“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance.”
By Wolf Richter for WOLF STREET.
FOMC members voted unanimously today to cut the Fed’s five policy rates by 25 basis points, after the 50-basis point cut at the prior meeting in September:
- Federal funds rate target range to 4.50% – 4.75%.
- Interest it pays the banks on reserves: 4.65%.
- Interest it pays on overnight Reverse Repos (ON RRPs): 4.55%.
- Interest it charges on overnight Repos: 4.75%.
- Primary credit rate: 4.75% (banks’ costs of borrowing at the “Discount Window”).
A 25-basis point rate cut was telegraphed by the Fed’s communications, after many folks in the first days following the monster-cut in September had expected another monster-cut, with more cuts to follow, which triggered some mighty backpedaling by various Fed speakers, including talk of “pausing” either in November or December.
The theme of continued monster-cuts changed when crucial labor market data, GDP, consumer income and spending, the savings rate, and inflation data were revised higher after the rate-cut meeting, and some data came in warmer for September, including inflation, with core CPI rising for the third month in a row, reaching 3.8% annualized, to where by mid-October the no-landing scenario reappeared.
The October jobs report was marred by the Boeing strike, triggering the temporary drop in manufacturing jobs that will bounce back when these workers return to work, and by the hurricanes that temporarily knocked out a large number of jobs in the vast areas where flooding occurred. Those jobs too will bounce back plus some during the clean-up and reconstruction period. And the Fed could see this too.
QT continues at the pace announced in May. The Fed has already shed nearly $2 trillion in assets since it started QT in July 2022. The FOMC’s Implementation Notes today said it would continue to shed assets at the current pace.
What changed in the FOMC’s statement:
The statement changed in some ways, and was left intact in other places, to indicate that upside inflation risks and downside employment risks now “are roughly in balance.” In prior statements, it was still “gaining greater confidence” these risks were moving toward that balance.
Left intact: “Recent indicators suggest that economic activity has continued to expand at a solid pace.”
New: “Since earlier in the year, labor market conditions have generally eased…”
Old: “Job gains have slowed…”
Left intact: “…and the unemployment rate has moved up but remains low.”
New: “Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.” [left out “further” perhaps to indicate that it noticed the recent upticks in month-to-month inflation].
Old: “Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated…”
New: “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance.”
Old: “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance…”
New: “In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent.”
Old: “In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent.”
Left intact: “In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
It was a no-dot-plot meeting. Today was one of the four meetings a year when the Fed does not release a “Summary of Economic Projections” (SEP), which includes the infamous “dot plot” which shows how each FOMC member sees the development of future policy rates. SEP releases occur at meetings that are near the end of the quarter. The next SEP will be released on December 18 after the FOMC meeting.
The whole statement:
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Beth M. Hammack; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller.”
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Is this really supported by the data on your opinion Wolf? I know it is what it is.
Right now, the Fed’s policy rates rates are in a pretty good place. They’re still well above the rates of inflation, core or headline, sticky or otherwise. Inflation rates have come down a LOT.
If inflation turns around solidly and keeps rising, the Fed can hike again. Rate cuts are not permanent. That came out several times at the press conference.
When Powell was asked if he could “rule out” a rate hike in 2025, he said: “I wouldn’t rule anything out that far away.”
“But that’s certainly not our plan,” he said, referring back to the SEP at the last meeting, where no rate hikes were indicated.
Then he added: “But ultimately, we’re not in a world where we can afford to rule things out a full year in advance. There’s just too much uncertainty in what we do.”
“But ultimately, we’re not in a world where we can afford to rule things out a full year in advance. There’s just too much uncertainty in what we do.”
They might have saved themselves, and us, a whole lot of difficulty and pain in 2021-2022 (and beyond) if they had been similarly publicly open to changing course, in something approximating real time, based on incoming data.
I think they learned that lesson. “Forward guidance” was the official doctrine at the time (something Bernanke invented). And it locked them in when inflation started soaring. Since Sep 2021, the doctrine shifted to “data dependent.”
Which was a similar scenario when Volker had the opportunity too tame inflation. In the rear view mirror, his first dalliance with pernicious inflation was a kinder and gentler approach, a mistake.
