The Reasons the Fed’s Bowman is “Willing” to Hike Rates if “Data Indicate Progress on Inflation Has Stalled or Reversed”

She nails it with her list of inflation-fueling factors. It parallels what Powell said more softly at the press conference.

By Wolf Richter for WOLF STREET.

The first three months of the year have produced a nasty re-acceleration of inflation in the US. It was across the board: in the Consumer Price Index, in the Fed-favored PCE price index, in the Producer Price Index, in the quarterly Employment Cost Index (for two quarters in a row). The Fed is beginning to adjust to this new scenario, and a rate hike — instead of rate cuts — is now back on the table and keeps getting talked about.

Even – or especially? – after looking at the results of the jobs report on Friday, Fed Governor Michelle Bowman said in a speech that she remains “willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed.” This parallels what Powell said more softly at the FOMC post-meeting press conference. No disagreement there.

She would “monitor the incoming data to assess whether monetary policy is sufficiently restrictive to bring inflation down to our target,” she said. Her “baseline outlook” is still that inflation will decline as the Fed keeps its policy rates at 5.25% to 5.5%, but she sees “a number of upside inflation risks that affect my outlook.”

And then she outlined these inflation-fueling factors. And she nailed it.

Why inflation might not decline further:

“Much of the progress on inflation last year was due to supply-side improvements,” she said. We saw that as prices of many goods leveled off or even fell in 2023 – from used vehicles and electronics to gasoline.  But “it is unclear whether further supply-side improvements will continue to lower inflation,” she said.

What could put upward pressure on “food, energy, and commodity prices”:

“Geopolitical developments could also pose upside risks to inflation, including the risk that spillovers from regional conflicts could disrupt global supply chains, putting additional upward pressure on food, energy, and commodity prices,” she said.

What could cause “inflation to reaccelerate”:

  • “The loosening in financial conditions since late last year”
  • “Additional fiscal stimulus” – the gigantic amounts of deficit spending by the federal government.

What could lead “to persistently high core services inflation”:

  • “Strong consumer demand for services”
  • “Increased immigration” – specifically: “The inflow of new immigrants … could result in upward pressure on rents, as additional housing supply may take time to materialize.”
  • “Continued labor market tightness” – specifically: “Wage growth has remained at an elevated rate of between 4% and 5%, still higher than the pace consistent with our 2% inflation goal given trend productivity growth.”

Data uncertainty makes rate decisions more challenging:

“The frequency and extent of data revisions over the past few years make the task of assessing the current state of the economy as well as predicting how the economy will evolve even more challenging, and I will remain cautious in my approach to considering future changes in the stance of policy,” she said.

Monetary policy “not on a preset course,” rate hike possible to deal with it:

“My colleagues and I will make our decisions at each FOMC meeting based on the incoming data and the implications for and risks to the outlook. While the current stance of monetary policy appears to be at a restrictive level, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed,” she said.

“Restoring price stability is essential for achieving maximum employment over the longer run,” she said, something Powell has said at every press conference and in his testimony before Congress.

And they’re trying to get there without plunging the economy into a massive recession, even if it takes a lot longer. That scenario – getting back to 2% inflation without massive recession – may turn out to be a pipedream. It may instead lead to something we’ve facetiously dubbed “higher forever,” higher inflation and higher rates as far as the eye can see, after even Yellen, among others, acknowledged that reality.

 

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  103 comments for “The Reasons the Fed’s Bowman is “Willing” to Hike Rates if “Data Indicate Progress on Inflation Has Stalled or Reversed”

  1. James Marsh says:

    Deflation is very even 2008 didnt cause mass deflation. That is why UE couid go up a lot more before inflation comes down.

    • CCCB says:

      Since 2021 (and before) the fed has telegraphed very clearly, exactly what it planned to do, and then priceeded to do exactly that.

      Meanwhile, the entire world and most folks here keep claiming the fed is lying to trick everyone and is really going to do the opposite of what it says. Wtf????

      Dont fight the fed… Pay attention $$$

      Pay attention and make money. Fight the fed at your own risk

      • Andrew says:

        Where were you this winter when the Fed started projecting rate cuts in 2024? Or when the fed said inflation was transitory as they proceeded to buy MBS and keep rates at 0%. Or how about when Yellen (then fed president) said she didn’t see rates rising in her lifetime?

        You’re delusional.

        • Seba says:

          I can agree with some of this but.. this?

          “when the Fed started projecting rate cuts in 2024? ”

          Cmon they’re just dot plots. The most interesting thing about them is the shift from majority expecting cuts to fewer and fewer believing there will be cuts. The clues are there for people that want to see them, FED isn’t God, they can’t actually see the future and if projections were that easy we might as well go full command economy and print off a lot of little red books.

  2. Jackson Y says:

    One of the reasons I was hoping the previous administration would have appointed John B. Taylor (of the Taylor Rule) for FOMC Chair instead of Powell was he would have likely taken decision-making in a more quantitative direction.

