“The “reacceleration of inflation” suggests “the Fed cannot totally shift its focus away from its inflation target.”
By Wolf Richter for WOLF STREET.
Underlying inflationary dynamics are picking up steam, after having cooled a lot. Today, S&P’s preliminary Flash US Composite PMI (Purchasing Manager Index), based on data collected from September 12 through 20, entailed multiple warnings about the Fed’s future rate cuts, in light of reaccelerating selling-price inflation in both the services and manufacturing sectors, and in light of input-cost inflation in services.
The price gauges of the PMIs “serve as a warning” that “the FOMC may need to move cautiously in implementing further rate cuts,” the report said. We’ve already seen the second month-to-month re-acceleration in a row of CPI inflation.
Overall, “business activity growth remained robust in September,” the PMI report said. The flash Composite PMI, which combines services and manufacturing PMIs, came in at 54.4 in September, indicating solid growth (above 50 = growth compared to the prior month). With July and August also showing solid growth, September is “rounding off the strongest quarter since the first three months of 2022.”
The Composite PMI was driven by strong growth in services, which make up the majority of the economy, and “modestly falling output” in the manufacturing sector.
Continued divergence between services and manufacturing.
The S&P’s Flash Services PMI for August came in a 55.4, meaning growth at a “solid pace,” with “the rate of increase running at the second-highest seen over the past 29 months.” The Services PMI has shown roughly the same pace of solid growth for the past five months. Services are the majority of the economy, and they carry it.
Manufacturing, which accounts for a much smaller part of the economy and employment, has been in the doldrums coming off the phenomenal spike during the pandemic. For September, the flash Manufacturing PMI ticked down “modestly” to a 15-month low of 47 (below 50 = contraction compared to the prior month).
Inflation dynamics entail a warning to the Fed about rate cuts.
“Prices charged for goods and services are both rising at the fastest rates for six months, with input costs in the services sector – a major component of which is wages and salaries – rising at the fastest rate for a year,” the report said.
“The “reacceleration of inflation” suggests that “the Fed cannot totally shift its focus away from its inflation target as it seeks to sustain the economic upturn,” the report said.
“The survey’s price gauges meanwhile serve as a warning that, despite the PMI indicating a further deterioration of the hiring trend in September, the FOMC may need to move cautiously in implementing further rate cuts,” the report said.
Selling price inflation in both, services and manufacturing: “Prices charged rose at the fastest rate for six months, pushed higher by input cost growth accelerating to a one-year high,” it said.
“The acceleration of selling price inflation was common across goods [manufacturing] and services, in both cases hitting six-month highs,” and “in both cases running above pre-pandemic long-run averages to point to elevated rates of increase,” it said.
Input cost inflation: services diverge from manufacturing. “Service sector input cost growth notably struck a 12-month high, linked to reports of wage growth,” it said.
“Higher charges were driven by increased costs, with input costs rising at fastest pace for a year in September,” and it was “often linked to the need to raise pay rates for staff,” it said.
“In contrast, manufacturing input cost growth cooled to a six-month low thanks to lower energy prices and fewer supply chain price pressures,” it said.
How the PMIs work. They are based on surveys of a panel of company executives that get the survey each month.
A value = 50 means that there was no change in the current month from the prior month: the number of respondents who said there was growth equals the number of respondents who said there was a decline, and the rest said there was no change.
A value higher than 50 means that more respondents said there was growth than said there was decline, and the rest said there was no change, in the current month from the prior month.
Conversely, a value below 50 means decline. The distanced from 50 indicates the pace of growth or contraction in the current month from the prior month.
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After a 30%-40% increases in goods prices over just a few short years, good prices are *expected* to fall several percentage points, so should be ignored. On the other hand, services prices are soaring where they are *not expected* to soar, and are a genuine problem.
Goods are not up 30-40% in a few years, at least not in my experience. They’re either flat or down.
Very much so depends on the good.
Cars are a big one and they’re pretty expensive still especially new ones
General merchandise garbage is probably closer to what it was pre COVID
Agree that cars are up substantially. A fully loaded Camry is about $10k more than it was pre-pandemic.
General stuff though is not. Not sure if food is considered goods, but it’s up a lot.
I read car insurance premiums have risen a lot. I cannot remember what though. But supposedly, now that car prices have stopped rising, car insurance which lags behind because policies are yearly, should flatten out and drop like car prices as show below by Wolf.
I read car insurance prices moderating and rent roll overs could possibly help lower the CPI a little more in the near term.
like going to grocery store, go to home depot and buy replacement/fittings/etc.
just bought 10 windows(not overpriced anderson ones)
$4,200
now throw in $200 per window to install plus misc. stuff to fix/etc.
