It’s a “living hell” for the Fed says a respected analyst that I follow.
Biden Says Jobs Numbers Should Deter More Fed Rate Hikes
Bloomberg reports Biden Says Jobs Numbers Should Deter More Fed Rate Hikes
President Joe Biden said Friday’s jobs report shows the labor market remains resilient as inflation continues to ease, an economic “sweet spot” that he said shouldn’t prompt the Federal Reserve to raise rates further.
The comments marked a rare example of Biden weighing in on central bank policy making. They came as the president gears up for a reelection campaign that will be decided in part on his stewardship of the US economy, which voters have rated poorly, polls show.
The US labor market unexpectedly strengthened in November, adding 199,000 jobs and showing wage growth that tempered bets the Fed would cut rates early next year. That should be considered a “solid, steady” increase, Biden said Friday.
The president called the figure “a sweet spot that’s needed for stable growth and lower inflation, not encouraging the Fed to raise interest rates,” during a speech in Las Vegas, Nevada.
Recent presidents have refrained from routinely commenting on the Fed, wary of eroding the bank’s traditional independence to set monetary policy and giving the impression that decisions are driven by politics.
Electioneering, Gee Who Coudda Thunk?
Trump did the same thing of course. Presidents always want an independent Fed except when they don’t.
Q: When is that?
A: When they are running for reelection.
Q: But when is that?
A: Arguably always, but definitely more pronounced starting a year before before an election
Biden’s pressure led to some interesting Tweets on X.
Judy Shelton, Fed Candidate Under Trump, Chimes In
Shelton: Hey, I thought Biden always said he respected the Fed’s independence. What gives?
Mish: Judy, it is so sad that you are not on the Fed. The Fed prides itself on “diversity” but there is no diversity at the Fed where it matters, diversity in thought. They are pack of group-think clowns believing in theories that don’t work.
Living Hell in 2024
“The Fed is looking at a living hell in 2024. Trump will make compromising their independence a cornerstone of his campaign the minute they even try to cut rates. If he is elected, he will instantly “pivot” to demands for ZIRP and more QE. The Fed (as we know it) may not survive.”
I have stated many times the Fed is walking a tightrope with no winning actions. Stimpyz more accurately calls it a “Living Hell”.
The Big Tease: Will the Fed Enter the Fray as the 2024 Election Draws Near?
Let’s return to Judy Shelton with her recent article in the Independent Institute, The Big Tease: Will the Fed Enter the Fray as the 2024 Election Draws Near?
By one reckoning there’s a 99 percent probability that the Fed will lower the federal-funds rate by September [2024] —its last meeting before Americans go to the polls.
Based on futures pricing data, there is an 86 percent probability the Fed will implement a lower federal-funds rate by its May meeting and a 99 percent probability by its September meeting—the last meeting before Election Day. In remarks Friday, the central bank’s chairman, Jerome Powell, appeared to leave the door open to lower rates in the latter half of 2024.
The presumption of independence between the actions of the nation’s central bank and the economic agenda of the White House renders it crude to ask but still: When does the grumbling begin that Mr. Powell could end up choreographing an economic boost that serves to help the incumbent presidential candidate?
Mr. Trump was adamant in complaining that the Fed’s rate increases were needlessly constraining economic growth and raising borrowing costs. “I personally think the Fed should drop rates,” he told reporters in April 2019. “I think they really slowed us down. There’s no inflation.”
No doubt mindful as well that the Fed’s about-face on interest rates might be seen as having succumbed to Mr. Trump’s jawboning, Mr. Powell carried out a formal review of the Fed’s monetary policy framework that included a series of Fed Listens public engagement events held around the country with various community groups “to hear about how our policies affect peoples’ daily lives and livelihoods.”
If the Fed has as much impact over economic performance as its own pronouncements suggest, the real error is that the purchasing power of the dollars earned by American workers—along with their prospects for owning a home and building a secure financial future—are so dependent on the discretionary judgment of Fed officials who have proven so fallible.
Damningly Accurate Assessment
Whether or not the Fed is independent, the last paragraph is a damningly accurate assessment of the Fed’s performance for decades.
Since 2018 the Fed has blown three spectacular bubbles via QE and by acting on economic models that do not work and never did.
