On Wednesday, Fed Governor Chris Waller said he was in no rush to cut rates, and that he was waiting to see Friday’s data. Let’s go over Wallers’ speech and the data.
There’s Still No Rush
Please consider Fed governor Chris Waller’s There’s Still No Rush speech at the Economic Club of New York, on March 27.
We made a lot of headway toward our inflation goal in 2023, and the labor market moved substantially into better balance, all while holding the unemployment rate below 4 percent for nearly two years. But the data we have received so far this year has made me uncertain about the speed of continued progress. Back in February, I noted that data on fourth quarter gross domestic product (GDP) as well as January data on job growth and inflation came in hotter than expected. I concluded then that we needed time to verify that the progress on inflation we saw in the second half of 2023 would continue, which meant there was no rush to begin cutting interest rates to normalize the stance of monetary policy.
Over the past month, additional economic data has reinforced this view. February job gains moved back up to 275,000, making the three-month average a strong 265,000, and various inflation measures have continued to come in hot. Core personal consumption expenditures (PCE) inflation jumped to 0.4 percent on a monthly basis in January, after averaging around 0.1 percent in October through December last year. And with February consumer price index (CPI) and producer price index inflation data in hand, some forecasts are predicting core PCE inflation may be revised up for January and is expected to come in at 0.3 percent for February, which we will learn about on Friday.
Adding this new data to what we saw earlier in the year reinforces my view that there is no rush to cut the policy rate. Indeed, it tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2 percent.
We made a lot of headway in reducing inflation in the past year or so, although the readings in the past two months have been disappointing. Both total CPI inflation and core inflation that excludes energy and food rounded to a 0.4 percent increase for the month of February, which is obviously not progress toward our inflation goal.
In trying to judge what the underlying trend is for inflation, I tend to look at annualized core measures over 3 or 6 months. For most of a year, I watched these numbers come down more quickly than 12-month readings, telling me that we were making substantial progress. But, more recently, the 3-month core CPI, which was running at a 3.3 percent rate in December, rose to 4.2 percent in February. Six-month core CPI, which was also 3.3 percent in December, was up to 3.9 percent last month. These shorter-term inflation measures are now telling me that progress has slowed and may have stalled. But we will need more data to know that.
The FOMC uses personal consumption expenditure inflation data to measure progress toward our 2 percent goal, and we won’t get those results for February until Friday. But, as I noted at the start, based on the consumer and producer prices that we do have, estimates suggest that core PCE inflation is likely to be elevated. Though the February reading is estimated to step down from January’s, this recent pace would not represent significant progress toward 2 percent.
O.K. So what happened Friday?
Spending, Income, and Inflation Data Do Not Support Fed Interest Rate Cuts
The BEA reports real income is down, but personal spending jumped anyway. Inflation data is mostly as expected, but much higher than the Fed would like to see.
On Friday, unaware of Waller’s speech, I reported Spending, Income, and Inflation Data Do Not Support Fed Interest Rate Cuts
The Fed wants inflation at 2.0 percent. 0.3 percent per month times 12 months won’t come close to getting there.
You can twist the analysis however you want but you cannot twist the math.
Rounded to a single decimal point, the reported 0.3 PCE price index month-over-month can be in the range of 0.25 to 0.34.
The PCE price index for January was 121.906. For February, it was 122.312. That’s a monthly increase of 0.333 percent, on the high end of the range. Multiply that by 12 and you are close to 4.0 percent price inflation annually.
This does not support Fed interest rate cuts.
Rate Cut Odds for June
Waller does not set Fed policy. It’s debatable if he influences it much at all. Powell seems determined to cut rates in June and that is what the CME odds show.
For May, the odds of a rate cut decreased to 4.2 percent.
But for June, despite relatively hot inflation data and very strong consumer spending data, the odds of a rate cut in June rose rose slightly on Friday.
Judging from the data, the move should have been in the other direction but arguably hot data was priced in.
Waller noted “some forecasts are predicting core PCE inflation may be revised up for January and is expected to come in at 0.3 percent for February, which we will learn about on Friday.“
Indeed, PCE was revised up from 0.3 percent to 0.4 percent in January. So Waller is at least paying attention to the data and the forecasts.
As I noted, the PCE monthly increase was 0.333 percent for February. Multiply that by 12 and you are close to 4.0 percent price inflation annually.