    Given the FOMC’s current easing bias, these are the numeric thresholds that I think will trigger policy changes (just my gut feeling, no insider knowledge)

    Core PCE, last 12 months: +2.8% as of March 2024

    If monthly job growth remains positive,

    – Raise rates when TTM Core PCE in +3.3-3.5% range (would happen if we get mostly +0.3% monthly numbers through September)

    – Lower rates when TTM Core PCE below +2.5%

    – Anything else just keep holding at current levels

    If there is a labor market recession:

    – I think they’ll tolerate Core PCE at current levels and reduce rates anyway if unemployment rises to ~4.2%+

    – If unemployment rises to upper 4’s they’ll probably tolerate Core PCE in the 3’s

    • Wolf Richter says:

      The three-month annualized core PCE price index, which Powell cites all the time, accelerated to 4.4% (red), and moving decidedly away from the Fed’s 2% inflation target. It made a U-turn:

      This was driven by a sharp acceleration in core services to 5.5% (three-month annualized):

      • Gary says:

        Inflation has stalled and reversed it’s decline. Bowman is “willing,” but the question is whether the ability is there. It is hard and unpleasant to listen to stonewalling people; at this point: “actions speak louder than words,” (author unknown, but likely back to a distant ancestor first having language).

        • Wolf Richter says:

          Action is that they haven’t cut rates though Wall Street in Dec/Jan expected them to cut six times in 2024, including 2-3 times by now.

        • Depth Charge says:

          “Action is that they haven’t cut rates though Wall Street in Dec/Jan expected them to cut six times in 2024, including 2-3 times by now.”

          Sure, but it is kind of like saying Jeffrey Dahmer is now a humanitarian because he hasn’t killed anybody in a week. Nah, doesn’t pass the sniff test. Inaction is not action. Action would be aggressively signaling no rate cuts for all of 2024, and that rate hikes are more probable than rate cuts. Jawbone in the other direction, which the FED is too cowardly and corrupt to do.

        • GuessWhat says:

          I think the months of 250K or higher job gains have passed. A likely range for the remainder of the year is 125-225K per month with an average of around 175K. There’s too much fiscal stimulus for the labor market to do anything other than soften a bit more.

          I agree with the tenor of Wolf’s article which is that there’s more upside to inflation this year than down. I just core inflation, 3.8% for March, dropping 3.5% until late this year. And, that assumes we don’t have a geopolitical event that causes oil prices to rise 20-30%.

          The most important question is this? What does Congress do or not do about housing, once a real recession arrives? Do they let the market give us a much-needed, downward housing price pressure or do they trot out rent & mortgage relief again.

          Home price inflation is the #1 inflationary issue facing America right now. Nothing else even comes close. And, it’s not a number of homes or interest rate issue. It’s a price issue.

        • Don't Panic says:

          If the fed had not given the hope of 3 rate cuts in 2024, which was extrapolated by the market players as 6-7 rate cuts, the inflation might have declined to 2 percent already. Even before that, if they had not bailed out the banks in spring 2023 with BTFP, the inflation would be below 2 percent by now. The problem is that fed fears the risk of even slightest panic. That’s why inflation is here to stay for long years.

        • Brian says:

          DC, that… makes absolutely no sense. Either you’re…

          – advocating that they should have a crystal ball and know months ago what would happen so they could “jawbone” in order to influence things the best way, or

          – thinking they should randomly make things up that on the hope that things will go that direction in the future.

          The Fed has been transparent in their analysis of the data and acted in accordance with that analysis while simultaneously saying that things may very well change and, if so, their plans will change in accordance.

          They observe, plan, and act, all while being to open to change those plans. What more do you want?

        • Swamp Creature says:

          Couldn’t even get reservations for Mother’s Day. My favorite joint “Clydes” is booked solid from 11 AM to 9PM for that day. Never seen this before. I have to say this is one anecdotal indication that the drunken sailors and even the sober ones are out in full force spending like there is no tomorrow. Inflation is re-accelerating and rate increases should be ON the table, NOT rate cuts.

        • Cas127 says:

          Wolf,

          “Action” can also be evaluated in the *fiscal* sphere (for all the continuous, monumental, speculative guessing that goes on regarding Fed monetary policy, it is fairly amazing that DC’s fiscal…addictions…get so much less attention on a day to day basis).

          50 years of perpetual deficits are by definition inflationary (the Keynesian powers that be excuse this by 1) pointing to the theoretical “sub-optimality” of the US economy (presumably manifested in unemployment – although 50 years of deficits have accompanied US economic decline) and 2) remaining deathly silent on the fact that perpetual deficit spending empowers the government to perpetually substitute its (thereby financed) agendas for those of the private sector *who have actually generated the real wealth* that is fairly cavalierly redistributed to DC’s decision-making power.

          The give-away (that DC’s power takes precedence over citizen well-being) lies in the fact that despite all the performative commiseration over inflation (effecting what sure looks like a permanent reduction in citizen wealth) there hasn’t been *one* serious effort to slow down, claw back, re-evaluate *any* of the deficit-driving increased fiscal spending.

          DC’s attitude is that once they’ve successfully robbed the bank/711/gas station, there ain’t any reconsideration/remorse/review.

          It was robbed fair and square and it is going to stay that way – regardless of consequences for the actual, you know…citizens.

          (Another dead give away concerning the truth about a lot of gvt spending “in the public interest” – the utter indifference as to actually measuring actual results. Examples…perpetual DoD inability to successfully generate an audit, CA’s non-tracking of tens of billions on spending on the homeless, etc. Etc).

        • Depth Charge says:

          No, Brian, YOU “make no sense.” By your own line of reasoning the FED should have never been signaling potential rate cuts because they do not have a crystal ball, or at the very least they should have been talking about the potential for rate hikes at the very same time, DATA DEPENDENT. Alas, they only wanted to jawbone markets higher.