How the Fed Destroyed the Housing Market and Created Inflation in Pictures
On October 5, I commented How the Fed Destroyed the Housing Market and Created Inflation in Pictures
@SanFranciscoFed @stlouisfed @NewYorkFed. Hey Fed presidents, please comment on this: The Fed erroneously does not consider rising home prices as inflation. Here’s the result in pictures.
See the above link for discussion.
That is a more recent chart than the one posted in October.
Here is a pertinent comment I made then.
The longer the Fed holds rates high, the longer the housing transaction crash lasts. But cutting rates will further expand the housing bubble, asset bubbles in general. And bubbles are destabilizing.
This is the Fed’s tightrope dilemma, of its own making, foolishly hoping to make up for lack of enough inflation, calculated by not factoring in home prices or asset bubbles.
Tightrope or Hell?
In deference to Stimpyz, today I ask “Tightrope or Hell?”
Fed Groupthink
Fed groupthink on the Phillips Curve, QE, and Inflation Expectations are three prime examples of Fed belief in ridiculous models led to the Fed’s current hellish dilemma.
For discussion, please see How Do Inflation Expectations Impact Wages and Future Consumer Inflation?
It was nothing but groupthink, this time by the Senate for her views on gold, that kept Shelton off the Fed.
Addendum
The Fed is a figleaf institution that has no real influence on interest rates, which must come as frustration to the Democrat administration. There’s not much they can do to control the bond markets that really control interest rates. Fed is just a political scapegoat.
I remember when Trunpy-Bear got in their shorts in 2018 and the Leftist MSM went Viking berserker. Nay a peep from the cowards this time.
The Fed lost all kind of real of perceived independence when they bailed wall st in 2008. Now it the consequences unfolding. It will self destruct in the end but they have only themselves to blame for abandoning their role of public servants and cowardly serving their cronies for all to see.
That’s a stretch Mish and Judy! No one ever said that the President cannot mention monetary policy with the proper context. Biden did not say anything different than Fed Governors have started to say publicly and it was no different than the markets are pricing in currently.
The parallels of the oil giants and the federal reserves around the world have one thing in common. Price of oil or price of money (aka interest rates) has little to do with the big picture.
Oil could be at $10 per gallon….. And at first thought crush the economy. Yet what really happens? Is that the inflation rate goes up. Who gets hurt? The consumer. The oil company? No. Why? Because their company culture is to always make money.
The federal reserves or central banks around the world are also driven to make money. During times like these…. Money is tight and the real investors do not want to risk their capital for 5% or lower. This is a trend. Call it what you want. The point here is. If the rate is pegged for 8% or 21% the banks will co operate and accept these rates. Either way, history shows. The people have no say in the game. The pain is absorbed by the people. The potential is greater (for short period of time) encouraging real investments in real innovation…. After these real investments are are made. Real rewards will follow. Rates will slowly fall again. As rates have fallen time over time in the past. A
Why would anyone think this time is different?
What I see happening in the world today is the same thing I have seen my entire life; a constantly changing world full of problems that I cannot do anything about.
Mish does a good job of analyzing some of these problems. Thanks Mish. I make use of your analysis to help improve my financial life.
Now time for a run. Also have to work on my health and physical life.
Kudos.
Investing in what you can control is always worthwhile, even just time and calories.
Invest in yourself. Who else is going to?
– President Joe Biden said Friday’s jobs report shows the labor market remains resilient, as he said: “shouldn’t prompt the Federal Reserve to raise rates further”
> Whatever happened to their Independence? The US labor market is an absolute mess, with zero accountability, zero consistency, and zero belief in anything that they spew, or more accurately, what is artificially spewed for them, by their overlords.In doing so, the Fed is further eroding the bank’s independence to set monetary policy and giving the impression that decisions are driven by politics, and directly by the Fed.
– Truth to Power: The Fed as we know it shouldn’t survive. It has demonstrated for the better part of 4 decades it is not fit for purpose whether that purpose is bank supervision or conducting monetary policy.
> It is and has been clear for quite sometime, that “The Fed” has been highjacked…
Agreed. The major banks are shareholders of the Fed. The unspoken rule is that the Fed nowadays is there to backstop everything and preserve the wealthy’s money in the banking system. The Fed should not have stopped raising interest rates until they got to 6%. And now they’re in this extended pause that’s only allowing the labor market to maintain its relative strength, while the stock market shoots higher.
Good point. The real cost of borrowing money is closer to 10 or 11%….. 6% is still a possibility. As well as even higher rates. (People do not want higher rates though real investors need higher rates of returns) big difference to which is driving rates.
