The dot plot of FOMC participants is for tighter policy through all of next year.
By a 12-7 margin, the Fed Summary of Economic Projections shows the most likely interest rate projection for the December 2023 meeting is now 5.50 percent to 5.75 percent.
That is an additional hike on top of the Wednesday hike to a range at 5.25 percent to 5.50 percent.
The median projection for December 2024 is 5.0 percent, but one Fed member forecasts 6.0 to 6.25 percent.
Major Uncertainty
The range of projections for 2025 is very amusing from 2.5 percent to 5.75 percent. The median projection is between 3.75 percent and 4 percent.
Confidence Levels
There are only 3 months to the December meeting so confidence levels are pretty high.
Looking way ahead, the 70 percent confidence level for 2026 is from 0.0 percent to 5.5 percent. Thus, the Fed thinks that 30 percent of the time interest rates will be outside that range.
In general, the Fed is not very confident, nor should it be, and neither am I.
On the data front, The Fed Is Making Decisions on Poor, Untimely Data, Frequently Revised
Let’s start with a discussion of poor employment data, but the problems don’t stop there, or even in the US. Poor data is international.
Looking ahead, we do not know who will win the next presidential election or if one party will control Congress plus the White House.
Inflation From Hell or Something Else?
If Democrats pull off a clean sweep of the House, Senate and White House, expect to see inflation from hell on many fronts: Student debt cancellation, expansion of earned income credits, more food stamps, and even more insane environmental policies.
It would not surprise me one bit to see Medicare for all, and if so with drastic fiscal and inflationary consequences.
Note that Biden’s Green Energy Inflation Reduction Act Needs a Big Bailout Already.
Unfortunately, Biden’s Solar Push Is Destroying the Desert and Releasing Stored Carbon
It’s more difficult to project what happens if Trump wins, but it is certain he will roll back inane energy regulations.
If Republicans pull off a clean sweep, then it’s possible we see some fiscal sanity. However, Trump had two years in which Republicans also held the House and Senate but he accomplished virtually nothing on the fiscal front.
Tax cuts did not pay for themselves and the fiscal deficit exploded.
Tariffs and Sanctions
If your top priority is more tariffs and sanctions then toss a coin. Trump and Biden are equally bad. Biden kept in place all of Trump’s inflationary tariffs and sanctions, even adding more.
Trump did manage to prove trade wars are neither good nor easy to win.
For discussion, please see Mexico Jumps Ahead of Canada as the Largest US Trading Partner
Biden escalated Trump’s policies proving he is even worse.
Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
I stick with my baseline assumption that Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish
Neither party will fix anything, but Democrats will dramatically worsen the outlook.
So why shouldn’t interest rates be higher for longer?
How is the Fed Govt. (and everyone else’s debt) supposed to pay the interest on $33 trillion borrowed? The rates will come back down to zero. No choice. Nobody in government likes wasting $1 trillion in interest payments when it could be spent on a new bridge with someones name on it.
The rates may “come back down to zero” – but only temporarily, until full blown hyperinflation turns us into an Argentina-like basket case.
Can you imagine hyperinflation in the world’s main reserve currency?
Let’s just think about that for a moment…
…how is the world going to trade?
The other reserve currencies can’t step in, because they are weaker than the USD… why? Because the USA is the world’s largest consumer economy.
China can’t take over, because it’s the world’s largest producer economy.
So what happens?
If the giant global debt is written off, then it breaks the whole global financial system. If it isn’t, then hyperinflation breaks the whole global trade system.
So what happens?
The real risk is of global statist revolution – but, it’s only the developed countries that have the infrastructure for a technocratic police state. The less developed nations, already have their corruptocratic failed states where anything goes to those with thugs at hand.
The problem with a thugocracy, is that it is hard to have innovation and consumerism without liberty, people just aren’t motivated to contribute. The same goes for all markets, like the housing market… people need to have a realistic prospect of being able to build up and have a slice of something to have a stake in society.
I think there will be a lot of turmoil, and people will tend to look for models of stability from history and try to return to those, whatever they are.
One of the real problems with socialism is that it attacks the notion of the country as an aspect of identity, to break the population down and turn them into proles. If we look for parallels in the fall of the Warsaw Pact and Soviet Union, we see a very obvious lurch towards nationalism, as a binding force. Nationalism tends to prompt wars and protectionism. Artificial countries like the USA have a different problem from organic European countries, because being an American is a bit like being part of a corporation, rather than of an ethnos and a real nation.