$7,500 for rental – sure rents are going up $250 month = $1,500 year
take 5 years to recoup
only have 8 more units at $35k-60k to do
and labor – $30 for reasonable skilled worker(usually in 40’s)
my diesel mechanic is raising hourly rate to $225 an hour from $175
he’s backed up for month
said it’s been over 2 years since he raised his prices
Steve B,
Durable goods are at 121 for CPI based on the St Louis Federal Reserve Bank’s website.
They peaked at 129 in October 2022, and were at 104 just before the pandemic, and 110 in August 2014.
So they have not been “flat or down” for the last 5 years, but yes there have been slightly down for about the last 3 years.
AD
It’s funny how commenters who never read any articles here either make totally off-the-wall statements, like Steve B, or have to go google stuff, when they could just read the articles here in the first place…
Quoted from this article:
https://wolfstreet.com/2024/09/11/beneath-the-skin-of-cpi-inflation-core-cpi-again-accelerates-month-to-month-fueled-by-hot-core-services-cpi-durable-goods-prices-drop-further/
Durable goods CPI.
The durable goods CPI fell by 4.3% annualized (-0.36% not annualized) in August from July, and by 4.2% year-over-year, a downward acceleration from the prior month, and the biggest year-over-year drop since 2003.
New and used vehicles dominate this index. Other goods include information technology products (computers, smartphones, home network equipment, etc.), appliances, furniture, fixtures, etc. All categories have been experiencing price declines starting in late 2022, following the price spike during the pandemic.
From January 2020 to the peak in August 2022, durable goods prices spiked by 24%. Since then, they have unwound about one-third of the pandemic spike. Compared to January 2020, the index is still up 16%.
Maybe it’s just the stuff I buy, which is mostly music and computer equipment for my hobby), that are flat or down.
Where have you been? Everything is ridiculously expensive.
Corporate profits have been amazing!
What planet are you living on? You sound like Janet Yellen.
Homes are up over 50% on a per sqft basis since Jan 2020. Homes are the most expensive durable good. CPI durable goods went up about 25% from mid 2020 to mid 2022. All things considered, price weighted, curables (including homes) have gone up 30% to 40%.
Homes are not a durable good. The raw materials that are used to build them might be.
What “goods” are you speaking of here, Steve? To simplify this, I have to point out that virtually nothing (goods or services) is down the last “few years”, here in Northern California.
Just lucky that the oil prices are low these days.
And Nat Gas.
Uranium stocks and Green energy stocks have had a tough year too.
Green energy suffered because of high interest rates which caused consumers / businesses to cut back on buying solar panels because those purchases are usually financed purchases.
In California the rooftop solar industry has been hammered by the slashing of the surplus power compensation rate.
Winner winner chicken dinner.
Godd$&@“! This article came out less than a half hour ago and there’s already 38 comments?!?! When do I get to post first?
It came out a lot earlier. The timestamp you see in the first comment (“2:39 pm”) is Eastern Time. So the article was published a few minutes before then. But I’m on Pacific Time, so on my time, the article was published at about 12:30 pm Pacific Time, about half an hour before the market closed.
Sometimes I come upon first comment
Not always but it’s always
Tha Best! 🏆
Competitive payoffs, however micro, are like catnip to humans. Capture the flag! But how to arbitrage that here?
Aren’t you the lawyer?
Don’t we run an adversarial legal system?
Just adding some color to comment, as it were……means pretty close to nothing.
Like most of my comments.
I did see some solid increases in car and home insurance but at the same time they went for 5+ years with no increases, although some of that might expected with auto since car depreciates in value.
My health insurance premiums have always increased more but being I pay only 20% and my employee pays 80% those go less noticed. I will be paying closer attention when I renew next year. My insurer does do well but if anyone’s expectation is they won’t charge as much as possible then they haven’t been paying attention. Climate change and severe weather events have impacted them as well. Not long before tax payers will have to greatly subsidize people for living where they shouldn’t or should simply accept that risk.
Glen – …of course there’s the massive logistical issues (migration impacts and associated population-carrying capacities) of people relocating to ‘living where they should’ (…comments complaining about a historical pendulum-swing of the number of folks moving from earthquake country to hurricane/tornado country never fail to arch my brow…).
may we all find a better day.
I rent and live on a fixed income. So the last few years have seen my expenses increase. The fed needs to keep its eye on inflation. Cities also need to reform their zoning laws so more housing can be built. Powell is correct to say housing and rental inflation are primarily a supply problem and are not going to solved by rate cuts.
The only people that want more houses built are those people without houses.