How do we determine this?
Simple. Do you know any billionaires who would lend a billion or risk a billion for %5 or less?
The billionaires are holding farm land…. Why? Because, the land can cover the expenses and return a steady income as well. Plant a kernel of corn and reapv1800 kernals . Or potatoes. One potatoes returns x5 or x6 units.
In short. The billionaires are going back to basics. Farming. Why? Because the truth is. Planting crops typically yields real results…… Not speculated ones that we have been so use to for the last four or five decades
The American Bankers Association controls Congress. The FED is run by the bankers it serves. Their lobbyists virtually control the House Committee on Financial Services and the U.S. Senate Committee on Banking, Housing, and Urban Affairs.
These interested parties, as financed by the ABA, routinely spend more money influencing legislation than all other industry and labor groupings.
The great German poet and playwright Bertoit Brecht would have agreed and once said it was “EAISER TO ROB BY SETTING UP A B ANK THAN BY HOLD UP (ONE).”
I agree with the % hike, but this Administration does seem to care more about appearance, and less about substance.
The MSM delivers Their News the same way. Through Virtue Signaling and Talking Points, they appear to care and all be on the same page.
With the election coming up, they must continue to double down now, with no time to change course.
The Fed is the fundamental reason why Americans live the American standard of living with very little work to maintain it.
As many people have said recently. America has opportunity and promise. Yet deep down under the soil? Produces very little except fiat currency. The world keeps buying these dollars with faith and or hope. The Fed s job is to maintain and protect this illusion that the dollar holds value, for as long as it can…. The end may be coming near. Yes. Though if we continue to criticize its existence rather than to accept our fruits for four decades is a resultant of how the Fed operates.
Will the Fed dissolve? Likely not anytime soon . Something must happen drastically in the short run. War? Gold and raw resources adopted as a meausre of value, again? Who to trust? There is not many options. BRICS nations has a trust and credibility issue…. I suspect something far bigger than a bankrupt america can switch things around?
I agree, and feel that once we sent/gave our Countries Manufacturing away and with it our future ability to be able to do so, we lost our way.
We sent the rest of the world, the clear message that we were satisfied with that. Our competitive spirit immediately began its disappear.
Now we want to lead the World in EV’s, but can’t even make Batteries for them. At least we had Gas when we pushed to make GV’s.
If inflation comes back before elections, the Democrats are going to lose. Biden would do best to hold his tongue.
Republicans are going to loose. The Dems have figured out how to rig elections.
This will be the big reveal in 2024.
Demand destruction policies can beat common sense? Trump haters…. Are there enough remaining?
Was this all by design to make Trump win? And if he loses? By design cause riots? Over throw the system? We shall see…..
The year 2000 and 2008 were also election years.
Much of the same. Patterns here?
Rates go where the investors need them to go. Innovation prospers only when rates are higher….. So far, we lack innovation and will need rates higher. How much higher? 10% is more likely than 4%
Just because anyone, even a President says something “should” be doesn’t mean it will. That’s the difference between a democracy and an authoritarian autocratic form of govenrment. Every post about Biden is the sound of fury signifying nothing.
Prez Biden is positioning himself to tell voters he forced the Fed to lower rates when the bond market actually forced rates lower.
A double inversion right now is likely not meaning we will have lower rates for the long run. Mish suggested last week. A small r recession returned by hot inflation all within 18 months is likely.
We are likely going to see 10% rates than 4% or lower, sooner
President Biden would never say or even infer that he “forced” the Fed to do anything. Furthermore, why would he even have to hint about the need for no more rate hikes or even some rate cuts next year? The Fed itself is beginning to telegraph exactly that all for the right reasons.
Mish,
“Since 2018 the Fed has blown three spectacular bubbles”
Did you mean that 2018?
In my mind’s eye, I’m seeing a spectacular bubble in the bubble-rate. 🙂
US treasuries saw the first wave of dumping in 2018. The trade war started. And the rest of the world reacted to this is trade policy . China and Russia did not start the trade war. They have only reacted to demand restricting policies.
We shall see if the rest of the world will buy the lies and see what is really happening here?
World trade will be limited and more expensive (or taxed by the US via safety) third world and developing nations will consider using BRICS trade routes. Which will be an act of war against America. Likely kinetic war will result from this devide or betrayal.
We shall see.