          FED apologists such as yourself defend their jawboning when it benefits asset prices at the expense of inflation, but cry like a toddler with a scuffed knee when somebody suggests they do something that has the opposite effect.

        • Bobber says:

          Stock and RE prices are driving the consumer inflation right now. The Fed needs to continue the hawkish jawboning until those prices are reduced.

          As I’ve said before, the median household owns a home and some stocks, likely has a fixed mortgage, and is likely seeing $50-$100k price appreciation per year. Why should that household care if living costs go up $3k to $5k per year?

          The median household will keep spending and companies will continue raising prices until the job picture worsens noticeably.

        • Pea Sea says:

          “Action is that they haven’t cut rates”

          That’s not action.

          “though Wall Street in Dec/Jan expected them to cut six times in 2024, including 2-3 times by now”

          Wall Street’s expectations are immaterial when the question is what the policy should actually be. The Fed has been consistently, visibly wrong for over a year now on the question of whether their policy is sufficiently restrictive.

        • MM says:

          It doesn’t matter if holding rates steady is action or inaction. Red herring. Each meeting they are /deciding/ to either do that, or change rates (and if they decide to change, which direction, by how much etc.).

          I think keeping rates in a ‘holding pattern’ is a valid decision for a couple reasons:

          1. It’s an election year, and the Fed doesn’t want to be percieved as being political. Changing rates in either direction could be interpreted as a politically motivated decision.

          2. Higher rates aren’t 100% guaranteed to completely kill off inflation, but they are guaranteed to increase the income of a certain segment of investors. Anyone continuosly rolling over T-bills will get a raise, and corp bond yields will be pushed up too. Here the higher rates are actually stimulative.

          Most of my investments are positioned to benefit from higher rates, because I think they will arrive eventually. But, I also feel that a holding pattern is a reasonable call to make right now.

      • Anthony says:

        Gold tends to reflect the rate of inflation over long periods and the value in the drop in the dollar.. For the last five years gold is up 80% and 508% over 20 years in US dollars…

        • Wolf Richter says:

          “For the last five years gold is up 80%”

          For the last 13 years, gold is up 22%, or less than 2% per year, despite the huge rally recently. The price of gold PLUNGED in between. Pick-your-dates is always fun.

        • RedRaider says:

          In 1999-2001 I tried to dollar cost average my way into what I hoped was the bottom for gold. My cost basis ended up being $425 or $450… can’t remember which. Let’s use the more conservative $450.

          I believe 2023 ended at the $1800 level. That’s a 300% increase. Which would yield an annual growth rate of 5.1%.

          I think of this long term average rate of growth of 5.1% as equal to the inflation rate. I don’t think of gold and inflation as a causal relationship… more like a package deal both caused by other things.

        • Jon says:

          Gold is like bitcoin but much older.

          It has no utility and it’s there as long as one find another sucker to buy.

          Utility wise.. gold just has utility in 27 percent of its current value in industry and elsewhere.

  3. C. bolton says:

    If I average the last 3 months for the core PCE (eyeball says 3.2, 6.2, 3.8) I get the 3 month average to be 4.4. This is is well above your 3 month average. Also one of the problems with “higher for longer” is that the cost of the federal debt keeps growing even if the Federal reserve keeps the current rates. The feds are currently paying about 3.2% to finance the debt. But in time this will grow into the 5.2-5.5% range. This would mean that the cost to finance the federal debt will grow from around $1B/yr to $1.6B/yr. This is close to what all discretionary spending is currently.

    • Wolf Richter says:

      1. Yes, posted the wrong chart in the heat of the battle, fixed now. Thanks.

      2. In terms of financing the debt, you always have to look at interest expense as percent of tax receipts. That’s the metric that tells us where this is going. Looking at interest expense in a vacuum is nonsense.

      https://wolfstreet.com/2024/03/31/curse-of-easy-money-us-government-interest-payments-on-the-ballooning-debt-v-tax-receipts-amid-higher-interest-rates-inflation/

      • C bolton says:

        First I made an error. It is trillion not billion.

        Second, the issue is percentage of discretionary spending.

        Third, if you allow the rates to float up to the 5% range because of the rolling over of the debt then when this happens your chart will be in the 45% of tax range and 100% of discretionary spending. This is scary territory. And if there is a recession…..?

        • Wolf Richter says:

          Yes, it’s scary territory. That’s one of the reasons no one at the Fed wants to trigger a recession.

          If the debt increases more slowly than inflation, the problem will eventually diminish. That’s really the only way to get the burden of government debt to decline because no one can actually raise taxes and cut spending. But if there is too much inflation, consumer spending (and therefore the economy) will get in trouble. So higher inflation and higher rates, but not too high.

        • cas127 says:

          “That’s really the only way to get the burden of government debt to decline because no one can actually raise taxes and cut spending.”

          That’s a policy choice made by DC, not a physical law like gravity.

          Countries that can’t run perpetual deficits (fiscal and trade), balance their books within a reasonable number of years (or they face a currency crisis/devaluation).

          That is pretty much every other nation on Earth (other than the US) so it isn’t like it can’t friggin’ be done. Decadence and decline has been a policy choice.