I suspect people seeing their property taxes/insurance rates go up massively due to housing price inflation that has no utility to them unless they take profits (which, if it happens across the country, would erode any paper gains) may have a different opinion if they thought rationally about their financial strategy.
That’s what recessions are for, but $2T in deficit spending translates into hard to overcome growth inertia. We’re nearing the end of Sept, and there’s a good chance that GDP ends up around 3% again. 2 Qtrs of 3% GDP is quite far from recessionary.
It’s possible that housing continues to climb upwards for X amount of time such that your concerns become a big part of what might cause the next recession. It’s almost like 2002 – 2006, whereby all sorts of people get to the point where they can’t afford those requirements like property taxes & insurance and are forced to foreclose.
Remember, it only took about 1% of mortgages to go into default to cause housing to implode where I think the max foreclosure rate was between 2.5-3%.
Nah. Love my house.
Only if you believe rents will drop substantially. Landlords simply add on the increase in taxes, insurance and maintenance if they can….and they could these past 4 years.
Yeah, imagine that. People hoarding houses they’re not living in don’t care if they’re sold.
Well sure. And the people who do not want more houses are those who already have houses. Strict zoning is a government action that restricts the amount of housing. This favors those of who already have, who are older and richer, and burdens those who do not have, who are generally younger and less well off. So a government program that makes the (relatively) rich richer and makes the (relatively) poor poorer. Take from poor and give to the rich. Is this good government policy?
And don’t forget that our current strict zoning only began in earnest during the 60s to oppose the new fair housing laws. For most of US history as a city’s population grow, more housing was built: single family houses turned into multiplexes and later turned into high rises. (See the older parts of most US cities.)
“[Strict zoning] favors those of who already have…”
I disagree.
Strict zoning does not favor homeowners who have no intention of selling. All it does is increase the property tax bill.
Every year, the tax on my car gets a little cheaper because the car get older. Yet I just got a notice in the mail that my house is being assessed at $85k higher than it was last year – after being assessed up by $105k the year before! Absolutely ridiculous.
More supply on the market /helps/ existing homeowners who are staying in their homes by reducing costs – and the city would benefit too by having new homes to collect tax on.
” and the city would benefit too by having new homes to collect tax on”
Residential property costs more to service than taxes paid. Locally it takes the tax revenue of one single 450k house to put one child in school. That doesn’t even take into account any other required services your local taxes pay for (police, EMS, DHHS, fire etc). Many areas, including mine, are running up against a wall because cities have over developed residential while ignoring commercial/industrial growth.
Yarr – …a good example of just a few of the things revealing true population-carrying capacity…
may we all find a better day.
This a hilarious comment. Was it meant to be?
I think the guy is serious….making a Herbert Spencer point of some kind is my guess. But ONLY a guess!
I am in permanent moderation jail for reading too much into a comment…..and maybe firing from the hip and then fanning my revolver.
Old West rules? Sorry, just rhetorical attempt at humor, I like the sheriff in this town. My ONLY social media says something.
Warren G. Harding,
Going to go out on a limb and say home builders want more homes built too.
Would you rather them be rained upon?
You monster!
Lol
“Let them eat shingles!”
Let them eat blue tarp and old metal signs is more like it…..or cardboard.
Assuming this is a black humor thing.
Or if you have more units built in your town and increase revenues your taxes won’t go up as much.
Congestion is not only the most egregious form of pollution, but will be the downfall of the human economy and earth system. Growth unregulated is cancer. I am watching every natural system in my region decay heavily as the cars and anxious fools pile in here. The ocean and air are full of excrement, while they were once full of sparkling life.
phleep, your happy hunting ground has lost its sparkle?
Them filthy humans, look in the mirror and their you are.
A few hundred years ago the Indians were scratching their heads wondering the same about their surroundings.
The economy for the native Indians was the weather and the wildlife/game available. But that’s gone replaced by as you put it ” the ocean the air are full of excrement”.
How many homes sit empty? How many are STRs (not just official numbers, but everything under the radar/not reported legally?) We didn’t see 30-40% population growth in three years, nor did 30-40% of the population suddenly need a home they didn’t the year before. The sudden massive increase in prices and bidding wars was the result of something else. You can certainly say it’s a supply problem in the sense that there weren’t unlimited homes to purchase, so the sudden massive increase in demand wasn’t readily absorbed, but this was not gradual like one would expect to see in a simple scenario of reduced supply.
The asset price inflation in housing isn’t simple; I think a lot of demand was pulled forward and investing in housing portfolios became trendy, and the shift to everybody becoming a landlord (normally it’s sell your home/buy another – net 0 on inventory; with many people now opting to keep their old home and just rent it out, this dynamic changed).
The next few years are going to be interesting.