What’s the Rush?
I’ll tell you.
Everyone, including Powell is so fearful that cutting one month too late will sink the economy in recession.
It won’t. This economy is so imbalanced, a recession will happen no matter what the Fed does. And when it hits, president Biden, Elizabeth Warren, and all the Progressive cheerleaders will be screaming “I told you so.”
A friend asked me the other day how politics plays into the decisions. That’s a possible way.
Powell has indicated 2-3 cuts are coming. Warranted or not, they likely will.
However, don’t rule out a sudden collapse in jobs and a strong recession that happens sooner rather than later.
Don’t blame the Fed for failure to cut sooner when that happens. Instead, blame the Fed, Biden, and Congress for the inflationary conditions that put us where we are now.
We are sleepwalking towards recession and few realize it. But cutting too early will only exacerbate inflation and various bubbles.
I’m working 3 projects and bunch annual maintenance before I can get to new stuff
closing out 1 project this week (finally) after year
being pushed on 2nd one with 2 more requiring near immediate attention
just did taxes – didn’t like fact with MORE INCOME comes MORE TAXES
gonna have to find some more DEDUCTIONS
I think your are “sleepwalking” into an election…
If the Fed cuts in June, can you imagine what that will do to the price of Gold?
Bang, Zoom!
Buy PHYS Sprott fund or CEF. Don’t buy GLD
Any positive moves will be offset by the climate cult so that has to be dismantled first.
There’s a time and place for everything.
Green policies implemented to restrict use of carbon based energy via high price is direct contributor to inflation statistics. Nothing like using a hand shovel to dig a hole that could be done with an internal combustion engine in one hundredth the time.
The cumulative effect of such stupidity is starting to play out real time. People are finding out that wanting to do something and being able to afford doing it are two different things. Demand destruction is in early innings.
Putting it all on the credit card so as to avoid having and make hard choices is not going to continue.
Playing from the defensive position still has most virtue until the inevitable economic shakeout manifests and causes all those debt financed acquisitions into collapse.
Actually, Pavlov’s primates are living in Skinner box mansions made of digital ticky tacky that all looks the same while enjoying their ideological operant conditioning for the great earthquake. Have another electric shock with your snicker Barbie.
Behind the ZH paywall: “The US Economy Is Inverted”: How The Flood Of Illegal Immigration Is Delaying The Official US Recession
Stagflation is baked into the cake.
Stagflation with massively negative real interest rates.
Do you know what stagflation is?
If so, prove it, and then check your statement to see if it’s still true. (Hint: it’s not true).
So instead of proving that you know what stagflation is, you just downvote instead, as if it somehow makes a difference?!
As LBJ showed pumping the economy with printed money creates considerable inflation after he is buried in the grave. Biden learned a lot from LBJ making his family wealthy, as LBJ did too.
There is no printed money.
Money supply is contracting.
Therefore there can’t be inflation.
There is debt creation and access to any money “printed” is by favored banks, private equity etc. Its NOT Weinmar Germany which was true printing. So when debt is defaulted on, money supply collapses and massive deflation(principal and interest and associated fake money derivatives) TRILLIONS and TRILLIONS wiped out in a minor debt crisis.
Debt issuance is contracting and continues to contract, not just un the USA, but around the world. No amount of capital letters or downvoting changes the data or the maths, which still defies your Wily E. Coyote narrative. USD inside the US is a fraction of global Eurodollar USD used for trade, and global trade is down and falling – have you been to China recently?!
Spending, income, and inflation numbers do not matter. Illegal immigration, China’s fentanyl drops in the US, nor national debt do not matter. I could on and on…in any case…nothing matter except politics. The politics of i require a rate cut. The kid-sniffing, oatmeal brain, psychopathic liar in chief requires “Chairman Powell” to submit to the Fascist party. Wall St, the goons, and their financial ability to build Doomsday bunkers relies on a rate cut.
The Fed isn’t political. The Fed cannot change interest rates 7 months before election, unless something unusual forces them.
As in if Biden gets re-elected he gets to re-appoint Powell?
The Fed isn’t political as much as Jesus wasn’t Jewish.