          DC started out with the most economic advantageous position in human history, post WW2…and less than 70 years later we are an enormous nation with an acknowledged ntl debt to GDP well in excess of 100% (honest ntl debt to GDP likely much worse).

          None of this is a mystery (or unforeseeable – plenty of people have screamed about it for decades).

          ZIRP was the anomaly/fix/plan that could not last.

          Anybody could see that historically low interest rates co-existing with historically high levels of national debt was a counter-intuitive state of the world (founded upon money printing…which shoved rates downward at the latent-then-explicit cost of inflation).

  4. dang says:

    Nice, important article in that it sets the stage for what are the important issues. Which the article clearly addresses in the first paragraph:

    “The first three months of the year have produced a nasty re-acceleration of inflation in the US. It was across the board: in the Consumer Price Index, in the Fed-favored PCE price index, in the Producer Price Index, in the quarterly Employment Cost Index (for two quarters in a row). The Fed is beginning to adjust to this new scenario, and a rate hike — instead of rate cuts — is now back on the table and keeps getting talked about. ”

    Not likely before the election, that cant come soon enough. Probably may be required after the election when the ravages of inflation become most obvious.

    When it discomforts the wealthy. Otherwise, so what.

  5. Ev Last says:

    She failed to mention on-shoring/ friend-shoring as a contributing factor to longer term inflation. That is going to take years. With globalization in reverse, no longer is production going to go to the cheapest producer. If there are any rate cuts, they will only be temporary.

    • MM says:

      You could generally lump this under the geopolitical umbrella, but I also agree this specific aspect isn’t being talked about enough. Mercantilism and protectionist policies will be profoundly inflationary, and unfortunately the world seems to be spiraling out of control in that direction.

  6. fred flintstone says:

    Read the last sentence of Wolf’s article. Repeat……repeat…..repeat.
    Bowman is considered the most hawkish of the FOMC folks.
    The fed is going to eat lots of inflation before it does anything…….the banks are nearly insolvent and commercial real estate is just adding to the problem. Not to mention the goofy employment report unemployment rate just went up to 3.9 which is virtually nothing but these goofs have the backbones of an enraged rabbit.

    • Mark says:

      “The fed is going to eat lots of inflation before it does anything”

      No , the American people will eat that inflation. The Fed and its multi-millionaire officers will continue to protect the banks and the wealthy.

      They’re making a killing off inflation. We get to eat it.

    • Home toad says:

      Michelle “Miki” Bowman says her “baseline outlook” is that inflation will decline if the Fed keeps its restrictive policy rate in the 5.25 to 5.50 range…. Sounds reasonable.

      Then the bad news.
      The murder hornets have teamed up with Depth Charge and friends, and have captured the billionaires stronghold and demanding 10% rates and the head of Powell.

    • Charles Clarke says:

      Inflation raises rent and asset prices so it helps the CRE problem. Decreases chances of CRE default because the loans are paid back with cheaper dollars. Offset by refinancing or selling with higher interest rates.

      The Fed’s choice to not raise as high or quickly as they should have is a political choice to help incumbents. Unfortunately it convinces folks that inflation is persistent and that just perpetuates inflation because we expect to pay and be paid more. If the Fed showed they were serious about controlling inflation, high inflation expectations would go down.

      • Wolf Richter says:

        “Inflation raises rent and asset prices so it helps the CRE problem. Decreases chances of CRE default because the loans are paid back with cheaper dollars.”

        LOL, you’re here and still don’t understand CRE and bonds? Oh my, what have I wrought?!

        1. All yield assets fall in price when yields rise, just math.

        2. The dollars aren’t “cheaper” for CRE; they’re more expensive. Landlords used to have to pay 3% a year to get those dollars, now they have to pay 7% a year to get them, and they have to pay 7% a year to get the dollars they must get in order to replace the dollars that they got at 3% whose terms matured. It’s a tough world out there in CRE.

        3. Bond prices by definition fall when interest rates go up. See the collapse of the banks a year ago. That’s what took down those banks.

        4. Office rents are falling, and office prices have collapsed 40-70%. So there’s that. In general, rents are limited by market forces. Landlords cannot raise the rent to meet the new mortgage payments that have doubled with rates because their buildings will empty out if they do. Their financing costs doubled, their insurance and other costs went up 20%, and their rents are determined by market forces. That’s why default rates and losses in CRE have spiked, and why landlords have walked away from numerous properties.

  7. Phoenix_Ikki says:

    Judging by Friday’s market action, looks like there are still plenty of hopium to go around, much like the mass liquidity that was injected to consumers that’s still taking a long time to burn through. Any slight downtick in data, the market couldn’t trip over themselves fast enough to resurrect that rate cut narrative all over again which then likely will drive up inflation again..

    This will be interesting to see how things unfold this year and next…honestly best thing for the FED to do is to just STFU and keep the market guessing..these press conferences, no matter how Pow Pow want to come off as hawkish is not changing the addicts mind much apparently..

    • dang says:

      Although, every verse of your lament is an expression of an expectation gone wrong,

    • Zoroto says:

      > Any slight downtick in data, the market couldn’t trip over themselves fast enough to resurrect that rate cut narrative

      It’s not the market, it’s the MSM since it’s an election year, and the incumbent’s re-election chances are hugely dependent on how the economy and the stock market is doing.

