of all possible worlds.
Wow, had to comment. Tragic. Poetically put.
Wow, I had to comment about your comment. Tragic. And not poetically put. Please.
“I bet, like all the rest of them, it was by having no ethics, no morals and no principles.”
Such garbage. Unless you have evidence of this lack of ethics, morals or principles? Sounds like someone who wasn’t able to reach those levels and are bitter about it, figuring others cheated to get there. I’ve worked in positions in important firms, with exposure to the senior-most people, 100s of them over the years. A tiny few maybe fit that description.
I could go on about pretty much every line in that post, but don’t want to turn this into a lengthy negative post.
I’ve worked in finance like Powell and most of them are not loyal or ethical.
Powell should not have bought MBS. He had no remit.
I don’t disagree about buying MBS.
And I doubt you worked at a senior enough level to be saying what you’re saying. You sound too disgruntled. But WTF do I know, and it doesn’t matter anyway!
Admit it — you just wanted an excuse/context to use the word Panglossian! Lovely stuff.
Kidding aside, your comment at least captures a popular sentiment, even if it does not jibe 100% with reality; Powells suits look pretty meh/off-the-shelf to me (probably about as $$$ as what the modern-day dandy forks over for latest jeans) and sorbet is much too pedestrian.
Wish I knew…I’ve rotated some money from stocks to BDCs (ARCC, OCSL) and leveraged loans/credit CEFs (VVR, EVF) beginning of the year, not a bad move so far. In case of a hard landing credit may also blow up though :(
The Federal Reserve is a cartel owned by it’s member banks. If you want to know what the FED will do, they will do whatever it takes to make the banks happy (subject to some minor political influence).
If the FED was really concerned with stability, they could set the interest rate at whatever inflation is, and add 2%. Doing something like that, would, in my humble opinion, go a long way towards stability.
Old Ghost..
“….If the FED was really concerned with stability,…”
That’s how it used to be. The Fed made sure Fed Funds equaled or exceeded inflation to protect the holders of dollars. One look at a CPI vs Fed Funds chart, prior to 2008…will prove this.
The 2% inflation # is completely made up.
Actually, the Fed has always been a viable villain, as the cause of at least most of the crashes during the period 1913, when they were created, until today. The 29 episode was epic.
The Fed is an arm of the wealthy, who only are thankful to the everyday people when they fight their wars or pay to protect their wealth.
it should be done by computer now. Now more free fly fishing trips up Jackson’s Hole, cushy seats and gourmet free lunches. Looking forward to Gangs of New York draft riots.
Jackson Hole used to be a small town in Wyoming before money turned it into the ugly thing it has become.
AGREE!! OG,,,
Cartel is exactly the right word to describe FRB that was initiated to stop WE, in this case all the LOLs WE (little ol ladies of all ages and genders etc.,) from our habit of saving our gold in jars in the backyard in the good times…
then using that gold in the bottoms of the crashes to BUY good solid assets from the bank, repeat bank ”rupt” banksters…
END THE FED!!! And let the markets decide/work…
“want to know what the FED will do, they will do whatever it takes to make the banks happy”
Oh yes, I’m sure the banks were rooting for o/n rates to go from 0% to 5.5%, and their holdings do go down the sh*tter. Please.
But I’m with you on the inflation +2%!
That would be the absolute worst thing in the world for stability.
An economy doesn’t go from 9% inflation to 2% inflation in the blink of an eye without it causing severe problems.
the federal gov. is the one spending like drunken sailors. All of this is like a tidal wave splashing over the whole economy trying to keep this financial system afloat. It doesn’t seem to faze the gov. that interest expense as a percent of budget keeps rising. Anyone in a lot of variable debt is going to get kathoopjed.
If course it doesn’t phase the government.
It’s your money, your future money, and your children’s future money that they’re spending (if one can even afford to raise children these days).
> all the questions are dumb
If you were a journalist in that room and you asked a really strong, hard question about say MBS or why two people have to work longer for a home than one person in 1980s despite all the technology improvements, do you know what would happen?
You’d *never* get in that room again. Ever.