At the bottom, in Oct 2022, MSFT [1M] was a red long legged doji. QQQ [1M] had a tiny green bar body. The Dow [1M], in Oct 2022, had an erection. The tech sector sucks. Gov “easing” wouldn’t help if the grande 7 starts to decay.
What’s the Rush?
$1.6 trillion Federal government debt servicing by the end of 2024.
That is the reason.
Outside of some sort of CBDC induced great reset of debt, FED funds rates have to be 0% forever.
Get the popcorn ready! The show is going to start much sooner than advertised.
Ask the bond markets, the Fef is waiting on their answer as always.
What Fed Governor Chris Waller couldn’t say is that they are already accommodating the Biden administration as much as they can by not increasing interest rates further, something they desperately need to allow to happen.
They can’t raise rates when bond yields are dropping. That’s like hitting the brake and accelerator at the same time: try it! Lol
Downvoting reality is not going to save you.
The spread between Unleaded and Diesel is shrinking. This tells us all we need to know.
You mean this?
https://www.thisismoney.co.uk/money/cars/article-11311581/Diesel-petrol-price-gap-reaches-record-20p-litre.html
Europe is a lost cause, because they have no resources. Europe is an expired colonial empire which only succeeded at self preservation at other peoples expense. American diesel is only 20 cents a gallon more than unleaded. The spread almost was 80 cents to a dollar not long ago.
“Europe” isn’t one thing.
There are 4 Europes:
1. Eastern Europe & Eurasia (Russia), where most of the energy is. It’s rational for Russia to partner with Germany, but America doesn’t like the competition.
2. The Celtic Archipelago, where the financial centre is in London and the global network of tax avoidance that includes Switzerland and other exotic places, as well as some energy, and some quality design & technology goods and services, energy shared with…
3. Northern protestant-germanic Europe, which has energy and quality manufacturing, Scandinavia, Netherlands, Luxembourg Germany; and
4. Parasite profligate catholic latin Mediterranean Europe + Hellenic bits, where the economic basket cases are: Belgium, France, Portugal, Spain, Italy, Greece. Europe is not a monolith; nor is the USA.
Not all of these places are former colonial powers.
Taxation rates vary, but are generally higher in Europe, to try to fund unsustainable socialist public services and infrastructure – which is visibly failing as immigration increases, against the will of the native people.
Lots of deficit stimulus spending from the IRA and debt forgiveness is still going.
It’s pretty hard to have a recession while helicopter dollars are being thrown everywhere.
Chris Waller is a Sherlock Holmes.
Playing with interest rates will do nothing to impede the mushrooming inflationary depression and social collapse that is here now and devouring the country. The fed will accelerate inflation to keep the unearned ascendancy of it’s feudal cronies for as long as possible. The rest don’t matter to them.
The Fed can’t “accelerate inflation” unless commercial banks start loaning and increasing money supply.
The Fed doesn’t increase money supply, central banks don’t print money, they create bank reserves, which are not money and don’t enter the economy or expand the money supply.
Loans are contracting, so money supply is contracting and there is not inflation, but deflation.
Seems like someone doesn’t like dissent from their generalised unevidenced chicken little doomsday narrative.
The chances for a recession are really low because the productive part of the economy is fine. Powell is pulling one big head fake on everyone. Just because the FIRE economy isnt cooking doesn’t mean the real economy isn’t ok. Powell won’t cave imo. The era of low rates ended under Powell.
If by “productive part of the economy is fine” you mean government spending. That seems to be one of the few bright spots.
Government doesn’t create wealth, it destroys wealth through creating debt and spending incompetently on ideological fantasies. The productive economy is in decline globally, regardless of what governments do.
At this point it’s not even clear who is downvoting and why.it looks like they just want to downvote everything i post because there’s something in it they don’t like. What is that metaphor about when you’re taking flak, you’re over the target.
Deflation starts when boomers start selling their houses for 4%/5% income, when the rich donate properties to ease their tax burden [Trump’s easing was used on : Mar-Largo, Bedminister, Seven Spring and Palos Verdes] and when the grande 7 accumulated many monthly red bars in the countdown.
Many (most?) boomers won’t sell. They will just ‘will’ their homes to their children and they definitely won’t be selling to ease their tax burden (never heard a single selling talk about doing this).
The assumption is that they can sell, because they need buyers able to buy, and they need somewhere else to buy to downsize to. I’ve been witnessing family members in exactly that scenario, and they balk at some of the prices.