  8. Phoenix_Ikki says:

    Wonder how many homeowners that bought in the last year or so that listened and believed their genius RE agents the whole “Date the rates, marry the house” are now mad at their agent as that rate cut and mortgage refinance is not going to happen anytime soon…

    Hope these people are not running their budget so tight that, rate cut is part of their plan to afford the house long term…

    • Carlos says:

      They just wanted the house. Thanks to key jingling on Instagram and shows like House Hunters, the status behind owning a house has taken on a pervasive cult symbolism, and there’s a ‘spare no expense’ mindset.

      Much of the energy that should be put towards financial planning is instead put towards the mating dance of jumping through the house purchasing hoops at all costs and winning against the other buyers.

  9. Home toad says:

    Data dependent policy.

    These people are funny…and they give funny speeches….Old Chinese saying “they that chase the 2% get stick in eye.

    The forever party, now with balloons.

  10. Paul S says:

    The lady has intelligence and common sense. I felt some hope reading her comments. If we stay in the 5.5–7.5% range for a few years with a gradually slowing economy, will ZIRP just be forgotten? Current situation is still pretty new and has cramped some agendas and expectations. For now.

    A certain politician has stated he wants the sole power to set interest rates. He would also implement more tax cuts for the wealthy. That would be the beginning of the end, imho.

    These rates are normal. The abnormal blips were GFC 2009-15, and the pandemic years of 20-21.

    • Bobber says:

      I wish the events of 2009-15 and 20-21 were “blips”. When I look around, however, I see tons of low rate 30-year mortgages and LT business debts, exploding government debts, and insane asset prices. Unless the government is willing to take on a recession, I’m afraid these side-effects of bad policy will be with us for a long time.

    • Escierto says:

      Anyone who thinks the US is not going to go full Argentina has not been paying attention. Our very own Juan Peron awaits!

      • 91B20 1stCav (AUS) says:

        “…don’t cry for me, mel-ah-neee-ah…” ?

        may we all find a better day.

  11. The Hunt for Red October says:

    It will take an ACT of congress too raise interest rates after Gomer Powell promised 3 to 4 rates cuts in 2024 that have not yet come to fruition. Fed cut its throat to blow its nose for no reason last year. Leading and lagging indicators is all the Fed should be making decisions off of. All this talking and hot air from hopes and beliefs is not warranted. Wack-A-Mole at Chunky Cheese is still in complete over drive.

    • Wolf Richter says:

      “Powell promised 3 to 4 rates cuts in 2024”

      That’s just ignorant BS. There was NEVER a “promise.” The DOT PLOT showed that the median projection by all 19 FOMC members was three cuts in 2024 IF INFLATION CONTINUES TO DECLINE TOWARD 2%. That condition was always attached to it. It’s only the Rate-Cute Mania instigator morons that chopped off the condition and presented the dot plot’s median projection as unconditioned promise by Powell, LOL, those manipulative idiots.

  12. dang says:

    The data are consistent with an inflationary economy, unaware of the long put off reprecussions that will be required to normalize it.

    When one encounters an AI bot that is programmed by someone to do something.

    Mathematically, AI is the result of computer researchers seeking to demonstrate the massive power of the calculation of potential outcomes over the conventional understanding of the result as being a result of the inputs.

    AI turns that dynamic on it’s head in the sense that the previously dependent variable, backed up by an accepted proof, has become the independent variable.

    It feels like the FOMC may be using an AI algorithm to ” recommend” what they ultimately decide to do. So far they seem to be reliably blue bloods.

    Taking a run around the track on behalf of the Americans that died fighting.

    • 91B20 1stCav (AUS) says:

      dang – the damnable conundrum as you stride – they died with their nation hoping to never again encounter the horrors of those experiences, only to have human banalities and cupidities of subsequent long-term ‘peaces’ slowly reset the old stage-the maw of vanished memories and valor grows ever-wider…best.

      may we all find a better day.

  13. CWSDPMI says:

    Damn. Go read the linked “speech” in Wolf’s article. I think JP needs a communications class. That short message, while a personal one, is full of facts and is very clear on how Michelle Bowman would handle the problem. I’m in awe.

  14. JoshWx says:

    I think the rate hike narrative is intended to keep a lid on the market and temper additional unhinged upside market volatility. I’d be shocked to actually see another rate hike regardless of inflation remaining sticky.

    The employment charts in one of the previous blogs indicates an overall healthy but slowing job market with both Professional Business Services, IT, and Financial Activities either flatlining for correcting downward. A lot of big incomes reside in these categories, and the over-employment bubble in some of these sectors has popped, particularly IT.

    Just a slight additional uptick in unemployment past 4% would probably take enough wind out of consumer confidence/spending to bring inflation back down. My woefully inexperienced gut tells me we’ll be trending in this direction sooner rather than later.

    • dang says:

      yah think. Certainly a lid on the market would send a signal that lying and cheating is an inappropriate behavior for market participants to display, even while they are being sheared of their assets.

  15. JeffD says:

    “Strong consumer demand for services”

    Freddie Mac’s announcement to purchase certain single-family, closed-end second mortgages will virtually guarantee this.

    • Wolf Richter says:

      Has nothing to do with it. It’s buying those loans from lenders. People have been getting second mortgages for a long time. Also, only second loans qualify where Freddie Mac owns the first mortgage.

      • Depth Charge says:

        And at the slightest hint of an economic downturn, the government and Freddie Mac announce “you don’t have to make your payments right now, you will not be considered in default, and we will suspend them until further notice.”