The huge increase in demand (exploding household formation? Really? For three years, post mass death Covid?) is definitely a mystery.
Ditto the extremely slow response of SFH inventory for sale.
I’d like to know if similar scenarios have occurred historically.
Not in the last 30 years, as far as I can tell.
And I don’t *think* the same dynamic occurred in 1978-82 during Volcker’s crushing of inflation.
The ZIRP “fix” of America’s deteriorating internation competitiveness (exploding housing “wealth” to offset stagnant – or worse – employment growth) has been pretty ruinous.
cas127
David said: “We didn’t see 30-40% population growth in three years,” meaning there was no explosion in demand. And there wasn’t. What there was, was homebuyers not putting their old homes that they’d moved out of on the market because they wanted to ride up the price spike all the way. Those vacant homes then sat there while sales collapsed. And now those vacant homes are coming on the market, and supply has spiked, even though demand has collapsed further. We discussed this here a lot.
David,
Vacant houses are coming out of the woodwork for all to see… We went hiking yesterday on Mount Tam (about 30 minutes from San Francisco). From 101 (expressway across GG Bridge), exit at Hwy 1, which then winds up the mountain, then Panoramic Hwy along the ridge. So this is in Marin County, a high-dollar bedroom community for San Francisco and the Bay Area. On that stretch of Hwy 1 and the Panoramic Hwy, there were a whole bunch of for-sale signs, when there are normally none. Next time I’m going to count them.
Ditto most of my friends are now putting items on the market as they feel either the top is past or we are in a down trend. Most are listing their 2nd, 3rd and 4th homes or have this year but selling to the next fool in line is becoming difficult without price cuts.
Maybe these sellers are counting foreign investors from China to the rescue of more mortgage rate decrease to finally lure back majority of the FOMO buyers back, at least that’s their thinking anyway…if I can hold on to those skyhigh prices just a little longer, they will come….this is the game that’s being play all over SoCal…I mean how else can you explain a tiny home in Long Beach just sold for $1.5M in my neck of the wood…
Still suckers out there but definitely not as plentiful as before..
@David STRs sit “empty” a lot less than most “vacation homes” that are not rented (and some STRs that are rented agressively sit “empty” less than the typical American family home that sits “empty” M-F for about 8 hours a day)
There is no doubt that STRs caused “some” of the price inflation in “some” markets, but what I have seen as the “main” driver of price inflation (in this RE bubble and the recent Rolex and Used Porsche 911 bubbles) is a period of continued price inflation gets more and more people to “jump in” and overpay.
I believe that the “biggest” driver of the last (2000-2005) RE bubble (then bubble pop) were the “liar loans” that allowed more people to get in and buy what they could not afford while the “biggest” driver of the most recent 2012-2022 RE bubble was inflation like in the 70’s where the price of most RE (and Rolexes and used 911s) doubled but never dropped much from market peak as inflation kept pushing values higher.
The minimum wage for a guy working at McDonalds in CA was $8/hr ~$16K/year in 2012, it is now $20/yr ~$40K year. In 2012 there were still some guys painting apartments for $20/hr, today it it hard to find anyone to do any work at an apartment for less than $50/hr. As inflation continues to push wages higher the price of everything will go higher (including the price of real estate).
Nobody on minimum wage, pre or post increase in wages (hint about the future of these increased wages, trades are starting to reach out to find work again in the areas I monitor) was bidding 100k over a 700k asking price on a home.
Some of the loan products were offering absolutely insane DTI loans since the requirements were eased; perhaps not as bad as the NINJA loans, but still 1 misstep away from a forclosure quality. Increased insurance, taxes, and life events are hitting people who bought over the last few years with a fairly rapid pace.
I don’t know why or how banks don’t properly report on estimated monthly amounts a year+ into ownership (they attempt to, but I’ve talked with more than a few people who it was criminally under-reported), I suspect due to bad algorithms not designed for 10%+ year appreciation curves. It’s a mess, and all of this blow-off top behavior is going to hit hard for a lot of these folks who are unprepared for economic reality when it hits them like a freight train.
The main price driver was the Fed massively suppressing borrowing costs (mortgage rates) by mouse clicking two thousand billion dollars to buy mortgage backed securities, fueling the speculative frenzy.
In 2012 you could buy an investment home that cash flowed. The professional investors bought and held while flippers flipped. That morphed into the Fed dropping rates to zero which completely dislocated the real estate market. Add in covid and top of with a little AirBnB and viola! Here we are.
fomoc — I am always amused by claims that the Fed “massively suppresses borrowing costs” when the natural rate of interest is zero. The Fed actually has to pay interest to its depositors (it used to use “open market operations” for this purpose, but just paying the policy rate is the simpler, modern equivalent) to achieve any policy rate above zero. All other rates are then derived off the Fed’s overnight rate.
