Higher Inflation, Higher Rates Forever? Will the Fed Let CRE Turmoil Run its Course? Is QT Hitting Dollar Liquidity Outside the US? And More…

Wolf Richter on “This Week in Money,” at HoweStreet.com, recorded on March 27:

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  49 comments for “Higher Inflation, Higher Rates Forever? Will the Fed Let CRE Turmoil Run its Course? Is QT Hitting Dollar Liquidity Outside the US? And More…

  1. Cas127 says:


    Great timing…the AP just pumped out one of those genius “Deflation is the Debil” stories that (circa 2002) presaged such genius Fed policy-making for the next 20 years….(The Tainted Seeds of ZIRP).

    (On the small chance you reference it in the LTDA – Listen to the Damn Audio – …kudos…but people can’t scan audio…)

    At least this go round, the AP mentions – buried – that deflation might not be, but still probably is, Ebil.

    But I find it amazing that the massive counter-example of technological-improvements-greatly-lowering-prices-then-stimulating-the-hell-out-of-the-economy is so utterly, utterly ignored.

    It is like nobody ever bought the second Model T or personal computer…because the entire globe stood around for 100 years “waiting for prices to drop further”.

    Or, the massively obvious fact that oceans of Pepsi got sold in 2019 for $1.80…but somehow Pepsi demand would collapse if today’s $3.25 price fell to $2.75…because of thirst hoarding (as opposed to, say, inflation driven Poverty).

    All these oh-so-very-informed AP thinky-dinky pieces ultimately come to resemble little more than Simp-athy for the Devil (fiat driven inflation)

    • Wolf Richter says:

      Non one is worried about deflation in goods. Deflation in goods is normal due to improvements in manufacturing, supply chains, and technology. But the worries surface when deflation get going in a persistent manner in services.

      • TonyT says:

        I’d add that I think deflation in overpriced assets will also be positive overall (especially housing).

      • Cas127 says:


        Considering that the G places housing (as in physical houses, apartment buildings) in the services category…doesn’t the “services deflation is dangerous” perspective lead to “any RE asset deflation is bad” irregardless of any level of prior RE inflation…driven by decades of ZIRP?

        The Fed/G seems to insist upon the drunken orgy and then decry/shift blame for the blinding hangovers/raging STDs that result.

        • Einhal says:

          I see your general point, but rents (services) and sale prices (assets) are only loosely related.

          The issue is more whether asset inflation leads to “wealth effect” growth such that asset deflation leads to the “shudder” CPI deflation.

          Bobber has written about this a lot.

        • Cas127 says:

          “I see your general point, but rents (services) and sale prices (assets) are only loosely related.”

          IDK, housing price inflation is different than a lot of other asset inflation.

          If Pepsi get goosed by ZIRP up to a 50 PE, the Pepsi CEO really doesn’t have to jack up the price of Pepsi (except *very* indirectly…as a post hoc/post ZIRP attempt to kinda-somehow-maybe economically justify a 50 PE…)

          But if Ponzi the TV Real Estate Syndicator pays 300% too much for an apartment complex…he is going to try and save himself by jacking rents and squeezing tenants (in other words, Ponzi’s asset inflation is his tenants’ plain old housing inflation).

      • Gary says:

        A house certainly is a “durable good” and lasts much longer than the other “goods.” Perhaps moving non-rental housing from services to goods would give the population a much better understanding that there is no real reduction of inflation anywhere.

        • Wolf Richter says:

          1. With rents, the service is “shelter.” Just like when you take an Uber ride, that $30 you paid is for a service, namely the ride from A to B. The car that you sat in is a durable good. But you didn’t pay for the car, you paid for the ride.

          2. Goods are merchandise that is consumed: they’re used up, eaten, worn, etc. and lose value more or less quickly, and ultimately become worthless or nearly worthless, including durable goods, such as cars. Durable means they last longer than some years, usually more than three years. Buildings are NOT goods (merchandise) that are consumed; they’re assets. Assets can also become worthless, such as stocks, and buildings, or even land if it’s contaminated, but they don’t become worthless because they’re consumed. They become worthless for other reasons (bankruptcy, tornados, contamination, etc.). It’s all part of the nomenclature.

          3. Don’t try to fight the definitions — or else everyone will make up their own definitions and no one knows what anyone is talking about.

      • Thunderdownunder says:

        ‘But the worries surface when deflation get going in a persistent manner in services.’
        Would that qualify as a ‘Recession’
        My Lexus needs lower ball joints on the front suspension and the clunking is driving (sic) me crazy. Its a Toyota part and the OEM Toyota suppliers have ‘deflated’ the the quality so much that that is at 28,000 miles it is a ‘worry.’ The parts have become much cheaper due to quantity but the OEM quality has fallen
        It will get done with superior but more slightly more expensive US made ball joints, The labour however for a one hour job equates to $ 400/hr… Services need an ice bath just to lower the shafting angle and to Deflate the workshops ‘hard on’
        Deflation Needs to happen ASAP

  2. 1stTDinvestor says:

    I love these audio posts. Thanks for sharing. A “well behaved” commenter here. ;)

    • Tankster says:

      YouTubetranscripts.com It takes 10 seconds, you can copy and paste into Notepad at 20 point font and read far more quickly than they can talk.