        • MM says:

          That would be a pretty… extreme… response.

          Bailing out the student loan debtors was one thing – those loans weren’t tied to an asset. But pausing/forgiving mortgage payments would be a HUGE wealth transfer to anyone with a mortgage.

          I know a lot of gov’t officials are dumb as bricks, but mortgage forgiveness is so profoundly stupid I honestly feel its a far-fetched scenario.

          Certainly not impossible tho.

    • JeffD says:

      I’ve seen several real estate investors say this will be a mechinism to turn equity ivnto cash in a way that other instruments can not. We’ll find out.

      • Wolf Richter says:

        “real estate investors” … lol, sure, they’ll say whatever. Second mortgages are about as old as first mortgages. People who wanted to use them, used them. Not many people want to use them because you end up with two mortgage payments, not one.

        With a cash-out refi, you get one payment, and since you can refinance a mortgage with 21 years left into a new 30 year mortgage, and if interest stays the same, you might actually keep the payments similar and pull some cash out.

        For consumption funding, you get a HELOC, which is a line of credit that doesn’t cost you anything if you don’t use it (except maybe a small fee).

        If you are a real estate investor, you might use a second mortgage as a source of funding for your future purchases, down payments, etc. People have used second mortgages to fund their or their kids’ startups, etc. But that’s not consumer spending, and it’s not a lot of people that do that. To say that consumer spending will rise because of Freddie Mac’s proposal is nuts.

        • JeffD says:

          I just found this article that may explain what is going on:

          https://www.urban.org/urban-wire/second-lien-securitization-could-be-key-accessing-home-equity-high-rate-environment

          “agency backed” securitized mortgages for people with low credit scores. The .gov always comes up with new schemes to create risky money that is “guaranteed” by the full faith and credit of the ‘ol USA, regardless of how likely they are to go under.

        • Wolf Richter says:

          1. The article you linked was FROM OVER A YEAR AGO. Read the date before you link.

          2. Freddie Mac doesn’t do low credit scores. That’s the FHA.

          3. Read the article you linked, for crying out loud. Among other things, this is what it says:

          “Closed-end second liens often do not require credit scores that high, but very few are issued. Between January and August 2022, $53 billion in closed-end seconds were originated, per Equifax, which was a 50 percent increase from 2021. During this period, about half of HELOC originations had credit scores above 780, compared with 15 percent of closed-end second originations.

          “How originators can develop a robust second-lien market
          “Despite the presently limited market, there are clear green shoots for second-lien originations. Many nonbank originators have announced that they are originating or will begin originating HELOCs or closed-end second liens. We have seen public announcements by Rocket Mortgage, Guaranteed Rate, United Wholesale Mortgage, PennyMac, and loanDepot. Because it’s a new market, most originations will require high credit scores, but not as high as bank HELOCs….

          What this piece says is that these types of mortgages have been around, but use is very small, and over the last few years, private-sector originators have tried to increase that business.

  16. SpencerG says:

    Great speech and she pretty much covered everything. But the proof is in the pudding… I truly don’t see the FED raising rates until after the election is over in November unless inflation really does top the levees and break out. It would be good for ALL of us if that doesn’t happen… but it would be especially good for the FED since they are desperately trying to avoid getting roped into the political maelstrom this cycle.

  17. Juicifer says:

    Greetings from the Land of the Falling Yen.

    Question for Wolf. Given that the Fed is loathe to “appear political”, would it be a safe bet that, if small rate cuts or hikes are to come this year, they probably won’t come during FOMC meetings that are timed in an election year where such action would most likely be seen as being “politicized” in favor of one party of the other?

    Example, FOMC meets, IIRC, next in June, 2024, which is the last meeting where the “fireworks” of the political season have still yet to be lit? After that, I think the July scheduled meeting comes smack-dab in between the two parties’ national Conventions, while the next meeting, in September, would be mere weeks before the election (and the November meeting would be the day After the elections?

    Do you think this influences the Fed to the point where one might conclude that, barring a catastrophe of some sort, if they don’t make a move on rates in the June meeting, they’ll be bound to “keep out of tinkering” during so sensitive a time as during the July/September meetings? Or nah? Curious as to your own views.

    Thanks so much for this site, and for sharing your wealth of info with us day after day!

    • John H. says:

      “Thanks so much for this site, and for sharing your wealth of info with us day after day!” (said Juicifer)

      Sometimes sharing twice a day, and recently, 6 times in 3 days.

      Forget the inflationary impact, Give that man a raise!!

      • Debt-Free-Bubba says:

        Dear John. YEP. The Lone Wolf is on a roll. The nonsense starting in 2008 seemed to get him going ????? Pretty sure that is why Wolf Street was born. I wonder what will happen in the next few years???? Hope he does not burn out…….. Quite a few folks depend on his truth.

    • MM says:

      I speculated exactly that in a comment above: Powell is choosing to stay put on rates because raising or lowering them could be perceived as politically-influenced.

      • Charles Clarke says:

        And not raising them in the face of rising inflation is also political. Which bakes in high inflation until harder action is required.

  18. Redundant says:

    Re: “Geopolitical developments could also pose upside risks to inflation”

    Recent weather dynamics in the UK are potentially threatening the supply of some of their food supplies.