@ eg,
Fomoc is dead correct. The “natural” rate of interest is never zero, it’s what a lender determines is appropriate for a given level of investment risk and inflation. The Fed distorted these rates by artificial lowering of its short term rates and by purchasing trillions of dollars of longer term treasuries and MBS. If you don’t understand this you need to learn a little more about economics. This fine blog would be a great start.
What’s the basis for 30-40%?
It doesn’t take a significant rise in demand vs supply to raise prices a lot. Low interest rates added fuel to the fire but it’s been known for a long time that house building has been lagging
Dude, the dollar just isn’t worth shit anymore. If you didn’t invest years ago, you’re just a lame duck. Deal with it.
Nonsense, the amount of money someone has means nothing to their true worth. Important writing says a lot of that hierarchy will reverse in the next chapter.
“Powell is correct to say housing and rental inflation are primarily a supply problem and are not going to solved by rate cuts.”
Keep drinking the Kool-Aid. Supply problems…sorry, that’s a fairy tale. How about Powell say the US ‘people-in-charge’ are letting in hundreds of thousands of illegal immigrants, flooding our country and
putting massive strain on city and state governments and making housing supply tighter than it should be. Oh, and Mr. Jay, for the increased price of housing -look in the mirror to see who’s responsible. LOOK IN THE MIRROR.
The population growth in the US is 0.5% per year.
Without immigration, it would be shrinking like Japan.
Nope. (BTW, Japan is still an immensely crowded place because not many people live in the steep mountains and out on farms… they live in big lively cities that are crowded like you cannot believe. Go there sometime, you’ll see)
In the US, Population growth was between 0.3% to 0.6% in 2016 through 2021.
In 2022, 2023, and so far in 2024, the population exploded — data from the Congressional Budget Office
The Congressional Budget Office, using data from ICE, immigration courts, and Census Data figured earlier this year that the US population grew by 6 million people in 2022 and 2023, and is on track to grow by another 3.3 million in 2024, for a total of 9.3 million people in a three-year period. The CBO released this data publicly. All you you have to do is download it so you don’t drown in your own BS.
Population growth in millions of people:
Population growth in percent:
– US population growth is due to 1) immigration 2) people living longer. But the birthrate is at (about) 1.7 (= ageing population, even WITH immigration).
I don’t know why Wolf is bashing me. Fertility rates have been trending down for decades. Its not BS.
The current birth rate is less than replacement and the population increase is only due to immigration as I pointed out in my post.
Warren G. Harding
READ MY COMMENT!!!!!! At least look at the pictures!!!! Your earlier comment that I replied to about only 0.5% population growth is bullshit!!!!
Warren,
Population growth includes immigration by definition.
How many ‘hundreds of thousands’ would it take to become a significant factor in the US pop of about 350 million? And, how many of these folks are buying houses?
I think the two thousand billion dollars in mortgage rate suppression, done by the federal reserve, who were put in office by the Republicans and Democrats, is fueling the inflation a lot more than immigration.
Bingo. Fed leveraging of long term rates via QE and MBS purchases makes mortgage payments way less than rent, people buy. It really is that simple. Now that QT is in effect, the opposite is true. This isn’t rocket science.
If anyone looks into the numbers vs other countries we have a severe lack of supply. China has 90% homeownership and 20% own more than one house. Meanwhile, the US sits at 65% (which is higher than any point in it’s entire existence btw), and only 5% own more than one house.
We have so little houses that if we filled up every spare house and vacant house that is rotting in a barren hillside, we could maybe get to 75% in theory. Meaning the majority of people who don’t own now, would never be able to ever own without a radical change in building policy.
We have 140 million houses, to reach Chinese levels of ownership we would need another 140 million houses.
All of this is because home building companies profit far more when they can sell $500k houses rather than the labor costs it would take to build 3 smaller houses and sell them for an affordable $230k.
Remember when people were laughing at China’s “ghost” cities that “crashed” their housing market and kept prices low? Happened a decade ago. Instead, we blame the 5% of people who own double homes while praying that people lose their jobs so we can get a shot at being the ones on top.
Good lordie. I cannot believe you cite China as an example of residential real estate investment. Are you not paying any attention at all?
1. China’s real estate market has been in all-out collapse for three years now, with all the big property developers either on the brink or already collapsed, with prices way down. How could you miss that?
2. You’re confusing “houses” with “apartments” in China. Most of what got built in China were apartments, not houses, and what people own are these apartments.