If you continued to write articles on the same vein? You’d find that you are subject to cuts “due to downsizing”. And then when you apply to other outlets you just can’t seem to get an interview.
You’re the guy who rocked the boat. And now you’re out.
You think they don’t know what to ask?
Someone asking hard questions and getting barred – has his happened before?
Who can ask questions is chosen by the Fed at the meeting. You can’t just start talking or put your hand up first.
So true.
“If you continued to write articles ….
Some anonymous bimbo from 20 years ago would accuse you of rape and the government would write stern letters to social media demanding you be removed – for the climate.
And…put on a “no travel” list, banned from owning a deadly #11 aluminum knitting needle, and eyeball scanned every time you use a quasi-public toilet facility. But hey, you’ll get that whopping 2% back when they electro-ding you for each half sheet you take off the roll…coming soon to a theater near you. “The TP card, don’t leave home without it!”.
Nuttery.
Who do you think decides who gets to be I that room?
As more “experts” realize that borrowing costs will remain higher for longer, let the CBO recalculate national interest costs next year, especially as we refinance about $7 trillion. We are going to blow through the $1T annual interest expense quicker than anyone will acknowledge. We already have if you take a hard look at how “net interest” is calculated.
It is depressing to see that people are expecting to see lower rates. Once expectations were unanchored, the first reaction is to spend savings on long term assets. This is simply the first wave of reactions, now coming back is the typical cycle worries.
I stated that it will take years to get inflation under control again. There will never be cheap rates in the next ten years, or more likely 20-30 years. 2020 was a generational low.
Now, it becomes difficult to see the vast amounts of stranded assets, and how costs will dictate much lower real values, in spite of nominally higher prices.
We finally got inflation through stimulus, and now comes a long cure.
We’ve had inflation for over twenty years in the one item that everyone needs that is also the most expensive item most people will ever buy.
Housing has risen above wages for *decades*.
People are expecting lower rates because that’s also what they’ve done for *decades*. Hardly unreasonable.
Pro build bought hundreds of housing material supply and manufacturing facilities, racked up billions in debt (IT bill, overvalued purchases, excessive management) and sold for billions from 2008 till 2015. You can’t make it up! It’s beyond reality, money destruction and housing supply destruction all-in-one, and look at the years. Of course there’s no supply, they destroyed it. They’ve programmed technology advancements to the point that its used to inflated nailing sticks/trees together with regards to pro build’s IT bill. Not only was it grotesque spending on ‘legacy’ software, it was garbage, inefficient unnecessary waste in an industry that goal is to produce housing.
CAM – …the punchbowl is where, and when, one finds it. ‘Muricans haven’t believed in realistic prices for decades (stable prices, yes. True costs/value not so much…). ‘You get what you pay for’ now often loses its former place and understanding in the general lexicon…
may we all find a better day.
If you spend all your income, then inflation hurts you the most.
So don’t worry we’ll stop inflation (by slowing down the labor market and making sure you’re locked into your subsistence wages going forward).
Howdy Thewill man. HEE HEE. thanks They get paid for this stuff too…
Subsistence wages in the 1950s were $0.50 and hour.
That 50 cents would get my girlfriend and I hamburgers and cold drinks. A plate lunch was 75 cents each including coffee or tea. McDonalds hamburgers were 11 cents but we didn’t have one in the country, they were reserved for city folks, not country bumkins! The city cinema was 75 cents per person. Local was 10 cents matinee movie.
Retired in 2000 with a bit more and do not wish for the good old days. Those work days back then were 10 hours rather than eight.
“If you spend all your income, then inflation hurts you the most.”
Huh?
That is literally the exact opposite of reality.
Did you hear about the drunken sailor who bought 3 short term rentals for when he was out at sea, so as to make some income?
5.25% on December 31, 2024? What a great new year for my maturing GICs!
I bought some 6% GICs recently, but they mature in 18-24 months. So hopefully, in 2025 we get at least 4% 1-year GICs.
re: ““Real interest rates now are well above mainstream estimates of the neutral policy rate”
Real rates aren’t high enough. High real rates of interest incent workers to save and not speculate.