Inflation had established itself and nothing but 15 pct mortgage rates were able to break the bubble.
We all know the US government is having to borrow 1 trillion every 90 to 100 days. But Mr. Wolf, I do not know the the term of the debt issued. My guess is that it is all in the short end of the market, T-bills. This is where they continue to lower rates. This is where the interest rate is now the lowest. The long end of the debt market has gotten very expensive. So if I am right, we now have a new problem the huge and ever growing snowball of US debt in the short end of the US Treasury market. The old debt will constantly need to be rolled over as new debt is added. Am I right or wrong?
“My guess is that it is all in the short end of the market, T-bills.”
That’s not correct. There are about $6 trillion in T-bills outstanding, about 22% of total marketable securities. They have issued lots of notes and bonds, including $35 billion of 30-year bonds at the auction yesterday and $52 billion of 10-year notes on Nov 5. You can look that the up at the auction results. The share of T-bills increased earlier this year and late last year, but has been roughly stable over the past few months.
Well bless their hearts…
With a long enough timeline, everything is transitory.
I agree except I think that transitory degrades the blessed timeline of humanity
Which has been in place for a longer time than the current paradigm
I’m not Mr. Market, but this appears to be a very symmetric, balanced statement. It leaves room for the next move to be nothing or anything, depending on the data. Given the Fed’s
desire to enable banks to front-run policy changesreluctance to surprise markets, most likely the next meeting will be “no change” but with dovish or hawkish hints to guide future expectations….If Wolf is right about inflation metrics firming back up, on top of likelihood of inflationary policy changes from FedGov, the Federal Reserve may be pressured to raise rates back up fairly soon.
Then again, post-election, the Establushment may welcome that pressure, if they want to force rates up to put a leash on Congress and Trump.
Will the Bond Vigilantes return in force?
“Will the Bond Vigilantes return in force?”
Well…considering that Fed money printing and other actions (ZIRP) euthanized the “Bond Vigilantes” from 2002 to 2022 (more or less), my guess is…no (unless the Fed wants them to).
If ZIRP accomplished nothing else (beyond the huge derangement of the valuation economy of course), it showed that the Fed can more or less control interest rates (at the inescapable cost of creating horrible inflation/over-valuation).
DC thinks it has discovered fire (money printing) and it ain’t going to stop (fiscal deficit, years 51 to economic apocalypse – accumulated Fed Debt $35 trillion to infinity) until the USD based economy is incinerated.
No matter what signals the free(r) market sends, DC *always* prioritizes its agenda (see 50 years of fiscal and trade deficits) and the only tool it really has to do that (anymore) is money printing.
It may periodically attempt to tighten (2022-2024) but the preceding factors (absolute priority of DC agenda, baked-in entitlements catastrophe, etc) will inevitably force it back to loosening/printing, sooner or later.
Why do you think there was pivot talk from almost day one of tightening in 2022? Plenty of people know that the economic fundamentals of the USD economy are actually pretty god-awful (50+ years of trade deficits), a fact obscured only by the mis-valuation induced by 20 years of ZIRP.
The ideation that there is a a group of bond Vigilantes is absurd because the bonds are mis-priced as a result of a government subside.
The 10 yr should be at 525
Every time I hear that term, I envision a group of super powered villains waiting to take over the would.
BWAAHHAAHAA!!!
Federal Reserve “Goals” and “Mandates” do not have to be the same thing. The “Mandates” are what Congress has given the guidelines for that are completely within the absolute independence for the Federal Reserve to achieve if the Federal Reserve wants to. Federal Reserve “Goals” can be the actual marching orders and include any rationale, including locking in the inflation generated by quantitative easing (QE) with as limited wage gains as possible.
The actual history of the last 50+ years is that,
1) The Feds have absolutely insisted on essentially continuous deficit spending in order to fund their priorities – without triggering the political battles that sufficient *taxation* to balance the budget would entail.
2) The Fed, either under explicit DC marching orders or implicitly compelled in order to keep interest rates from exploding (due to endless fiscal deficits/cumulative debt) have manipulated the hell out of interest (read Treasury) rates. The only real tool they have to do this is money printing (and its sorta-inverse…although tightening has been much, much, much rarer over the last 40-50 years).