3. Chinese consumers bought unbuilt, unfinished, or partially finished but vacant apartments — mostly apartments not houses — like Americans buy stocks because you can’t lose money in real estate, as everyone knows, LOL, and since they have prepaid for those apartments that may never be finished by builders that have now collapsed, that collapse has wreaked havoc on consumers’ finances.
4. What are they going to do with all these vacant unfinished apartments in their portfolio? They have carrying costs, and since few people are renting, it’s hard to rent them out, and since these real estate investors own multiple apartments each already (like Americans own stocks), who are they going to sell them to?
5. The economic problems China now has are tied to this collapse of the real estate bubble. The central and provincial governments are spending vast resources trying to sort this out.
Everything you said applies 100 percent to Bulgaria, the difference is only in the name of the countries!
LOL…thanks for the laugh, does your math also account for every new infant need their own house too?
People buy houses in China because they have learned through sad experience in the last century since 1949 that anything they own can be confiscated at any time by their government. It’s just a little harder for them to confiscate a home than other less tangible assets like stocks and other financial instruments. This is also why physical gold is so popular in China, and also why Chinese investors buy overseas real estate and crypto and overseas stocks. They are hedging their bets.
Quick! – Raise the rates! Save us from inflation!
“Danger Will Robinson” says the robot Flapping his arms back and forth “danger.”
Dr Smith appears…no need to worry “Will”my boy.
Well I’m starting to worry, can’t even make it a week after lowering rates before the robot goes off.
Is this your way of bringing up that perv Mark Robinson?!? So gross. Pretty sure my evangelical parents will find a way to excuse him…
May you find a better day.
In the back of my mind I can hear wolf saying “if things don’t work out, they can always raise the rates again”.
Not surprised. I think inflation is bottomed and most likely creep up from here. Many consumers also ignore the rates when buying. High rates have a strong downward affect inflation. And they are going down.
There is too much bull pressure on the asset prices, which reflects on the service inflation. The current pace and magnitude of QT cannot overcome this pressure. There is also currency devaluation due to the budget deficit moving towards infinity.
I wished the presidential debates would focus on reducing this budget deficit and giving people with fixed income some relief. But it is not something that can even be dreamed of.
Everyone lives on a fixed income.
Untrue
Anybody that works on commission or tips doesn’t have a fixed income.
Not my neighbor. He has $20M or so, and still collects SS!
So what? Should he have a benefit he paid for taken away just because he amassed wealth over the years? That kind of thinking is a slippery slope. First $20M is too much, then it’s $10M then before you know it your 401K got too big so you’ll just have to lump it.
Duh. The second wave of inflation is coming and it has been made much worse through continued deficit spending and the reindeer games of that gnome at the treasury as well as the wizard at The Fed. Unlike the 70’s/80’s however the national DEBT will be a problem this time around…
Hedge accordingly.
You’d have to count O/N RRPs high of 2022-12-30 $2553.716, and its drawdown to 2024-09-23 $380.372 as a mechanism to extend economic growth.
Cut o/n rate. Cut c/c rate by half so small businesses can borrow and thrive. Lower rates==> higher vol, lower delinquencies, less zombie accounts. The banks will thrive. Prosperity lift all workers. Higher GDP. Higher productivity. Gov debt will be cut by inflation and surpluses. There will be a shift from a service economy to producing real goods, real stuff.
LOL!!!
Great sarcasm! Nicely done!
Service inflation won’t go away until assets tank.
Who cares if an omelette costs $25 if I’m getting 25% just indexing…. Not to mention that 50-500% gains in home equity and “net worth”
But you have to sell those things to cash out and use/lock in the gain. And then you no longer benefit from their continued price appreciation ot utility of the asset (in the case of a home).
Wealth effect… people feeling rich because of paper gains so willing to spend money
Ok but “feeling rich” doesn’t buy you food at the grocery store.
Au contraire, mon frere.
I can take all the equity out of my bubble house and spend it. Because houses only go up, I’ll never lose money. Inflation will pay my bills. Thanks Mr. Banker for my cash out refi!
I can take all the equity out of my stonks and spend that too. Because stonks only go up, I’ll never lose money. Inflation will pay my bills. Thanks Mrs. Goldman for my asset backed loan!
Free money FTW. JPow, please keep dropping interest rates, and Janet please keep borrowing trillions, or my lifestyle will magically evaporate faster than you can say “mother of all bubbles.”
Love, Reckless Randy.
Point is people feeling rich are more likely to buy a nice steak versus chicken breast… Get it yet?
Stop eating out. Americans have no idea what good food is, nor can they make or serve it.
nonsense mussed one:
you are engaging in what rational folx call, ”generalizing on the basis of insufficient information.”