The Wicksellian r-star rate is fictitious. Investment “hurdle rates” are idiosyncratic. Business expenditures depend largely on profit-expectations, and favorable profit-expectations depend primarily on cost/price relationship of the recent past and of the present. Cost/price relationships are crucial, and they are particular; they cannot be adequately treated in terms of broad-aggregates or statistical weighted “averages”.
Howdy Folks We are only months into this chapter, 70s 80s lasted over a decade. They screwed up again, the medicine used will make it worse. Would love to see them tased Mr Lone Wolf, the script writers may take your suggestion, and write that into one of the episodes. Great idea for their show……
As a side note on how CPI “inflation can stay high. There are some feedback loops in how the consumer price index is assembled.
For one thing, CPI have, a maybe weak, coupling purchasing power. Then there is a strong connection between what people buy and the CPI. If purchasing power is down and price of essensials up, consumers will spend more of their purchasing power in essensials.
Those essensials will then make upp a larger part of the CPI and if price of essensials are up more than the average the CPI will be hit twice. Consumers spend more of their money on more expensive items.
MW: US Treasury yields (interest rates) head for highest levels in more than a decade after hawkish Fed projections as bond prices continue to fall…
MW: Dow falls 200 points as surging Treasury yields and U.S. dollar jolt stocks
Maybe the question should be “what does a soft landing actually mean…what is that metric”
And maybe a rhetorical one just to tease the zapper on why they didn’t talk about “carefully, carefully” when they dumped rates to zero and held them there in the face of a strong economy.
Finally, the conflating of plane terms with walking path widths just reaks of someone schooled at speaking but not answering anything
Howdy Gaston. These folks are all actors following a script. Pretty sure who writes this stuff, and we cannot do anything but watch the show.
Thank you Gaston. “What is soft?” Great freaking question. Add to it, when does soft become flaccid? At what point do we have a flaccid landing papa Pow Pow? Unbelievable they let this man up there to spew that nonsense. Never bothered to define transitory, either. When you look at rates, the main tool in the tool box, it’s always hard landing to 0%. So no, I do not know what a soft landing is as much as I don’t know what we are landing. Is it a 747, Cessna, blimp, drone, hot air balloon, spacex rocket, or flying turd? Absolutely no nuance from this guy. He’s up there to say 2% is the target and no we are not there. Everything else is complete and utter nonsense.
So far, there isn’t any kind of landing. The economy regained cruising altitude this year.
“…even middle class people have some savings and [can absorb]”
hey don’t worry that your meager retirement dreams are wasting away. You can continue to work!
“…they are spending money…their behavior is not what you expect from survey”
For those actually in the middle class and lower, those two statements seem to be related. Would be more honest to just say “hey your middle class, you’re a wage slave and always will be. Deal with it. Oh and please do try to stay healthy so you can keep toiling away”
Seems amazing to have to write it but…
if you have to work you are not middle class, you are working class.
historically the ‘middle class’ live off of rentier activity ie they don’t add value, they do not “work”
people who think they are on the “winning side” of the class war because while having to work they live in a slightly bigger apartment are going to learn the hard way in the next decade which side of the fence they were on all along.
The middle class was historically the merchant class, they had to work but worked for themselves.
‘class’ is only meaningful if you sort by income.. not whether a person is ‘working’ or not..
a corporate CEO is still an employee, just like the lowest paid employee in the company. they are both ‘working’, but hardly in the same ‘class’.
“adding value” is, arguably.. subjective, because ‘value’ itself, is.. subjective. a Ferrari 250 GTO was worth 70 million to somebody at auction in 2018, but that same car’s ‘utility value’ is not much more than a $30,000 honda.
even the gov’t ‘adds value’ in some ways.. arguably, although many would disagree. say what you will about centralized authority, but anarchy is not a viable, or even possible, outcome of human relations. it is a concept which may as well be ‘theoretical’, even though it COULD, be effected in real-life..
people have the unique distinction of laying blame nearly EVERYWHERE except where it truly belongs.. the face in the mirror. this is especially true of democratic/republican societies because they DO have a choice, when it really comes down to it. but just as anarchy can never work, power ALWAYS becomes entrenched.. and those wielding it ‘separate’ from those who do not, and the cycle goes on and on…
So, if we know that rates will likely go up in December, does it make sense to wait until December to buy Treasuries?