Everything else (Goals/Mandates/Wishes/Hopes/Dreams/Delusions and Lies) are just the wallpaper used to cover over the rot of 1&2.
The “bond vigilantes” are a figure of your imagination.
Transition to no cut next meeting?
I can see that as a possibility. A “pause,” as they’ll call it, has already been pronounced as a possibility by several Fed governors. If inflation reports come in hotter than expected, it’s good possibility.
I’m just now listening to Powell getting bombarded with the same question.
Dude, he’s going to cut.
Expect it.
100% guaranteed
Save some griping for the dollar general clerk
I’m not so sure.
I kinda think this 25bps is a ‘face saving’ cut that will allow the Fed to pivot (ha!) to the pause mentioned by Wolf above.
Jpow got some good pushback from a couple reporters about “why even cut at all?” and I don’t think he wants inflation to blindside him again.
This NYT reporter begging for rate cuts needs to be tased. Bzzt!
Well, a rate cut has a certain sexual stimulus that a rate increase can never have.
Tell that to my HYSA.
Wolf said: “to back pedal”
Yes Wolf, but are they backpedaling fast enough? I say no, they should be pedaling forward.
they are henchmen for an evil bunch
On the other hand the beauty of the people is transcendent.
1. Purple tie means no future cuts
2. What is reading as he answers questions from press — is this realtime AI guiding his thinking, or are these pre-prepared questions with pre-planned scripting?
3. Does any of this matter —- we’re essentially waiting for paint to dry — and no projection for wind speed variables.
4. Inflation trends seem headed higher but will GDP revisions alter inflation outlook?
5. This can be deleted obviously but who cares?
Oh wise one! PURPLE, now you have broken the code!
I’m curious about Powell’s explanation for rising long bond yields: he said it was due to growth rather than inflation expectations.
I don’t really follow his logic here.
IMO the rise in long term rates is a characteristic of realization that the market rate should be 100 bpts above what you bought it at . A 25 pct capital loss
When pushed if he or any of the other governors could be fired or demoted — the second time the same question was asked — Powell said tersely: “Not permitted under the law.”
The first time he was asked, he said even more tersely: “No.”
I like the way he said it the second time, with the space between each word.
Not. Permitted. Under. The. Law.
Yes, he sure did that, LOL. You could tell from those pauses between each word that the reporter pissed him off.
I really wish he had that special reporter-Taser that I’ve been clamoring for. ZZZZAPPPP “next question.”
LOL, I hear Putin has one so be careful what you wish for ;-)
No doubt thinking he wished he had a double-barreled zapper, with some extra voltage!
Powell is going to be surprised when he finds out laws are only as good as the Justice Department enforcing them.
Powell will also be surprised to find that Congress makes the laws, and Congress can change the laws. Powell was really funny as he showed his ignorance, responding to the question like a three year old. He is clearly worried about his job, as I have mentioned in the past.
That’s the thing about America. Our laws are like Chinese handcuffs.
The more you break them, the more they envelope you.
You can keep jumping thru the sewing needle eye on fire, but eventually they getcha.
How many armored divisions has the Pope?
I’m sure it is just coincidence that Fed policy has more or less completely accommodated 50+ years of fiscal deficits (including driving interest rates – during the long night of ZIRP – down to zero despite accumulated Treasury deficits in the tens of trillions, well in excess of 100% of GDP).
Nobody *has to* fire their minions.
Well my oh my is he wrong on that. They can be fired for cause. It’s never happened before. By the time it wound it’s way through the courts, it wouldn’t matter. He’d have been gone for too long to put him back. He might get some financial compensation if they decided it wasn’t for cause, or at least not a cause they deemed as applicable to the law (as vague as it is).
Its actually a foolish question to ask.
It is also stupid to undermine the president elect. While he is prone to talk his mind openly, I doubt if he would ever attempt to remove the Fed Chair.
America is now a full circus from politics to media to the monetary authority. But the cake must go to the investors who are gambling away their savings.
It will be interesting to see how this plays out
The reporters got Powell to express some emotion on the subject, so what’s foolish about that? That’s just doing their job.
And undermining the president elect? Hahaha, you mean the one who continually undermined the supposedly independent Fed Chair?