I would cite some of our favorites in what is now being called ”THE best foodie city in USA,” but they are already overcrowded, mostly with folx from Europe who come here for the food as well as the ambiance.
Inflation Pressures never went away. They came down. But this FOMC has moved on. It was clear last meeting.
Powell talk was like why 25 should have sufficed and why we didn’t do 50. It was dramatic U turn by FOMC members. They could have started 25 and moved 50 later. May be Nov or Dec. Now SEP says 75 BP cuts coming in 2024 alone. It is still very closed call.
After meeting, many FOMC members have come out defending 50. Waller last week. Bostic, Neel Kashkari, Goosnee today. Goosbee was always dove. So it was expected him to say “Multiple rates cuts coming.” He even said getting to 3.25 in span of one year.
But even Bostic saying we will move to Neutral at much faster pace then he has thought just few months back. Kashkari giving reasons how 50 was most appropriate was sickening. Powell kept on saying economy ok, labor market ok, retail sales ok, why the hell then 50 BP? Not only that give hints for multiple cuts coming.
Has inflation come down? Yes. How much is depends upon whom you ask. Those who rely on services more they will tell you, Prices are way up from where they were. Child Care cost has literally doubled. This year Summer camp for Kids doubled. Without any fault Insurance costs have gone up 40-50% times. Rents are going up now moderately after 2-3 years of crazy hikes. Home Prices still in higher ranges.
Sure Salaries went up higher. But in compare to Inflation, no way.
FOMC and Powell not serving American People who they claim to serve. They are serving Wall St in the name of American People.
Paper gold or physical gold? Regardless, gold is now competing with treasuries as a reserve asset and safe haven. Becoming the preferred collateral in many cases as well.
Interesting times.
Thank you Sandeep,
I can’t have put my thoughts better what what you wrote here.
You can’t change the system and at least join it to benefit from it.
“It is cutting rates because they are owned by the Banksters and the 1%-ers.”
But all those ‘Banksters and 1%-ers’ are losing interest income when rates are cut.
Cui bono from rate cuts? Which entity is the biggest drunken sailor right now and has the highest amount of debt?
Soon we get stagflation for sure, but maybe disco will come back. With inflation high, perhaps white collar workers can switch from expensive wool suits to cheap polyester leisure suits my favorite color was the blue ones.
I remember weddings in the 70’s where the Groom and Ushers were all wearing (the popular at the time) light blue tuxedos (with dress shirts with blue “ruffles”)…
This would make great comedy if it wasn’t real.
There is still too much cheap money floating around. The FED should continue QT for another 3 trillion and only then it should start cutting rates. First they need to erase the QE disaster that they created.
Why do none of the inflation forecasts consider a possible weakening of the dollar. The US is a major importer and if – after years of printing – the currency finally does weaken against other major currencies, that would increase inflation in the US also a fair bit.
Curious to know, thanks
A weakening US currency makes it more profitable to manufacture in the US and export from the US, increasing the value of the dollar. Higher relative interest rates also increase the relative international value of the dollar. The US is not Zimbabwe.
– Mr. Market is quite clear. Rates will be cut by – up to – 100 basispoints. Inflation or no inflation.
A broken clock is right twice a day.
Things don’t go to heaven in a straight line.
That’s funny…
But some souls go straight to hell.
I’ve been a good lad as of late, no smoking, drinking or chasing women…ha ha.
Monetary policy objectives should be formulated in terms of desired rates-of-change, roc’s, in monetary flows, M*Vt, relative to roc’s in R-gDp. Roc’s in N-gDp (though “raw materials, intermediate goods and labor costs, which comprise the bulk of business spending are not treated in N-gDp”), can serve as a proxy figure for roc’s in all transactions, P*T, in Professor Irving Fisher’s truistic: “equation of exchange”. Roc’s in R-gDp have to be used, of course, as a policy standard.
Goolsbee says many more rate cuts ahead over the next year.
I don’t think most folks realize just what we are dealing with at the fed.
Gold- 1800 to 2655 in a year with demand just starting to move.
The fed is playing with a tiger.
This time around, couldn’t Powell have thought (and said) disinflation is maybe transitory? The Fed is eternally scared to the core of deflation, and makes every error on the other side, I guess the easier side. But over the long term, this piles up massive inflation. It is like a slow drip of a medication that is addictive and degrades the patient’s condition, albeit incrementally.
Agree with you, which is why anyone buying long bonds at 4% are insane.
Come November, we will see which if the free stuff promisors (yes, that is a legal word and valid spelling) will occupy the WH. On top of the rate cuts. Fiscally conservative is not a thing, and those are the horizons we are sailing for, full tilt.
I feel we are guaranteed to see 100% garbled and ambiguous jawboning from the fedspeak megaphone — as each performer delivers little fragments of whatever helps fine tune a lack of forward validity or clarity.