Unemployment Claims hit 201 this morning………at this rate I’am going to have to get my 70 plus year old butt geared up to go back to work to help fill the job openings……..but…….of course the anxious enraged rabbit, J Powell, will be duly cautious in his study of the economy and inflation.
At least he is at 5 plus. Never thought the enraged rabbit would even move that far. As far as his dot plots……..just transpose those to the long range weather forecasts……..about the same accuracy.
Silly media announced with grand headlines that housing starts were down substantially……they forgot to mention that permits exploded to the upside.
He said “we’re not going to cut the for a little while” yet they project two rate cuts in 2024. So does he mean they’re not going to cut them significantly?
The most significant development is the incredible vanishing rate cut. From 4 to 2 this meeting. Then from 2 to 1 next meeting. After that,” What rate cut?”
They project two rate cuts late in 2024 and no cuts until then.
Powell does not really mind the repetitive and dumb questions. I guess he has to do a press conference, so it is a lot easier to deal with simple and idiotic questions than ones that actually penetrate to the heart of the matter. I notice he always leaves the podium very quickly when the Q and A sessions are over.
WL – …you may be onto something…
may we all find a better day.
The narrative just shifted from inflation to economic growth (too hot). Supply chain issues are a feature not a glitch; structural problems, China going offline, and not enough workers. The Fed has its 95 playbook, The Longest Pause, By 2000 CPI was 2%, GDP was 4% and the market crashed. There were exogenous factors, Y2K and the 2000 brokered election, so draw your own comparisons.
Greenspan caused the market to crash. Afraid of Y2K computer glitches, he ratcheted up reserves, then radically drained them.
According to one poll, these are the main reasons people are pessimistic about the economy in spite of its growth:
High housing prices
Resuming student loan payments
Fear of another recession and another pandemic
Inflation
No more free money
One YouGov survey showed only 21% of households earning more than $100k felt they were better off economically this year.
Clearly there’s a disconnect between GDP, expectations, and economic anxiety. Wage increases still aren’t enough to buy that $500k starter home.
Drunken sailor is what I’m seeing locally but maybe that’s what anxiety does to you.
10 year almost 4.5%. BofA 30y fixed conv is at 7.875%. Average 30y fixed back to 7.5%. Karen and Kevin still stubborn and holding for what they “earned” on their STR purchase.
Yikes. Feel sorry for anyone starting a family right now.
People who bought STR the past year are probably going to be in a world of hurt. But those who bout 2 or 3 years ago or longer, they still have a lot of equity and if the mortgage is 3.5%, it will not be hard to have a good cash flow.
As the latecomer in the STR market liquidate, the ones with the mortgage rates will see the competition disappear and their daily rates increase. So what I am saying, is there are about 2.2 million STR on AIRBNB in the US. At the most, maybe we see 1/4 to 1/3 see in a downturn. IMHO.
Absent any major event or legislation, I can see what you’re saying.
30YR conventionals will be >8% before year’s end.
Wolf,
Somewhat off topic, but if you are taking requests, I’d be interested in knowing more about derivatives. If the bond market failing is akin to the atomic bomb, the derivatives market blowing up is akin to a black hole swallowing the planet, or so a banker friend told me. Is this true?
WB,
“If the bond market failing is…”
It’s not “failing,” not at all. It’s normalizing from a ridiculous bubble. So yields are rising, and that’s a good thing, they should have never been this low to begin with, but they’re now still too low and need to rise further.
On one hand, I am marginally encouraged by the idea that they (the Fed) MIGHT have recognized that what they were doing could irreparably obliterate the value of the USD and changed their policy. I say might because I’m still not 100% certain that’s why they raised rates at all, but am giving them the benefit of the doubt for now. On the other hand, Powell’s stammering word salad of vagueries and theoretical nonsense is more evidence they had/have no idea or care as to what the Hell their policy moves would do besides drive their share prices up. And call me a conspiracy kook, but the cynic in me thinks they all sold their shares using the ’21 Kaplan/Rosengren scandal as cover to do so. And yes, please. Taze all the whining children from the Wall St propagandists, and call it electro-shock therapy.