What the fuck does the Fed see that we are all missing and that is NOT in the numbers they, and the government, are reporting? This economy is strong by every metric and there is plenty of liquidity as Wolf and others have documented. The next round of inflation is going to be a monster.
If the inflation is really as high as WR shows it to be and as perfidious as WR articles show it to be then FED has no business cutting rates.
But what WR and his articles think ( no offence ) does not really matter as Powell does not read his articles.
Policy rates are still way above inflation rates. You don’t wait cutting policy rates until inflation reached target. That’s just stupid.
Volcker started cutting policy rates the first time in May 1980, when Core CPI was 17%, and he cut by about 700 basis points in one fell swoop, you goofballs. He then cut two more times before hiking again.
Volcker cut rates again in Feb & March 1981 when core CPI was 11%, before hiking again.
Volcker’s 3rd rate cut cycle started in Aug 1981 with core CPI at 11.5%, and he ended up hiking again, a final time
Then in July 1982, he cut again, with core CPI now having fallen to 7%.
So should Volcker have kept the EFFR at 19% until core CPI was back to 2% and not cut a minute before? 🤣
By your own admission he had to raise raise rates several more times after cutting in 1980. Wouldn’t that mean he cut too soon? Maybe it wouldn’t have taken another 3 years to get the problem under control if he hadn’t cut in ’80. Not following the logic there
Kernburn,
His rates triggered the worst recession since the Great Depression and 10% unemployment, which I experienced directly by having gotten out of grad school right in the middle of it when no one was hiring. And the unemployment rate stayed high for many years. It was a shitty time to start a career. He is no hero in my book. He ruined part of my life. Hiking rates is not child’s play. It can have devastating consequences on millions of people.
Thank you Wolf for deep-sixing the ridiculous and reflexive Volcker hagiographies. I lived through the early ‘80s too and wouldn’t wish it upon my children, that’s for sure!
Brazil has the answer keep interest rates in double digits forever so inflation never comes back.
Residential real estate is turning down or likely to turn down in a big way in the coming months. That will put a serious damper on inflation’s ability to rise up meaningfully.
Do you really think the long-term outlook for this economy is rosy? If the answer is “NO”, then the Fed is actually taking a proactive position for a change, which is a good thing.
Future inflation is not a given.
Fed sees path to 2% which is their stated goal. So they are easing. I think it is not irresponsible. They have an eye on the economy not on the stock market.
The problem is that Fed easing is interpreted by investors as a license to gamble. Of course investors are not at fault too because the Fed has promoted this behavior for better part of 3 decades.
What investors do not realize that the world has changed. The Fed may not be a backstop now as it was in 2008 and 2020. But like Pavlov’s dogs the response is conditioned. Only a painful alternate stimulus will undo the prior conditioning.
“The Fed may not be a backstop now as it was in 2008 and 2020.”
LOL!! Then the Fed will END due to the current politics.
Powell: We’re aiming for inflation at 2%. We’re not looking to deliberately undershoot our target to compensate.
Seemed like a logical decision by the Feds. Do I wish it remained high so the conservative portion of my portfolio stayed higher but that is the natural result of being conservative. Has I known 2024 things would go through the market I would have repositioned, but Captain Hindsight really is if no use(although a great South Park episode).
This is what I told my buddy papa Smurf
I said papa Smurf you need to take half of your conservative portion and buy the S&P
You’ll get 20% return before it blows up, that’s 5 years if 4%. Set a date to pull it out. Zip cord to a soft landing, and chill on some 1% t bills baby.
But who knows what papa Smurf will do. Perhaps just be glum and buy some smurfberry jam to put on toast.
Papa smurf should buy NVDA
Just change your name to LongNVDA LOL
honestly NVDA and the other tech stocks have been amazing.
Especially if you saw them as cheap this time last year.
Kudos to those who saw them cheap at the bottom in 2022. Cuz those people are rich now.
The fed are allowing inflation to harm everyone. 2% is the high of a range. Reducing rate by any amount is wrong. Foolish irresponsible fiscal decision of 6 plus $trillion debt being monetized. They are ruining people’s lives while they pretend it’s a game. The left media directs their decision by continually blasting the public with words like
“…widely expected to cut …..”