America is already fracturing along cultural lines, geographically, and perhaps that hints at changes that might occur in North America, to reflect irreconcilable differences between different cultures there… but the pull of the old world identity is strong too. We already see the reactionary rise of the right in Europe, as the popular will across the continent begins to reject the socialist-statist archons’ vision of Eutopia. If America descends into internal conflict, then Europe will likely fall under the influence of Russia, which has a lot of resources to offer, and world view that is not very sympathetic with the socialist elites of the EU.
You are drowning in “recency bias”.
Reserve currency status doesn’t last forever. Ask the Spanish, Dutch, English and Portuguese.
A global TRADE currency that cannot be produced out-of-thin-air will be established one way or another. Uncle Scam won’t like it one bit, but will have no choice in the matter.
Dr. Franz Pick:
(1)”government bonds are certificates of guaranteed confiscation.”
(2)“The fact is that the destiny of every currency is devaluation and expropriation.”
(3)“The difficulty with a debt that doubles every ten years is that the interest compounds to the point that it can no longer be paid out of the current revenues. Once the interest itself is debt financed, the compounding accelerates.
There will come a time (unpredictable) when it will be impossible for the government (federal) to collect enough in taxes (or debt monetization), to pay all of its expenses, including interest on the national debt.
The Gov’t can, of course, borrow an indefinite amount through the Fed. (concealed green backing) given a few changes in existing law. But that would lead to hyperinflation – i.e., a collapse in the credit of the Gov’t.
So the easy way is the way the French did it in 1960. Simply say that beginning Jan 1 (or any other date), new dollars will be issued, and that each new dollar is worth 100 old dollars. Then follow that up with a largely state-controlled economy.
In 1960, the French economist / mathematician Jacques Rueff, during Charles de Gaulle’s presidency, converted the old franc, to a nouveau franc, equal to 100 of the old franc. However, even with this substitution, inflation continued to erode the currency’s value, though at lower rates of change, in comparison to other countries.
And this new franc equaled 20 cents to a U.S. dollar. The old rate was 5.00 to a dollar.
In 1960, the French franc, which was one of the weakest currencies, overnight, became one of the strongest. Correcting policies included plans to 1) balance the budget, 2) stabilize the currency, and 3) eliminate currency controls.
The gold content of the franc increased 100%, & 1) foreign exchange rates, and 2) France’s internal prices, reflected the conversion overnight. Internally, prices dropped about 90 percent, and the foreign exchange value rose from about 0.238 cents per franc, to about 20.389 cents per franc.
Domestically, France was on a managed paper standard; externally, on a modified gold bullion standard. With the new policies, France’s economy strengthened, and the franc became fully convertible @ approximately its gold par, into gold for foreign exchange and into foreign currencies.
With the introduction of the Euro, the franc in Jan. 1, 1999, was worth less than 1/8 of its Jan. 1, 1960 value.
degaulle also came to NY to get his gold before old tricky dick defaulted. he knew we were gonna get our asses beat in indochina and mideast. just like they did. we should have listened.
In Argentina the official base interest rate is 110% and inflation is approximately 140%.
We are unfortunately (along with all other G7 un-backed fiat currencies) headed there also, so I would definitely agree with the “higher for longer” statement. Maybe edit it to “higher forever”.
Powell is vacuous. He won’t admit his errors. re: ““Real interest rates now are well above mainstream estimates of the neutral policy rate”
Real rates aren’t high enough. High real rates of interest incent workers to save and not speculate.
It is axiomatic. Lending/investing by the DFIs (deposit taking, money creating institutions), expands both the volume and the velocity of new money. I.e., lending/investing by the DFIs is inflationary.
Lending/investing by the NBFIs (nonbanks) increases the turnover of existing deposits (a transfer of ownership), within the commercial banking system. I.e., lending/investing by the NBFIs is non-inflationary (other things equal).
The correct solution to stagflation is the 1966 Interest Rate Adjustment Act, i.e., drive the banks gradually out of the savings business, lowering deposit rates, while draining bank reserves.
This action raises the real interest rate outside of the payment’s system, while making the banking system more profitable.
“Debt to GDP Alarm Bells Ring, Neither Party Will Solve This”
Agree that neither party is going to address the surging debt but what are the possible solutions besides cutting SS and Medicare? For almost 14 years, the Fed purchased trillions of financial assets and implemented ZIRP.
These polices lower interest rates across the yield curve, increase the money supply and allow the government to spend virtually unlimited amounts of money. This produced a Cantillon or reverse Robin Hood effect by foisting inflation on the poor while rewarding the affluent with higher asset prices.
If you are going to engage in such rapacious and regressive policies, there has to be a correcting mechanism of taxing the extreme wealth (billionaires and hectomillionaires) to pay down the debt.