If real interest rate is the interest rate adjusted for inflation. And yet, the CPI adjustment for health insurance misrepresents the inflation markers, how sure can we be that interest rates are positive ? Are real interest rates calculate from a different inflation indices ?
Great response on interest rates finally we are getting a bit more movement in rates . I personally think that the pedal on accelerator being pushed downward and tightening is ongoing . Demand has not slowed much and markets too high in my opinion for the asset owners to scale back their spending. My rich friends keep spending. 10mm plus type rich even my 6mm retired friends spend 20k monthly 3k monthly at casinos .
Once again the Fed proves they are clueless.
Why not just increase the pace that they sell off the balance sheet? That is a sure-fire way to unwind the asset bubbles, which will cool inflation. This isnt rocket science.
The main reason the economy is so strong is the wealth effect of high housing prices and some equity indexes still being high and the government spending which keeps pumping money into the economy.
The amount of QT each year is far less than the deficit the government spends to pump up the economy.
As has been explained to you many times (which you cluelessly ignore), even though you want to see the world burn, the FED (and most rational people) don’t. A soft landing doesn’t come from recklessly draining the FED balance sheet. Chaos co.es from that. No one but the catastrophic nutters wants that.
They are draining QT slower than when they did QE for the same reason people back up slower than they drive forwards.
To me the most salient, or at least the most bitterly funny, part of yesterday’s presser was this exchange:
KYLE CAMPBELL. Is that going to affect your decisions to potentially bring rates down to their lower bound in the future, sort of creating that sort of bubble of buying and then a lock-in that sort of stagnates the housing market?
CHAIR POWELL. I think we look at the — I would look at the lock-in, the idea being that people are in very low-rate mortgages, and even if they want to move now, it would be hard because the new mortgage would be so expensive. And that’s one of the explanations for what’s happening broadly in the labor market. Would that play a role in our future decisions, in a future loosening cycle about whether we would cut rates? No, I don’t think it would. I mean, I think we’d be looking at, you know, fundamentally, what rates does the economy need? And, you know, in an emergency like the pandemic or during the global financial crisis, you know, you
have to cut rates to the point that you have to do what you can to support the economy. So I wouldn’t think that that would be a reason for us not to do that. It’s not something we’re thinking about at all right now, but down the road, I wouldn’t think so.
Or, to boil it down to its essence and strip it of euphemism:
CAMPBELL: You guys really screwed up the housing market for an entire generation and everyone knows it. Have you finally learned your lesson about ZIRP?
POWELL: No, we absolutely have not learned it.
I see more and more Teslas showing up in my neighborhood. They are over 50K. Also major home improvement projects are underway. It looks like spending on big ticket items has not abated. The Fed’s effort to cool the economy are a total failure.
J Powell needs to hand in his resignation, yesterday.
How is inflation going from 9%+ to 4 -6% “a total failure”?
Housing is slowly coming down, labor markets are gradually cooling off, the CRE bubble is slowly bursting. Interest rate hikes take time to affect the economy. It won’t happen overnight.
In my practice I get to see a lot of balance sheets. What I can tell you is that small businesses, especially those with a handful of employees, received hundreds of thousands in government loans that they never had to pay back. Some of those loans were in fact up to three times higher than the average annual profit of these kids of companies. As a result, even in 2023 these forms are sitting on outsized government money in their accounts.
I did some consulting for lots of small businesses before, during, and after the pandemic. Lots. Most of what I saw was that the PPP loans went to payroll. They went to pay employees and keep them around like the loans were intended too.
A few companies manged to shift money from one pocket to another and spent a lot of money investing on thier business and new plant and equipment.
None of the dozen plus companies I did work for still have excess PPP money in thier accounts. It is all gone.
They may have fattened bank accounts, but that was because the business ran hot and they made lots of money. Profit margins have been expanding for years. That is all changing now. Historically good margins are now under pressure. Employees are demanding more money.