Everything is perfect and the stock market has reached a permanently high plateau. It’s a perfect day to purchase more NVDA before it blasts through 150 on the way to 200!
there are people in the other thread who actually believe that. they actually think the fundamentals are driving stock prices. lol, 205% of gdp. yeah okay.
I’m seeing 234 by 01/31/27
It’ll prob be 250ish by then. Of course if you know there isn’t a healthy fall.
Most of us got in on it once it joined one of the indexes.
Powell’s most important response today was a simple two letter word: NO. Someone from Politico asked Powell if he would resign if Trump asked him to and Powell responded in a micro-second with a resounding NO. He has clearly thought about it. Powell then said later it was against the law for Trump to fire him. What Powell needs to understand is that Congress makes the laws, and Congress can change the laws. The gauntlet has been thrown down. Should be fun to watch.
Otherwise, it was the usual Fedspeak with nothing really new or interesting. Everyone expected a 25 cut.
Threat politics. Sigh
Let them eat cake
The Trump Admin is going to blow up the deficit due to tax cuts for the ultra wealthy and the mega corps. Rates from the middle of the curve out to the long end are heading higher. It’s possible that rates may dip for a short time, but higher is the larger long term trend.
Ann Seltzer, is that you?
Interesting Q&A.
Question From MNI Market News: Would it be appropriate for the Fed to undershoot its inflation target to give households a chance to heal?
Jerome Powell: No.
Unanswered Questions: WTF happened to the concept of 2% average inflation targeting? Is that now dead? If so, what is a realistic target for future inflation? Is it a 2% floor plus whatever overages “accidentally” result? How is that consistent with an advertised 2% inflation goal?
“Unanswered Questions: WTF happened to the concept of 2% average inflation targeting?”
No, that’s not an unanswered question. It’s an answered question. Powell was asked that today and answered it today. [the “Framework” here is the overall strategy, the updated version of which the Fed released in late 2021; it’s a big document posted online]
Powell answered:
“No, that’s not the way our framework works. We’re aiming for inflation at 2%. We did not think it would be appropriate to deliberately undershoot. And you know, part of the problem there is that low inflation can be a problem too…. but that’s not part of our framework and it’s not something we’re going to be looking at in our framework.”
but why then let it run hot, which is averaging, to make up for years of lower than 2%, but not undershoot, which is also averaging, to make up for three years of higher than 2%? why the disparate treatment?
Good question, although I think we know the answer.
The Fed seems to have migrated from 2% inflation averaging to a 2% inflation floor over the past five years or so. I don’t know how else to interpret Powell’s full response that Wolf posted.
It’s frustrating to see inflation policy loosen like that.
My own inflation expectations are completely unanchored right now, largely because inflation policy itself isn’t disciplined enough for my taste.
They don’t want inflation below 2%. And if it falls below 2%, then they can let it run hot for a little so as to bring the average up to at least 2%. That’s the “framework” that the Fed released in 2021.
And inflation is going to run over 2%. And they will be fine with it. We’ve discussed this here for a while. With government deficits and debt like this, moderate inflation and economic growth are the solution to keeping the debt from becoming totally unmanageable.
Overshooting (“let inflation run hot”) is only good when it debases the currency!
On more positive news, the Federal Reserve’s bloated balance sheet has fallen below $7 trillion.
Let’s see– the Fed is cutting rates while the President elect is going to pursue additional tariffs, cut the corporate tax rate to 15%, and pursue fiscally expansionary policies?
What could go wrong?
Yeah the 2017 tax cuts got us here.
“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance.”
Uhh, then why do anything? If the risks to achieving its goals are “roughly in balance”, then there is no point in raising or lowering rates. If ain’t broke, don’t fix it.
If Powell thinks rates are restrictive (in fact, they are now below historical average), then the risks to achieving its goals are clearly not “roughly in balance.” It’s either x or -x. Only an idiot thinks x and -x are the same.
Because rates are high relative to inflation – they’re deemed restrictive (they already shut down the commercial and residential RE market, for example). And the Fed is now in search of neutral. It could be that neutral is far higher than the Fed thinks, and Powell admitted that, but they’re looking for it by approaching it “slowly,” as Powell said.