See the problem: Households and Nonprofit Organizations; Checkable Deposits and Currency; Asset, Level (CDCABSHNO) | FRED | St. Louis Fed (stlouisfed.org)
Contrary to economic theory and Nobel Laureate Milton Friedman, monetary lags are not “long & variable”. The lags for monetary flows (M*Vt), i.e., the proxies for (1) real-growth, and for (2) inflation indices, are historically, always, fixed in length.
Prices and rates will fall in the last half of the year.
Why do you keep getting this wrong Mish?;
1. Price rises are NOT inflation.
2. Inflation requires commercial banks to be lending more than the economy grows: that’s not happening; therefore there CAN’T be real inflation, just real or fake scarcity.
3. There is fake scarcity – meaning policies that synthetically create price rises; e.g.: lockdowns; NetZero; sanctions; illegal mass immigration; etc..
4. Central banks CAN’T set interest rates, CREDIT MARKETS set debt prices, which set debt yields, which set interest rates.
5. Credit Markets respond to real economic data, not central bank and government agency generated fictional data.
6. Global deflation is in effect, it’s visible in China, as well as in the EU, and across the developed world. Elevated persistent debt plays a role, as does chronic excessive and unsustainable public sector spending; demographics also plays a role, as does the playing out of the development s-curve in countries in Asia abd eastern Europe.
Interest rate cuts are coming because credit markets say so. They don’t care about the spurious manipulated data generated by governments, whether by Socialists in China or Socialists in the USA or EU or rest of the Anglosphere and developed world.
Deflation erodes accrued capital, because the market is spent, and real prices (not just nominal) have to come down to meet the market to make a sale, just like in Credit Markets. There is no inflation or money printing, quite the opposite, abd don’t act so surprised as it plays out and soufflées collapse. Of course politicians will do their best to defy the will of the electorate to force through “it just happened* ways to try and stymie the inevitable decline in prices due to deflation, by deliberately increasing illegal mass immigration and exhausting and limiting energy supplies to keep prices up, but eventually, even that runs out of rail
‘Inflation is always and everywhere a monetary phenomenon’
Yes, and that’s why there isn’t any.
Now i am being downvoting for agreeing with you?! Clearly you are not interested in facts or reality.
Explain what you think inflation is, and where the actual inflation is the specific monetary phenomenon at play, if you can.
1) If price rises are not inflation, then what are they? Obviously one reason is scarcity. So if price rises are not inflation are you saying they are all scarcity?
2) How do you know commercial banks aren’t lending more than the economy grows? Links to this please.
4) Wrong. Central banks do set rates. But you are correct that credit markets then set prices for individual borrowers (ie determine who is or isn’t worthy of borrowing). Essentially central banks give borrowers and lenders a rough idea of what the rate should be so they aren’t both in the dark when making/getting a loan.
I have said repeatedly that political policies are creating scarcity.
E.g.: reduction of oil and gas globally affecting price, due to sanctions, is a political move, not a market move
E.g.: illegal mass immigration pushing up demand on accommodation and public services is a political move, not a market move.
3
E.g.: NetZero adding non-essential costs and requirements on companies passed to consumers is a politically created price change, not a market one.
Etc…
You can easily find public data on commercial bank lending and contraction of money supply.
Central banks try to set rates at the short end, but they can’t dictate the price at which the market will buy or sell, so i am not wrong.
Imagine a scenario where the credit market has bid yields down to 2% but the central bank insists on the rate being 5%
It’s not going to happen. The fed cannot fight the market, it can’t force people to buy its debt at a price that doesn’t follow the market.
So you believe that your central bank can charge whatever it wants and still get buyers in the quantities it wants?!
So can you explain why China and Japan didn’t get that memo?!
I don’t get why you don’t get it…
You can see on the charts that the EFFR moves AFTER the bond markets move… It stands to reason that in a marketplace where buyers can choose different debt products of different quality at different prices, they will choose to buy whatever meets their criteria for protecting capital or getting an return on investment. If the price is too high and there are other types of product to invest in that are closer to their investment criteria, then naturally they will buy into what they need to. Nobody is going to buy debt at a price that doesn’t make any sense, and as a debt seller, a central bank has to adjust its price to what buyers are willing to pay.