    If crops end up with lower yields, that could become problematic with higher prices. That inflationary problem there, might spill over into other markets with supply and demand impacts.

    Seems like a remote situation, but as freak weather oddities become increasingly unpredictable, it just adds to a list of things that aren’t stable these days.

    Probably priced in …

    • EnglishEnglish says:

      ‘ Recent weather dynamics in the UK are potentially threatening the supply of some of their food supplies. ‘

      Lincolnshire is a region which produces 30% of England’s fresh produce.
      A family member makes a monthly trip there, and reports that sodden soil and stunted crops are a common sight.

  19. polistra says:

    Good. Extreme firmness is needed. Aside from the fake meaningless “inflation” “numbers”, it’s clear that corporations and Congress are working hard to keep free money flowing through other channels, so SOMEBODY has to restore the balance.

    • NYguy says:

      Dream on if you think this Fed will raise rates. Unless inflation goes above 6-8%, they’re going to just sit back and watch us frogs boil in order to get their puppet reelected. It’s the power structure simply picking who will best do their bidding.

      If they actually wanted inflation at 2% they would have raised again. They’re speaking out of both sides of their mouth to con everyone into thinking they actually care about the people when it’s all about maintaining an out of control corrupt government from collapsing.

      • Sean Shasta says:

        Lol. That’s crazy weird cos whatever the Fed has been doing has not been helpful to the incumbent.

        Also, the puppet is the mastermind. Got it. ROFL.

        • Sean Shasta says:

          Btw, I do agree and have posted here before that the Fed speaks from both sides of the mouth…or they play seesaw…or put their fingers on both sides of the scale.

          But that has always been their bias…they are fine with markets going up but are very averse with markets going down and will do anything they can to prevent it. Which is a real problem.

  20. Irish Ozark says:

    So demand for rentals from immigrants is keeping rents high. No surprise there and is something the authorities can have at least some control (both legal and illegal). It is the same over here in Europe. They cannot build at a fast enough pace to keep up and this is not going to change in the next 5 years at least.

  21. Citizen AllenM says:

    Patience is called for, and the only thing that would drain significant liquidity and bring down inflation will be higher taxes. Taxes will go up significantly in 2026 for individuals, and I imagine, should Biden win an element of progressivity will be reintroduced to the tax code and leveling with capital gains and wages. Of course the deficit nervous nellies will continue to babble about the end of the world. And any republican who whines should just go back and say Dick Cheney was right in the long run, although he still is not dead.

    Inflation will take quite a while to wring out of the system again, and I don’t count on seeing it gone before my demise. So, get ready for the long slog unless we get another peace dividend. The Clinton tax increases and peace dividend really took inflation down, along with cheap commodity prices and cheap foreign manufacturing. Don’t see much of this for a while.

    As for housing, well, expensive and slow moving come to mind. A lot of housing is off the market with cheap financing and little incentive to move until death or payoff.

    Someday this war’s gonna end…

  22. Wes says:

    The FOMC should have left the “possibility of a rate increase” on the table back in November 2023.

    • SoCalBeachDude says:

      They did.

    • Kpl says:

      The Fed is always in a tearing hurry to cut. It just needs a small window. Whereas when it comes to raising rates they would like to be late to the party (transitory you know). The Fed always raises rates ONLY when they are forced to.

  23. SoCalBeachDude says:

    DM: Warren Buffett dumps Apple stock and reveals the news no American taxpayer wants to hear as the government tackles rising debt – here’s what it means for YOUR pocket

    The declaration, delivered Saturday, comes as the US is hard-pressed to address widening fiscal deficits, and as the national debt recently topped $34 trillion – an amount nearly as big as the entire US economy. More concerning is the fact the Fed and other money-minded officials have no plan in sight, paving the way for the Berkshire Hathaway boss’s unsettling prediction.

    • jon says:

      Politicians would not cut spending and/or raise taxes to cut down the deficit.

      The only question is: How is this deficit be funded . The answer is very clear: Either by FED and/or institutions/private parties.

      At this point, there is ample demand for 10Y T Bonds because the buyers think that lower yields are in the horizon.

  24. Anthony says:

    One thing I’ve noticed in booming USA and that’s the price of oil. Oil, should be way over $78 dollars but its not.

    • Wolf Richter says:

      Such BS! The US is the largest oil producer in the world, with soaring production. US frackers are flooding the market with oil, including for exports of crude oil and petroleum products (gasoline, diesel, jet fuel, and all kinds of products for the petrochemical industry)

      https://wolfstreet.com/2024/03/04/us-production-exports-crude-oil-petroleum-products-soar-to-record-in-2023-strategic-petroleum-reserve-gets-refilled-slowly/

      https://wolfstreet.com/2024/04/03/side-effect-of-us-natural-gas-boom-record-ethane-production-exports-for-the-petrochemical-industry/

    • Gen Z says:

      Exxon’s golden goose in Guyana plan to export at least 1.3 million bbl of oil a day by 2027, just 4 years from now.

      The autocratic countries are steaming mad that they can’t get their $200 oil without provoking some world war which will decimate the world economy and cause millions of consumers to lose their livelihoods.

      • Anthony A. says:

        World oil production is roughly 100+ bpd at the moment and rising. No big deal to add XOM production of 1.3 MM BPD in 2027.

        West Texas alone produces 3 to 4 times that amount right now, and it is increasing.