There are really long and significant leads and lags in all these relationships. Rates might be high relative to inflation now, but maybe they will be seen as low relative to inflation in six months or a year. Powell used to talk about these lead and lag times. It’s a tough game to play, even tougher when the new President is not a big fan.
Powell would be more accurate if he would say rates “might be” restrictive now. I would prefer a Fed who flat-out states their goals are “roughly in balance” now, to leave things as they are. If it ain’t broke, don’t fix it. It might break in the future, fix it then. If you try to fix it now when it is not broken, odds are good you will break it. Unfortunately, that is what the Fed is doing. The US economy is doing well at 5% fed funds rate and inflation is dropping. Leave it alone.
The residential RE market may be shut down, but unlike CRE there’s no meaningful price movement to show for it.
As of 11/1 the Fed’s NFCI and ANFCI indicate that financial conditions are the loosest they have been since early 2022.
https://www.chicagofed.org/research/data/nfci/current-data
People keep saying the economy is good.
However the recent election results were largely due to 2/3 of the voters worried about the economy and the future of the nation.
No, there were pissed off primarily about the huge wave of inflation and immigration (now high prices, though inflation has slowed), the two biggest issues in this election, and two big issues on this site. Then there were secondary issues… but “the economy” is not anything normal people even think about. People think about their own well-being, not “the economy.” Trump figured out how to address this in a way it made sense to people. Harris couldn’t figure it out.
Will the male non college graduates really gain a $1 from their decision?
Cuz I don’t see the corps who are going to get windfall after windfall hiring them.
sufferin’ …I recall the old term being: “…repent at leisure…”.
may we all find a better day.
Quite likely they won’t, but the fact that they’ve voted themselves out of the frying pan and into the fire doesn’t change the fact that they were in a frying pan. They were right to be dissatisfied.
CBS exit polls state that 45% of voters said they are worse off now than they were 4 years ago.
NBC exit polls state that the state of the economy was the biggest issue for more than 50% of those who cast a vote for Trump.
Two quotes from an ABC news story about their exit poll:
“Nationally, the share of people saying they’ve gotten worse off under the current administration (45%) is the highest in presidential exit polls that have asked the question — even surpassing the 42% “worse off” in 2008, in the teeth of the Great Recession.”
“The economy remains a key irritant. Voters say it’s in bad shape by 67%-32%. And 45% say their own financial situation is worse now than four years ago, versus 30% the same, with just 24% doing better. The “worse off” number exceeds its 2008 level, then 42%, and far outpaces its shares in 2020 (20%) and 2016 (28%).”
Pocket book issues clearly matter, to no one’s surprise I’m sure.
Looking at the long term inflation chart after WWII’s inflation roller coaster, I see it has gone above 5% seven times. Six times the party in power was voted out in the next election (1952, 1976, 1980, 1992, 2008 and 2024. Nixon was re-elected in 1972.).
The American population shows its dislike of inflation at the ballot box during Presidential elections.
Wasn’t it Trump who forced Powell to cut interest rates in 2019 which led to all the inflation we’ve seen the past 3 years? Then all of a sudden everyone forgot this when it came time to vote this month.
So the recent inflation was caused by the Covid issues. Now 21/2% I think historically is not bad as long as interest rates are compensating and are not artificially lowered under the rate of inflation.
Well if you look real close you can still see the crater of the meteor that hit the economy.
Powell QE’d us up for the boss fight.
We won. But peoples feels were hurt. 😢
Despite opinions on about how we got to this point, you can’t deny that the nuanced and appropriate response has actually worked very well.
Looks like “higher for longer” turned out to be complete fabricated bullshit. In other words, Jerome “Weimar Boy” Powell stayed true to himself. Has he considered any roles as Pinocchio? Because he’s a natural at the part……
LOL, you’re funny, they’ve been higher for longer than anyone expected. This is the end of 2024, and they started hiking nearly three years ago, and at the time, Goldman expected a terminal rates of 2.5% lasting for a couple of quarters.
Unfortunately, higher and longer than anybody expected doesn’t necessarily mean high enough or long enough.
We’ll see.
I constantly tried to tell everybody is was total bullshit right here on this blog since the first hint of higher for longer.