For now. Expect higher rates. 10% will put many nations at a bayif not silence them from making progressive moves away from America. Expect the unexpected
People ask “When will the Fed cut rates?” But that is done only when the nation is in recession. Today’s “good economic” conditions may be telling us that this is where rates should stay for a good long time.
Great point.
5% is painfully for many. Yet. Also creating incentives for innovation where needed. The higher the price of money, the quicker and robust the innovation affects on the economy.
Real rates are over 8% and have been for some time. Home mortgages is not the real interest rate. Home mortgage rates is really just a pain point held by the majority……
“By one reckoning there’s a 99 percent probability that the Fed will lower the federal-funds rate by September [2024] —its last meeting before Americans go to the polls.” – reminds me of the poles predicting 99% odds of President Hillary in 2016.
A Polish prediction in 2016?
I recall no 99% polls indicating a Hillary win. I saw polls in the low to mid-80’s. Furthermore, polls are not predicting, they are probabilistic. Given that Hillary won the popular vote handily and lost mainly because of Michigan where the vote difference was extremely thin, one cannot infer that the polls were wrong, only that the low probability outcome occurred.
“They are pack of group-think clowns believing in theories that don’t work.”
Ha. This should be posted as a motto.
Trump reportedly wants to fire the Fed chair, a move that could wreak havoc on the financial marketsPUBLISHED SAT, DEC 22 20188:10 AM ESTUPDATED SAT, DEC 22 20189:24 AM EST (CNBC)
Just to put Biden’s gentle nudge into perspective…
Trump wasn’t the first. LBJ wanted to fire William McChesney Martin and was told by his AG that policy differences were not cause for termination.
LBJ also allegedly physically assaulted Martin at his Texas ranch because Martin was refusing to help finance Johnson’s war and Great Society spending. Martin and the Fed had raised the discount rate and LBJ was enraged by it. Martin ultimately reversed course, unfortunately.
Not that it really matters….but, wasn t that exactly what Thrump wanted when rates must have been at -10 % something, at the end of his ‘Draining the Swamp’ presidency ? History seems to repeat itself again ….
At some point that interest on the Federal debt really starts crowding out the Congressional pork giveaways abroad and at home. Will 2024 be it?
It won’t crowd out anything. The deficit will simply become larger.
The choice between belt-tightening and inflation is what will put an end to it.
Bit of a joke here, the fed is biased to the business side of things. They had extremely low rates when Trump was in office.
They had extremely low rates and QE under Obama as well.
Given that today left is right and up is down, we can eaaaaaaasily surmise that Biden and his staff tell “independent” Jerome Powell EXACTLY what to do when it comes to Fed policy. Biden had the rates raised finally after the rich (good credit scores) had borrowed billions at zero percent for 14 years so they could buy up America. Why are the stock and bond markets at all time highs? Why is there no affordable empty houses or apartments to be found? Cause everything not nailed down got bought and disappeared off the balance sheets. Biden needs the old people (they who vote) to collect a little interest before they get him re-elected (history favors two-terms), after which time he will make Powell drop the rates to zero again so we can afford the interest on $32 trillion in Federal debt. Just watch.
Drop to zero? Not likely. And if so, no one will buy or support the treasuries to make this happen. Ww3 is play that may make it happen? Other than that. Who would risk billions to make zero percent? Innovation is needed and the only way to spur investment is to bankrupt the govt coffers and create radical swings in the balance books. 2024 may be the year. If not 2028 will be the year govt debts are unserviceable
I heard a rumor that the Fed has a lot of money and will buy Treasuries from the markets to prevent shiny new ones from going unsold.
Stimpys living hell is being wrong for almost 4 years of inflation now. Him and DDB are a co-clownshow
Nobody should be allowed out of grammar school until they know the Rule Of 72.
2024 will break records.
It’ll be the year of peak hysteria, obfuscation and propaganda, gaslighting, manipulation and censorship. It’s also the end of central bank credibility because of failure after failure.
It’s not just the US Elections, it’s global social unrest because of unacceptable levels of inflation, loss of purchasingpower, inequality and record unaffordability of homes.
Add to that media and governments colluding even more by pushing for insane censorshiplaws that limit freedom ‘for the greater good’.
But remember. They are the few, we are the many.
I used to think Central Banking was problem but not any longer. Central Banking serves similar functions to what your central nervous system does. The root of the problem from my vantage point is our federal legislators in Congress. They lack courage, vision and all too often become corrupted by money and power.