        • Miller says:

          “West Texas alone produces 3 to 4 times that amount right now, and it is increasing.”
          Yeah I saw that a couple years ago touring one of the Texas fields on a job down here, a big supply jump and it’s just starting. A lot of factors all at once are putting pressure on oil to decrease short and long term, both demand and the supply side and OPEC for once doesn’t have the power it used to cut supply and force prices up. Canada and the US both pushing up production like talked about here, but also less expected sources like Guyana, Chile and Argentina, Some OPEC producers like Nigeria upping production. Then on demand side China going all out in renewable power sources much faster even they expected, solar and wind and batteries ex. getting good enough to take mass numbers of ICE cars off the road. And they’re making boatload profits selling their renewables tech to other countries, including EU getting more energy independent.

          So you have massive production and less demand both on the horizon. The US and Canadian oil producers really can’t reduce production because of how fracking works, the capital investments and the way the deposits get available mean you have to extract the oil and fast. Longer term that means our wells will get harder to extract good oil from, it’s already a lot more expensive than ex. Saudi fields and the environment costs are high, not just pollution but all the contamination from the high pressure water with the hydrocarbons. But we have at least a decade or two of rising production still. And by then China, the EU and other big renewables focussed economies will have put huge downward pressure on the demand side. Even with straight out collusion the oil producers can’t keep prices up like that and that’ll be a good thing for just about everyone, and oil can instead be used in more limited but useful ways like a synthesis precursor and not uselessly burned how it is now, with all the pollutants from it.

        • Gen Z says:

          Namibia is the new Guyana with 10x the amount of potential reserves (according to The Extractor)

          “Brasil Petroleum Studies President Dr Marcio Mello says Namibia’s offshore oil deposits could contain 100 billion barrels.

          On Tuesday, Dr Mello told the ongoing Namibia International Energy Conference that geological data underscores the potential for over 100 billion barrels of unrisked oil reserves.“

          My comment: Oil glut galore in 2030!

    • SpencerG says:

      The Kingdom of Saudi Arabia sets the price of oil… always and forever. Their oil is simply easier and cheaper to get to than anybody else’s so they turn the spigots on and off as benefits their national government. Our frackers found that out the hard way TWICE in the last decade. Fortunately for those of us Americans who lumber along in larger vehicles than we really need, the Saudis CURRENTLY find oil at $80/bl (+/- 10% on any given day) to be a sweet spot for them.

      It would be nice if they would lower it to $50/bbl (like when the Iranian sanctions were scheduled to end in January 2016 and all the oil that Iran had been bunkering for a decade was to come on the market)… but the Saudis can also raise the price by $50/bbl too… as Joe Biden found out when he won the 2020 election after stating that he intended to treat the Crown Prince as a “pariah.”

      • Wolf Richter says:

        LOL. “Our frackers” took their price out the back door and crushed it. The US outproduces the Saudis, and US production keeps growing, while Saudi production has been roughly stagnant for five DECADES.

        “Our frackers” would always love a higher price because that’s good for profits, but they’re an unruly bunch, hundreds of them — not just one state-owned oil company — and they keep producing more, and that keeps putting downward pressure on price. No one can destroy a price like “our frackers” can, as they have shown repeatedly with natural gas and crude oil. Now they’re trying to use what the industry calls “discipline,” in order to not outproduce demand, in order to keep the price from crashing. They’re happy with WTI above $70, and they’re trying to keep it above $70.

      • MM says:

        Since 2011, the USA has added two-and-a-half Saudi Arabias worth of oil production.

    • MM says:

      Right now ultra-low natty gas prices are putting a ceiling on oil prices. The former is priced like $10/bbl oil.

      The spread between oil and natgas will never be too wide, because eventually it becomes more economical to convert to natgas combustion. We’re already moving in that direction anyways because CH4 is (currently) the cleanest burning hydrocarbon that exists.

  25. Gen Z says:

    It’s surprising that the immigration theory is mentioned with inflation, because in Canada people can lose their job for mentioning that directly.

    The majority politicians here own rental properties and profit off from that, that’s why. They support packing dozens of young international students inside a Toronto basement unit of a 1950s bungalow meant for a small family.

    More rent for the landlords.

    • Say adios, Toronto says:

      Why do so many young people or immigrants want to live in Toronto if it’s so expensive and jobs aren’t great or plentiful. If I were them I’d go to a rural cheaper part of Canada where they could probably find and maybe even have a better chance of finding work.

  26. Debt-Free-Bubba says:

    Howdy Youngins. Inflation going up and got you down? Feeling like a prisoner in your own home? Want or need to move and can t. Date night and places are packed with smiling faces? Fun times for some of US.
    My lava lamp says get ready for more crazy days ahead……..

  27. spencer says:

    Powell destroyed deposit classifications and discontinued reserve requirements. Powell eliminated the scientific evidence that made the scientific method possible. So, now we will know less and less about money.

    That said, short term money flows peak in June, and long-term money flows should decline thereafter (provided the drop in the QT taper doesn’t impact the trend).

  28. rossco says:

    The Quantitative Peopleing of immigration normally goes unrecognised. Good to see it get a mention.

    Down here in Australia (most sparsely populated continent with a housing crisis) it has been a deliberate policy for a decade.

  29. Pea Sea says:

    Give her credit for, if nothing else, openly admitting that financial conditions are loosening.

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