  3. John says:

    Great commentary and vision Wolf. Definitely , “higher for longer”, without a doubt. (5.25-5.50). No cuts and in due time a hike.

    • old ghost says:

      I am still expecting a 20% interest rate somewhere down the road. But that could be many years away. The current interest rate has barely dented the utterly worthless innovation of cryptocurrency.

      There is still a lot of euphoria fueling speculation in the FIRE sector. Higher interest rates have a long way to go.

      • RH says:

        We are off all sci-fy predictions if the reports about AI advances are even 50% accurate. It does not matter if we ever get to AGI or ASI, which is worrisome. Narrow AI, currently being refined, will be able to do most jobs, so its owners will have wealth beyond the dreams of avarice. (If you think about it, at some level of intelligence, AGI effectively becomes slavery. ASI will soon become suicidal if that persists. LOL

        Hopefully, I will be safely dead before then, but I wish I were sure.)

      • RH says:

        To clarify my cryptic comment, demand for most goods will collapse as more or most jobs are done by AI/embodied AI-robots, while the profits go only to the 1%— while baby boomers’ expenditures fall and must be replaced by (financially) weaker and less numerous generations. 18th Century France v2.0?

      • JimL says:

        I will bet a whole lot of money the interest rates will hit 4% before they ever hit 20%.

        Not going to happen. The U.S is not Venezuela. While global events can affect oil prices which would still hit the U.S economy, it is no where near like it was with oil shocks in the 70s. Fracking ensures that.

  4. Robert Frank Walker says:

    Higher for longer is needed; savers need to be rewarded,retirement plans reinflated. Cheap money was a component of this mess for the ZIRP policy of Greenspan. 5-6 percent for a 30 year is NORMAL! We have an income inequality that has grown more and more each day. 3 rate cuts is not going to fix this, Capitalism in this country is favored by the rich. The bottom will lose big time!!!

    • Debt-Free-Bubba says:

      Howdy RFW YEP ZIRPed to stupidity, taught not to save a nickel. Purchase whatever you want at little interest. They would even give you a home for just signing your name and walk out of closing with more $$$ in your pockets….

    • JimL says:

      Savers “need” to be rewarded or you really WANT them to be rewarded?

      Also, there are different types of savers. Over the past 20 years there are savers whi out their money under mattresses or in money market funds that made next to nothing and there were savers who invested in stocks and made a killing.

      Some savers have already been rewarded.

  5. Working the refs says:

    If the FOMC cuts rates in May, it will only be because of political pressure. Only.

    • Markymark says:

      You do know what happens if a country cuts rates while inflation is rising…
      My guess is we are fixin to find out. Thelma and louise cliff jumping anyone?

      • Debt-Free-Bubba says:

        Howdy Markymark. You need to go back in time a little further. People in leisure suits, swirling sparkling balls, and dancing like no other fools before them. What a show coming up?????

    • JimL says:

      Why do you think there will be political pressure? You may disagree with this president, but he has shown that he sticks to traditional norms. Norms like not putting political pressure on the FED. It was the previous president who did not stick to that norm.

  6. sooperedd says:

    Investor’s FED created fantasies of rate cuts is simply to stop the markets from crashing. Powell mentions rate cuts, shortly after a FED Minion dials it back. Any significant drop in the markets would trigger panic selling. Perception is more influential than reality and all most Americans pay attention to is the current DOW level and if they can score some tickets to Taylor Swift.
    What happens then??
    We get a repeat of the 2008/Covid/QE monetary and fiscal scheme that got us in the position we’re currently in; flooding the country with even more Helicopter Money.

    • Einhal says:

      I don’t think anywhere near “most” Americans care about daily Dow moves

    • JimL says:

      The markets crashed recently and the FED didn’t cut rates. In fact they continued to raise them and continued QT.

      In 2008 it was housing that caused the flood of QE. Housing that affected the common man. It wasn’t just a drop in housing prices, but a complete lock up of the market because no one knew what CDS were worth.

      That is less likely to happen now. Housing prices can drop without locking up financial markets.

      There will be pain, but not catastrophe.

      There were lots of mistakes made in the 2007-2009 time period, but it should also be noted that it was a real catastrophic period. There were significant problems in markets back than that had significant consequences for the Average Joe.

      Those circumstances do not exist right now.

  7. Debt-Free-Bubba says:

    Howdy Folks. I hear the Beach Boys but lyrics changed, ZIRPing in the USA. Some of knew what was coming, did YOU???? I just wasn t sure I would live long enough. Looks like I have. Good Luck……….