However, this is not a practical solution in today’s environment as any attempt to increase taxes by a single dime will be met with shrieks and cries of socialism and communism by those who can’t comprehend that the wealth transfer was accomplished by money printing and the socialized debasement of the currency (amplified by wildly excessive executive-compensation).
Indeed, we currently have socialism for the rich and inflation for the masses with a substantial amount of welfare doled out for vote buying and to keep the lid from boiling over.
In addition, the few who are advocating for wealth taxes want to use the proceeds for additional profligate spending which will increase government dependency and do nothing to resolve the surging debt and inflation issues.
Therefore, it’s best not to carry out these wealth-transfer policies in the first place as the political system is too captured and incompetent to rectify the deleterious effects. But it’s too late for that now and so onward into the currency-debasement and debt abyss we go.
The point here is not to sing the praises of wealth taxes but to repudiate the crackpot theories of quantitative easing and MMT that have destabilizing effects and unleash moral hazard on the economy. It’s not surprising that unions are joining the every-man-for-himself-and-grab-what-you-can fray indicative of the current environment.
Vote for me.
I will give you free cake, ice cream and candy.
sounds like ronnie raygun free lunch. he tripled the debt and taught me it really doesn’t matter. who doesn’t want a free lunch.
If Republicans pull off a clean sweep, then it’s possible we see some fiscal sanity. However, Trump had two years in which Republicans also held the House and Senate but he accomplished virtually nothing on the fiscal front.
Tax cuts did not pay for themselves and the fiscal deficit exploded.
Exactly!
This is one major reason why Trump is a bad choice. Expect more of the same but just a bit different with supposedly conservatives. No effort to do what is fiscally and soically correct. What is needed is a politician who points this out and formulates a plan to get our act together. Not a lot of choices available. I think were going into stagflation with a recession, unemployment and continued inflation .
Concern is … to truly impact our current unsustainable debt is to increase taxes by at least 20% and cut entitlements by at least 30%. Neither party would touch anyone recommending this. But if hypothetically one party let them run … the candidate would be annihilated in the primaries by other primary candidates who continued to push tax cuts and more spending. If this candidate were to get elected, congress would stop them. If congress didn’t stop them, there would be riots in the streets and the president would be impeached or assassinated. Bottom line, this patient needs chemo and radiation … but we’ve been treating the problem with morphine for a long time. Problem keeps getting worse, but it doesn’t feel bad. Chemo and radiation will work towards fixing the problem, but will cause immense pain. People prefer morphine. I’ve come to the conclusion that individuals need to assess where gov’t will mis-allocate resources and try to invest with this in mind. And having a ‘go-bag’ is also a good idea.
Clinton somehow managed to cut entitlements, required work for welfare and ran a budget surplus. It can be done if planned correctly. I live in MI and see all the wealthy immigrants, from the middle east mainly, get free healthcare, food stamps and god knows what else while living in 3000sq + homes and driving esclades. Entiltements are massively abused.
The poor ones dont come here — songs to the contrary be da*ned. The rich ones do. You might just be seeing the rich acting rich with their own money (or money they stole from the home country.)
Today, mankind knows so much, but, behaves so irresponsible. Modernity has brought us amazing advancements in science and technology, but, our government leaders are morons. We ignore major problems like the unsustainablity of our debt, and endless wars, but, magnify little issues such as climate change and racism (creating schisms in our society and culture). Any rational person looking at our political landscape just shakes their head in disbelief and wonders how this kakistocracy came to be.
The Fed clown show is just another example. It has abused its power with interest rate manipulation and banksters bailouts to drive this nation into a ditch. It has acted to guarantee that a few wealthy people get filthy rich while shoving the vast majority down the rungs of the economic ladder. This is about to play out in a big way with inflation. Massive inflation is all but guaranteed because they will never let deflation happen since that would mean a loss of power for the kleptocrats.
Looking at the Fed’s dot plots to define the future is alchemy. We all know a big crisis is just around the corner. But for some reason we just play along with the narrative as if everything is okay. Meanwhile the system gets further and further distorted as the impending crisis grows in magnitude.
Thos are my happy thoughts for the day. 😁
I feel that moron is too harsh.
I prefer feeble-minded.
As in “…our government leaders are feeble-minded.”
Sorry, but, it’s hard to be nice to those geriatric gollums who clutch so greedily to their rings of power.
2024 will be the 4th year of the 54 month cycle in US bonds. This cycle breaks down into 3 smaller 18 month cycles. The first 2 cycles have been very right translated, which indicates a strong uptrend for yields. This 3rd cycle shows the weakest start of the 3 subcycles. All this points to a top forming with a relatively shallow consolidation, which supports the dot-plots for 2023 and 2024.