YOU Tony are the bullshitter. Policy rates were raised far higher than anyone expected when the rate-hike cycle started, and then stayed there far longer than anyone expected, and they’re STILL far higher than the peak that anyone expected when the rate-hike cycle started. Goldman Sachs in April 2022, figured rates would max out at 2.5%, and then get cut again, LOL. Now they’re still at 4.75%, still high. Before this cycle, the last time rates were this high was nearly 20 years ago. That qualifies as “higher for longer” for sure.
This economy thing is a dynamic system made up of many seemingly unrelated parts, having said that I believe the girls and boys at the Fed are doing an admirable job. The bigger the ship the slower the docking maneuvering!
Will certainly be interesting what happens with pieces of TCJA that expire end of 2025. If they are renewed they come with greater deficit and of course if they don’t that will have repercussions such as standard deduction and child tax credit and others. Some will benefit some people as well such as SALT no longer limited. Fun times ahead.
Is this the right place for semi related oddities?
Way back in April 2000, the 10 and 2 year treasury were both around 6.6% — and, additionally, the Dollar was about $112’ish.
The dollar, basically decayed, falling to a low of about $75 during GFC, then eventually found its way back to around $115 in late 2022. A few decades of forlorn.
The point of this history, is to circle back to yields — it’s been very unusual to have a relatively strong dollar with a high treasury yield. It’s part of the inflection we’re in imho.
So, here we are, with dollar hanging fairly strong at $102 and 2 yr at 3.9% and 10y at 3.96%.
Considering we’re about to go into a whole new economic world of uncertainty in 2025, it seems very likely GDP will decline going forward with inflation remaining sticky and yields remaining near this level, higher for longer, with dollar holding its ground.
I think we’re in a world of hesitation and caution with the Fed trapped and everyone in Zugswang — where it’s kinda stalemate against Schrödinger’s cat.
Stocks should be dropping like flies soon, because of excess overvaluation and it’ll be interesting to see how close the edge this game can go, before it explodes.
It’s like having a stick of dynamite with a fuse that keeps burning out, and the shorter fuse needs some fool to lite it. That game ends when all the morons are blown away.
You can talk all day about inflation targeting. So let’s do some more. Your average Joe and Jane would just love some negative price inflation, if their income stayed flat. But all of the central banks are just terrified of deflation. They are fine with inflation, which functions to transfer wealth from the peasants to the upper classes and to the government. For the peasants, price inflation is an invisible tax imposed by the government. They see the increases in consumer and asset prices. Since 2020, homes prices have increased by 47 percent. Rents by 27 percent. Bread by 37 percent. A 2024 Honda Civic LX costs 15 percent more than it did in 2020. A 2025 model costs 22 percent more. And that’s just the MSRP price, which doesn’t factor in interest rate costs or dealer greed. End the Fed!
Prices of goods have been in deflation since mid-2022. You’re just not paying attention, including used vehicles and new vehicles and gasoline. Inflation has been in services. Here are a few examples:
I paid less at the pump yesterday than anytime in like the last 2 years. $3.67/gal for premium in New England.
I remember premium hitting nearly $4/gal after the GFC.
We’re lucky we live in a country that’s awash in cheap hydrocarbons. The oil & gas industry is inherently deflationary.
Was down to $2.80 here in NC at “Castcah” lol.
A near full tank was below $30. We’re living in 2017 again baby!
jk
Only those who have never experienced deflation or have no understanding of its history would wish for one — there’s a reason policymakers dread it, starting with the civil unrest it reliably engenders.
If you think inflation is bad, you really, really don’t want to experience a generalized deflation …
The way to deflation is mass unemployment. Nobody has money to buy anything, businesses desperately cut prices to move products, but can’t make enough to repay outstanding loans. If you are one of the few who have a pile of money somewhere and can ride it out, deflation is awesome. As long as you don’t care about the desperation of other people.
People want services to go back to their old prices, but will they go back to their old wages?
People think they have a job and their pay increases because they worked hard. Prices went up because government. A lot of people are about to learn otherwise.
And if the markets lost 75% and home prices the same, what would that mean to those who can never afford either?
There is no job shortage for those willing to sweat. It is the keyboard type that will get wiped out. If not your economy, AI will get it done.
What most don’t see is that the economy is different things to different people.