The ‘market’ still follows the Fed with cult-like behaviour.
The ‘pivot’ fantasy and the ‘put’ are still very much alive.
If you zoom out wide enough you can see how this circus works, from the clowns in the media repeating buzzwords to create narratives, to the Wall Street shills, to the corporations with their buybacks, to governments piling on debt to create ‘growth’ by indebting the nation to bureaus of statistics deliberately reporting manipulated numbers.
It’s really not hard to see that this is a rigged game.
I live in the Interstate-4 corridor in Florida. It’s typically the demarcation zone for presidential elections for Florida’s electoral votes. I need to leave my phone off of the hook….bazillion political calls forthcoming. It should be a crime to place unsolicited political calls, but politicians exempted themselves from the ban.
I’ve come to realize that the FED’s dual mandate is what enables this entire charade. Solution is to amend the Federal Reserve Act and ditch the employment related component and also mandate inflation rate targeting to ZERO % inflation. Anyone who does the math can see that 2% is a scam.
That is certainly part of the problem. The dual mandate let’s the Fed do what it wants at all times without even understanding what inflation is.
It also enables generations of legislatures to spend like drunken sailors. No offence meant to drunken sailors.
I am singing, I really am …..hooray and up she rises, hooray and up she rises ealy in the morning ….We definitely ARE on a sinking ship ….watch out for the rats leaving !
God gold ?….. I forgot to add…
Or by publishing false inflation statistics for headline purposes only to revise them lower a month later. And then there is of course the completely fraudulent method of calculating inflation.
It’s hard to exist in a world where literally everything is fake.
One starts to wonder when reality will come crashing down and force the masses to see that these fabricated narratives are nothing but lies.
And I think they’re already starting to recognize that the lies don’t add up.
Here here! When everything is intentionally distorted, facts are obscured, data is falsified, and artificially inflated bubbles blown across all assets, you simply cannot assess value.
And then there’s breast implants for the young and stupid.
The Fed understands inflation. In fact, they understand it so well, they let the BLS underreport it. If real housing inflation (resales comparison, legit insurance & property taxes, etc) were correctly factored into CPI, the SS COLA’s would be at least 3% higher than what they’ve been over the last three years. That would have put the 2022 COLA at nearly 12%.
Fake. Like any balance sheet or math problem. Simplify your equation and you will find the common denominator or real numbers.
Until this happens in America, the reversal will not come. Interest rates will need to go up…. For as long as we do not have a real return for money is below 5% innovation will not occur until we see real rates increase. Can we hit zero again? Yes. And likely ww3 would need to be part of this equation.
Let’s don’t forget about Farming . Plant a. Kernel of corn and your return is 1800 units. Plant a potatoe and x5 or x6 units return….. Everything else in america is a Derivative. Perhaps we should focus on real investments and not on the derivatives (aka distractions) THEN, will the people reading this understand why billionaires are buying up farm land.
My two cents
The 2% inflation target scam id self-invented. Nobody mandated it, and sadly nobody has the intellectual integrity to challenge them.
Just like Greenspan once dazzled the people’s deputies with his scammy “wisdom”.
Greenspan was a wizard alright.
The ECB had only one mandate and that was to protect the value of the Euro but when the debt crisis hit after 2008 the ECB had to come up with their own version of QE even though it was written down that they do not have that power. In the end, having it written or not does not matter if all the decision-makers are on the same side of the decision.
The FED’s Ph.Ds. have learned their catechisms. They don’t know:
1. the difference between the supply of money & the supply of loan funds,
2. the difference between means-of-payment money & liquid assets,
3. the difference between financial intermediaries & money creating institutions,
4. didn’t know that interest rates are the price of loan-funds, not the price of money,
5. that the price of money is represented by the various price (indices) level…
Mises has it right:
“The definition of M2 includes money market securities, mutual funds, and other time deposits. However, an investment in a mutual fund is in fact an investment in various money market instruments. The quantity of money is not altered as a result of this investment; the ownership of money has only changed temporarily. Hence, including mutual funds as part of M2 results in the double counting of money.”
It’s virtually impossible for the Central Bank or the DFIs to engage in any type of activity involving non-bank customers without an alteration in the money stock.
The MMMFs are nonbanks. Why do you think bitcoin rose?
Or even better, make a law to reduce congressmen pay by the amount of inflation every year and you will see how quickly things will change.