Operating in the background is a 60 year cycle, which bottomed in 2020, with ~20 years to go along an exponential path. The macro cycle picture does NOT support dot-plots beyond 2024.
I only follow the bicycle and one unicycle.
Hope springs eternal.
May as well try timing radioactive decay.
“May as well try timing radioactive decay.”
That one is like watching grass grow.
Grass is subject to the whims of the weather.
I watch indoor paint dry.
But you’ve gotten the idea.
A thoughtful “connect-the-dots” on the latest SEP. I believe FOMC gave use 2023 readings just to keep up the suspense. By December SEP, all the dots will be just below 5.5%
The real surprises were the 6.1% dot for the end of 2024: “Don’t make me come up there and tan your hide!”
And then the “longer run” dots for much higher inflation than target.
Choosing between two evils, with a FORCED bifurcation, is STILL EVIL.
Good post. We can conclude that neither democrats nor republicans will fix anything and pretty much nothing but token measures will be done no matter who is in office with plenty of distracting drama (Hunter, gov shutdown, etc) to keep the sheeple at bay.
Now that we got that out of the way, how do we profit from this so we can become richer and move to anywhere in the world where the quality of life is better?
If we do get inflation from hell, real estate seems the right place to be which reaffirms my desire to try to get a property deal done by the end of this year but I’ll wait for the right price.
By the way, unemployment claims are lower than expected today.
As a person in real estate … I hope you are right. That said, I think a “Go bag” … even if virtual … is a good idea and real estate does not work well w/that. I hope I don’t ever do it but … if I do jump and ex-pat … it would require a liquidation of real estate.
That’s why banks favor real estate.
It keeps most debtors where the bank wants them.
The problem with leaving is I can’t think of another civilized nation that is less f’d up than the US. As a small insurance policy having a bank account in a foreign country would maybe be an idea, but where? Also I think there are onerous tax reporting burdens with a foreign bank account.
There are a lot of nice places to live outside of the US.
Either you can’t afford to live there or they won’t let you stay long.
Where? I know there are a lot of nice places to visit but I don’t know about moving there.
It all depends on your perspective and what quality of life means to you. If you love Americana and spend your time eating greasy burgers and watching football and waiting for the next mass shooting then leaving the US probably isn’t for you.
Sadly, what most people just don’t understand is that inflation will remain high for a very long time because of demographics which will eat away social security till people are ground down to homelessness. It’s been happening for some time and picking up pace. WSJ had a great article on it.
link to wsj.com
And I have a long list of countries but I think being mobile is the best option.
You basically want a country that has very little sympathy with ideas such as high taxation and bloated public services. There some countries in parts of the world, in all continents, that aren’t 100% developed, but are a long way from “developing”. What is observable is that the larger countries in the world, are often the less good ones. The very tiny countries and territories, tend to be better, particularly if they have focussed on being tax havens and offering quality holiday services and infrastructure. There are some medium-sized countries that have pockets of pleasure within them.
When I talk about size I mean in all aspects: population; area; size of economy. There’s not much point in going to a small country like Cape Verde or Tuvalu, and expecting to find industry and infrastucture.
You might shift sideways to Madeira or Nauru, and find a bit more development, but they are still small places, and a bit remote, and you might go a bit mad being far away and maybe claustrophobic.
Some of the places on statistics, like Bermuda, and Vanuatu, are just too remote and expensive, and you end up craving the city life and its benefits. In the, end you take yourself with you, and you need to know yourself, and have people and projects in these places, to make you feel like being in them. Most of the world is crap, but not crap for everyone, because people vary in their preferences… some like snow and mountains; some like palm trees and beaches, so you pick your poison.
But you can’t pick it by spreadsheet and website, you have go there, and experience these places to see if they really are places you don’t want to leave.
Setting that aside, I don’t understand why people keep saying that there’s inflation, when the data shows clearly that there is only deflation, masked by political policies (lockdowns, sanctions, netzero, etc…) and doctored statistics (CPI, labour statistics). Sure, demographic change in the developed world is devouring the economy, and it will lead to an inevitable correction when the wheels finally come off (perhaps soon)… none of this is inflationary, it’s depressingly deflationary, and the collapsing global trade, and record debt, and reducing credit, and drying up of eurodollars is indicative of that. The idea that you are going to be able to afford to be mobile in such conditions is a bit fanciful. The timing of this deflation is unhelpful, given the pressure on energy resources; and then we have the bulging young population of the developing world being illegally let in to help shore up prices in the failing developed world economies.
Keep in mind that taxes will increase as well. Governments, to keep up with absurd public union salaries and pensions, will make owning a property pretty rough.
If you have a home mortgage getting a new one will be horribly expensive and as you see the real estate market is in the 12 stages of grief now