You downvote me because you don’t know how to use a search engine?!
Well….. not exactly. Price increases are not inflation. Prices change depending on supply and demand. So for example, a drought can cause prices to increase, or stupid regulations can cause prices to increase, but that is technically not inflation.
Rather inflation is a devaluation of the means of exchange. So under a gold standard where a minted coin is the means of exchange, inflation comes about from removing the amount of gold in the coin of a set amount. In Yap it comes about from making the giant stones smaller, etc.
In a fiat economy, inflation comes about when the supply of dollars (or yen, or euro or whatever) exceeds the growth in production. In most countries today this is what is happening. In the US the growth in the amount of fiat currency is running about 4 or so percent faster than production each year. In Argentina (where i just was), currency growth is rising about 17 percent faster than production about every 3 weeks. Both are the same, and whether one is high or moderate, or hyper is really in the eye of the beholder. 17 percent inflation every three weeks in Argentina is not bad. 4 percent per year in the US is awful.
If you think Mish keeps getting things wrong, where’s your superior blog so we can all get even smarter?
I don’t need to make a blog, i am not selling anything.
I don’t give financial advice, I don’t know anything, i’m just an engineer. I just do calculus, statistics, and systems analysis, obviously my perspective and granular analysis of data is useless in the face of a hundred youtube channels with bitcoin beggars screaming “printer goes brr”, i defer to their superior smarterness.
Translation,
we can start QE again.
then raise rates again, whem inflaton continues upward, again.
love it, when a plan comes together 😜
They can’t. It doesn’t work.
QE doesn’t create inflation, because it doesn’t increase money supply. Bank reserves are not money, they don’t enter the economy, even if they “print” a googleplex of them, it has little to no effect; abd by the way, most dollars are completely outside the USA and are not created by the USA. The USD-denominated global trade currency, the Eurodollar, is created by loans issued in the UK and Europe. That credit creation is not expanding, so there is no “fuel” for inflation, no mechanism. Any price rises are either due to real scarcity, or artificial fake synthetic scarcity created by governments’ policies.
What happens when a recession hits but inflation stays persistent. I bet they cut because they are gutless tools of their money masters.
Recession us already slowly building.
There is real terms decline in GDP in the UK and Germany, and if there was real data, you will aee it in China and Japan, for example.
Some industries like natural gas and medical supplies have surplus inventory. Layoffs occurred because the customer is not buying. These are need based products, not wants. Lowering interest rates won’t influence the decision to manufacture / buy more product.
Correct.
They are also not buying because they expect the price to fall: deflation.
1) A normal inflation : between zero and 10%. A moderate inflation : between 10% and 20%. High inflation : Between 20% and 80%. Hyperinflation > 80%.
Get used to it.
2) If we enter a recession unemployment will rise. Interest rates will fall. Recession will eliminate the zombies. Thereafter the US and Europe will rise, surfing on sectors that are important to our national interest. Consumption will fall. Income from interest will rise.
yes!
….still waiting for the correction after the GFC.
why did everything slide to the back burner or govt’s and the Fed stop the free fall, in 2008?
Lay offs began last year…
The employment situation has been on a downward spiral for almost a year. Mish gives us excellent analysis in this area. You’re not paying attention. But don’t be surprised if interest rates rise from here. Especially after the election.
We are already in deflation. I am NOT talking about falling prices, I am talking shrinking amount of debt/credit and mortgages.Think: the work of Steve Keen.
Although falling prices will follow. My impression is that more and more shops in my neighbourhood are offering more and larger discounts (between say 10% and up to 50%). And it is only the end of march/1st week of april. Not a good sign !!!!
Correct, but this is not Keynesianism. Keynes is wrong about almost everything.
Stagflation is already here and will be with us for awhile no matter what the Fed does. I think there is way too much focus on the Fed and its perceived ability to control the economy. At best, the Fed follows the economy, and the only thing the Fed actually does to the economy is bollocks it up
You clearly don’t know what Stagflation means:
stag·fla·tion
noun ECONOMICS
persistent HIGH inflation combined with HIGH unemployment and stagnant demand in a country’s economy
We have NEITHER HIGH Unemployment Nor HIGH Inflation. 4%-ish Inflation isn’t even close to “HiGH”
and UNDER 4% Unemployment isn’t anywhere close to “HIGH” Unemployment. Does No-One Remember the History of the 70’s and 80’s??? Inflation is more than 2% but LESS than historical averages before the “Easy Money Decade”. And in NO WAY is this remotely resembling the 70’s and 80’s. Mortgages were running up to 20% and More and Unemployment was HIGHER by Far.