Meanwhile, as actual cumulative inflation impacts collide with the message that we’re in the midst of a soft landing on a foamed highway — the risk of rising inflation dynamics, with crosswinds of decreasing employment, will make the touchdown on the slippery highway erratic at best.
Landing is one thing, but then controlling the plane is an entirely different battle.
NO landing. Landing cancelled!
The REST of the world: Outta my sky!
Fastest to hike, last to cut, THE reserve currency. If anything happens? U$D milkshakes for all!
Any questions? Congratulate me later-JPow
I have to wonder if they actually care about getting back to 2%, yes they don’t want 7% but I think the fed might be happy to let it run at 3-5% for the next decade. One of the best ways to solve our debt crisis is to inflate our way out of it, then debt to gdp goes down (assuming no spending increases) and tax receipts are higher because we’re all making more because of inflated $’s.
Starting to feel like a lot of smoke and mirrors PR and politics. 2% used to be the ceiling for inflation. Now it’s become get back to close to 2% over what’s looking like 5yrs (2021-2026), which will inevitably turn in 7-8 maybe longer.
I’ll also say by trying to avoid causing a mild recession they’re more likely to cause a major one in the future – usually the bigger the bubbles are when they pop the bigger the recession.
The time to act should be when they notice a bubble forming caused by the looser monetary policy.
We can solve the housing problem legally.
Change local laws to force multi family units.
Rent and price controls at all levels.
Price control on all real estate transactions. One percent max!
Free remedial education for Real Estate Professionals to learn a useful skill.
Place homeless and immagrents in all occupied homes useing more than 400 sq ft per person.
FEMA type trailers permitted in yard areas.
Please explain again, with inflation “raging”, just what this outsized cut in rates supposed to do? What is it’s raison d’etre?
Here you go:
1. Inflation has dropped a lot and is now far BELOW the Fed’s policy rates.
2. Job creation has gone from hot to cold in a very short time, and that’s a real issue.
But Job Openings have fallen ALL THE WAY DOWN … to the pre-pandemic HIGH… surely that’s a bigger problem than inflation, good thing the Fed is cutting rates.
/sarcasm
🙄
The Fed was never serious…they started talking pivot nearly a year ago…and I said everything was going to all time highs…last time I looked…they are screwing over virtually everyone except the very rich…
It’s not the Fed’s job to crash the stock market. You’re just pissed off that they didn’t crash the market?
Inflation did come down a WHOLE LOT, and job creation has now withered. Those two things ARE the jobs of the Fed.
Statistics smetistics. All BS. Meanwhile back in reality, I got my new car insurance bill, legally required liability only – bill up 50% since Trump.
Statistics NAILED you insurance bill 🤣. Your problem is you don’t read my articles!
https://wolfstreet.com/2024/09/11/beneath-the-skin-of-cpi-inflation-core-cpi-again-accelerates-month-to-month-fueled-by-hot-core-services-cpi-durable-goods-prices-drop-further/
LOL Wolf! That chart is not government statistics fantasy but measurement. If I could, I would plot the government predicted increase in insurance using their inflation projections and compare. I can’t but I can compare with government “reported” inflation statistics of 6.5%, 3.4%, 2.5% for 2022, 2023 and 2024. Different from “measured” 50%.
you cannot be helped. The chart is the CPI for auto insurance, based on data from the BLS, a government agency. And you can download the data from the BLS/government.
You should read the bottom line on that chart. It says: “Source: BLS” = government data.
And in my CPI articles, I even tell you what weight the auto insurance CPI has in the overall CPI basket. Look at the table for core services. It tells you the weight of all major services in the CPI.
You need to have your brain examined if you compare your auto insurance increase to the overall CPI. That’s just stupid bullshit.
Read and repent:
https://wolfstreet.com/2024/09/11/beneath-the-skin-of-cpi-inflation-core-cpi-again-accelerates-month-to-month-fueled-by-hot-core-services-cpi-durable-goods-prices-drop-further/
Bowman, kinda nailed it in her speech about dissent:
“In light of the dissonance created by conflicting economic signals, measurement challenges, and data revisions, I remain cautious about taking signal from only a limited set of real-time data releases.
In my view, the upside risks to inflation remain prominent. Global supply chains continue to be susceptible to labor strikes and increased geopolitical tensions, which could result in inflationary effects on food, energy, and other commodity markets. Expansionary fiscal spending could also lead to inflationary risks, as could an increased demand for housing given the long-standing limited supply, especially of affordable housing. While it has not been my baseline outlook, I cannot rule out the risk that progress on inflation could continue to stall.”