  8. Depth Charge says:

    The FED is sitting back, watching a massive speculative melt-up in all asset prices and a resurgent inflation storm. And all they can talk about is when they might CUT rates, without even a hint of talking about rate hikes.

    • Debt-Free-Bubba says:

      Howdy DP. Maybe 6 to 8 percent is the new normal….Never to see 5 percent for decades to come…….????? We shall see……

  9. Robert Leonardson says:

    I cannot hear on the phone or on TV. Is it possible to read your comments for today?
    Thanks, RWL

  10. Glen says:

    Enjoyable as always. Informative without being predictive or judgemental. I’m always amazed how you do this without injecting your personal introspections which I assume must exist. Only hints come relative to US automobile industry, outside of Tesla, which is fun to hear.
    My guess is Congress locks BYD out of the American market but a whole lot of pressure on the Big 3.

  11. Dennis says:

    J Powell doesn’t seem to worry about the recent higher inflation reports and dismiss them as mere bumpy. Maybe he wants to help the Fed government finance its enormous debts. If he goes ahead and cuts interest rates 3 times regardless of the recent higher inflation, would it fuel even higher inflation?

    • JimL says:

      You should stop using whatever sources of information that are telling you that Powell isn’t worried about recent higher inflation reports and get better sources of information.

      If you did, you would see that Powell has made it pretty clear that they are going to follow the data. Cuts won’t happen until inflation starts dropping. If overall inflation continues to rise then they will raise rates.

      I don’t know how anyone can read everything Powell has said and come away thinking he will cut in the face of higher inflation. I think some people ate getting taken advantage of by information sources that are not looking to inform.

  12. Can't recall says:

    Great to listen to the Wolf Man where the interviewer suppresses his ego, asks short, sharp, on-point questions, and allows the interviewee to answer the question in full, without interruption or personal comment.

    Unusual & welcome.

    However – and there has to be a ‘however’ – both the interviewer & ee, seem to believe the Fed is the ‘real deal’, there to genuinely guide America (and the World) to the best outcome using their only tool, rates – whether higher, lower, or hold.

    But some of us conspiracy nuts believe the Fed is an abomination, conceived in sin, born in filth & maggots, instigated & designed to obey it’s true Masters and bring us all to our knees in subjugation to their will.

    I think I’ll have a nice cup of tea now.

    • Wolf Richter says:

      You can think about the Fed whatever you want; but the simple fact is that this is the Fed we have. There’s no way around it. We have to deal with the Fed we have.

    • JimL says:

      If you are going to believe in conspiracy theories, then the fact do not matter. No matter what facts are presented to a conspiracy theorist, they will not change their mind. In fact, conspiracy theorists regularly use the fact that there is a lack of evidence supporting their position as evidence that the conspiracy just goes deeper and there is a cover-up.

      • CCCB says:

        Haha, great point. Conspiracy theorists always drive me crazy because logic and facts never persuade them.

        Now I know why… its the darker, deeper conspiracy that no one else but them can see! Or maybe hear, if they are secret voices

    • Braincramp says:

      Hanlon’s razor says,

      “Never attribute to malice that which is adequately explained by stupidity.”

  13. Nick Kelly says:

    ‘Can Fed let CRE disaster run its course?’

    Brooklyn’s first ultra high tower, newly built 1000 feet, is going to auction.

    • Wolf Richter says:

      That’s how it’s supposed to work. First wave of investors lose their shirts; second wave of investors come in at a much lower cost base and make it work. Not Fed needed.

  14. Aaron says:

    They’ll probably cut a tiny bit if the market cools at all. It needs an upward trajectory through the election for dems to win. If inflation stays below 4%, hey’ll feel comfortable with this. Most Americans can feel 4%, but not hard enough to truly examine who caused it.

    It was in 2020 el erian was calling this path we’ve been on. And he figured the fed would get the people frog-hot-potted into accepting 3-4%, as they wouldn’t be able to get it any lower without hurting the economy….and that they would prioritize keeping the economy afloat over bringing inflation below 3% if they had to choose.

    Politics are data points to be considered as well.

    • JimL says:

      Your assertion ignores the fact that when the markets recently tanked the FED did not do anything you assert that they will. If the markets drop the FED won’t do anything unless the market drop is because of the economy (recession or some black swan event). Contrary to what the nutty conspiracy theorists think the FED does not react to markets. They react to employment and inflation.

      Sometimes people let their political biases overwhelm thier ability to think rationally.

  15. SpencerG says:

    LOL… “We have an angry but well behaved Comment Section.”

  16. Cas127 says:


    Just had to pass this along in case their analysis stands up (I haven’t fully run through it yet) because it is pretty staggering/impactful if true…90% of those born circa 1940 made more than their parents…of those born in 1980 or later…only 50% have earned more than their parents.

Comments are closed.