Stop being Drama Queens and realize this in NOTHING like “Stagflation”.
Does the Deficit need Reduced? YES!
Does Citizens United need to be revoked and Campaign Finance Reform implemented? YES!
Do Term Limits need to be Imposed? YES!
Do these Asshats that are embarrassing running for President need to be replaced with REAL Leadership NOT currently in the race? Yes
But quit bitchin’ about Stagflation when it is NOTHING of the sort we have currently or in the near future. The largest group of Retirees is quitting the workforce at 10,000 per day and dying at a rate of 3,000 per day (last I checked) and it means that we’re will NOT be High Unemployment anytime soon.
There also won’t likely be HIGH Inflation anytime soon because those Retiring Boomers will spend LESS per person at they retire and no longer have the income of a Full-Time Job.
Be a man, quit bitchin’ : what’s going on Macho man.
He perhaps meant “stagnation”; many people like saying technical terms without really understanding how they work. Retiring boomers is but one of the several factors in confluence for this perfect storm: their pensions are at risk.
What percentage of retiring boomers have pensions?
In which country?
USA
Does the Deficit need Reduced? YES!
Does Citizens United need to be revoked and Campaign Finance Reform implemented? YES!
Do Term Limits need to be Imposed? YES!
Do these Asshats that are embarrassing running for President need to be replaced with REAL Leadership NOT currently in the race? Yes
These need to be on every refrigerator door. Nothing gets fixed until politics get straightened out.
There will be no effective changes until lobbying is illegal.
of course we have stagflation – by definition. When did you become the one who can determine what “high” means. Unemployment is irrelevant – the economy is stagnant.
Production has barely moved, or has fallen since before covid. Federal borrowing is not production, and GDP figures based on consumption also say zip about production. Gross Income is a better indicator but even that has been overestimated due to inflation modeling becoming less accurate.
4 percent inflation is extremely high considering that income has not budged. Again, were it not for borrowing income would be down even more.
You appear to be an advocate of MMT. Simply create wealth out of nowhere and by measuring what is created rather than what is actually produced you can pretend that the economy is all hunky -dory.
Please try to understand something about how the economy works before pretending to be a professor.
I agree that high inflation is very unlikely; but I don’t agree that high unemployment will not happen. Every time rates plateau and start to fall, layoffs begin; naturally they vary in scale by industry and skill level: baristas are more vulnerable than brain surgeons, for example. Even the amount of illegal immigrant voters that western cryptofascist regimes are trying to impose on the taxpaying voting citizenry is not going to be enough to stymie the effect of overpriced costs of training and energy and cost of living, as western public services continue to run up national credit card debts to the point of gobbling up national budgets in interest payments. Whilst rates fall, the downside is concomitant decline in trade and economic activity, and lots of people feeling and being broke/skint.
Since very late 2022/early 2023 the indicators have been very clear. Rate cuts are coming. Right now Mr. Market thinks that there will be – at least – 3 to 4 rate cuts. I think that already next month (april 2024) the first rate cut – of at least 3 to 4 cuts – could happen.
Market is down to 2.5 to 3 cuts
No. The charts I am watching still say that 3 and perhaps 4 rate cuts are “in the pocket”. It’s just a matter of the FED acknowledging those charts.
I think the speed at which the rate cuts are coming (at least next month (april)) could / will / is going to surprise everyone. But we’ll have to wait and see what REALLY will happen.
The precise dates and number of cuts is a moot point, the core message is that credit markets are driving rates down, and credit expansion is drying liquidity (and imaginary “inflation”) up.
No bigger cheerleader for cutting rates than JM Keynes. No surprise there. Time to catch up with reality though.
But Keynes is irrelevant here, the reason for rates going down is capital flight into bonds as a risk mitigation measure against a deflating economy.
Not even a day went by without the market requiring you to update your prediction
So Mr. Market things demand for credit is collapsing. Probably true, question is how fast, and how much larger can transfer payments get.