Well, guess who’s going to be furious over this.
Vice Chare on the Economic Outlook
Please consider a speech on the Economic Outlook and Monetary Policy by Fed Vice Chair Philip N. Jefferson.
Economic Outlook
In shaping my economic outlook, I consider a wide variety of government, administrative, and private-sector data, including data collected by the Kansas City Fed and fellow Reserve Banks across the country.Economic Activity
Before the government shutdown, available data indicated that the U.S. economy was on a trajectory of moderate growth this year. The shutdown has likely curtailed economic activity this quarter, reflecting furloughed federal workers and the suspension of government purchases of goods and services, including payments to contractors. There may also have been spillover effects to the private sector stemming from delays in federal payments, approvals, and other government activity. I see those effects as largely temporary and likely to reverse in the coming months. Thinking more broadly, I see the balance of risks in the economy as having shifted in recent months with increased downside risks to employment compared to the upside risks to inflation, which have likely declined somewhat recently.Labor market
In the labor market, information available in recent weeks appears to be consistent with a gradual cooling in both labor demand and labor supply. For instance, unemployment insurance claims received from states have largely moved sideways in recent weeks. Anecdotal reports about the state of the labor market have been mixed, with some firms announcing a slower pace of hiring or cutbacks and others indicating they are ready to move forward with previously delayed hiring and investment.I expect that the unemployment rate is likely to inch up slightly by the end of the year from the relatively low 4.3 percent rate recorded in August. While still solid, I continue to view the risk to my employment forecast as skewed to the downside.
Inflation
The latest available readings show that inflation is running at a rate similar to that of a year ago, a bit below 3 percent, indicating that progress toward our 2 percent target has stalled. This lack of progress appears to be due to tariff effects, with signs that inflation excluding the effects of tariffs may be continuing to make progress toward 2 percent. Some firms have indicated that they expect pass-through of pricing pressure from tariffs to pick up in the fourth quarter as the inventory of non-tariffed merchandise is depleted.A reasonable base case is that tariffs result in a one-time shift in the price level, not an ongoing inflation problem. That view is reinforced by inflation expectations readings. Most measures of near-term inflation expectations have retraced their spring rise, and market-based long-term inflation expectations continue to be well anchored. Several factors will influence the size and persistence of the rise in inflation. Those include the final tariff rates that are implemented, the extent and timing of pass-through to consumer prices, the reaction of supply chains and domestic manufacturing, and overall economic conditions. I will continue to monitor these factors closely. I remain firmly committed to returning inflation to the Fed’s 2 percent target.
Monetary Policy
Given that outlook, I supported last month’s decision to reduce our policy rate by 1/4 percentage point. That step was appropriate because I see the balance of risks as having shifted in recent months as downside risks to employment have increased. The current policy stance is still somewhat restrictive, but we have moved it closer to its neutral level that neither restricts nor stimulates the economy. The evolving balance of risks underscores the need to proceed slowly as we approach the neutral rate.Starting in December, we intend to hold the size of our balance sheet steady for a time as reserve balances continue to decline passively even as other non-reserve liabilities, such as currency, rise. We will continue to allow agency securities to run off our balance sheet and will reinvest these proceeds in Treasury bills, furthering progress toward a portfolio consisting primarily of Treasury securities. Over the coming years, this reinvestment strategy will help move the weighted average maturity of our portfolio closer to that of the outstanding stock of Treasury securities.
I will also note that, heading into our next meeting, it remains unclear how much official data we will see before then. With respect to the path of the policy rate going forward, I will continue to determine policy based on the incoming data, the evolving outlook, and the balance of risks. I always take a meeting-by-meeting approach. This is an especially prudent approach at this time.
Thank you again to the Kansas City Fed for hosting me today. I look forward to our discussion.
Discussion of Vice Chair Comments
Those are condensed excerpts. Click on the above link if you wish to read everything.
I agree on inflation but strongly disagree on the labor markets. Indications are things are about to get much worse.
Unemployment claims may be “moving sideways” but continued claims data is a mess.
Continued Claims Mess
Continued claims only reflect people eligible to make claims.
Once someone has exhausted all of their benefits, they are no longer eligible to make a claim. Such persons are unemployed but not recorded in claims.
A much better representation of continued claims required adding everyone who has exhausted benefits but is still unemployed.
Unemployment Level 15+ Weeks and 27+ Weeks
That chart is only through August (latest available monthly data).
Does that look gradual?
But we need to add claims to that picture.
Continued Claims and 27+ Weeks Unemployed
I would like to ask the Fed Vice Chair if that blue line meets his definition of gradual.
We need to add 27+ week unemployment to continued claims because at 27 weeks unemployment benefits expire in nearly every state.
In practice, the chart is much worse. In some states benefits expire much sooner than 27 weeks.
Maximum Weeks of Unemployment Insurance
Chart courtesy of Center on Budget and Policy Priorities
12 states have expiring benefits at 21 weeks or less. In Florida and Kentucky benefits expire at a mere 12 weeks. In 5 other states, benefits expire at 16 weeks or less.
And job hopping also reduces benefits because to get the maximum number of weeks, a person has to stay on a job long enough.
So let me ask again, mentally factoring in job hopping and states with expiring benefits under 27 weeks, does the claims picture look gradual?
Initial claims may still be gradual (or not due to lack of compiled data), but the rise in adjusted continued claims is anything but gradual.
And history shows that an any slowdown, once someone hits 15+ weeks unemployment, they eventually get to 27+ weeks unemployed.
If we add the number of people at 15+ week unemployed to continued claims we get 4.92 million.
This number is growing with a cumulative impact on the economy. And it shows up in the polls.
Consumer Sentiment Drops Again, Current Conditions Hit New Record Low
On November 10, 2025, I noted Consumer Sentiment Drops Again, Current Conditions Hit New Record Low
What’s the matter with these people? Trump says the economy is humming.
Trump Adopts Chicago Cubs’ Perpetual Message, “Wait Till Next Year”
On October 5, I noted Trump Adopts Chicago Cubs’ Perpetual Message, “Wait Till Next Year”
“One Big Beautiful Bill” did not resonate. Trump opts for “Wait Till 2026”.
Laffer, a free trade advocate understands he cannot say anything bad about tariffs or Trump will personally attack him.
Everyone in the administration understands the setup.
But “Wait Till 2026” is a fundamental mistake. When 2026 is bad, the message will have to change.
Trump in the Hot Seat and Biden-Like Denials
Please recall my November 1, 2025 Hoot of the Day: Trump Admits Beef Prices Are High Because of His Tariffs
Trump argues with cattlemen over the price of beef. Trump to Quadruple Argentine Beef Imports While US Ranchers Fume.
Facing anger from farmers, Trump amusingly and quickly resorted the Democrat standard playbook: Blame Price Gouging.
Trump Sounds Like Biden
To dismiss the inflation idea, my Hoot of the Day on November 8 was Trump Sounds Like Biden and Kamala Harris on Price Gouging
Republicans should be seriously embarrassed.
What’s the Fed to Do?
The Fed, if the Vice Chair and Jerome Powell are any indication, has seriously underestimated the severity of the labor market situation.
If Trump has a case on the Fed, it is not inflation, it’s the labor market.
But Trump cannot admit the labor market is bad and his own tariff policy exacerbated the problem, can he?
So, he spouts nonsense on inflation that people believe as much as they believed Biden (Hint: Not at all).
Meanwhile the Fed is stuck. The Fed understands neither inflation nor the labor market.
Expect Dissents
At the next FOMC meeting expect 3 dissents no matter what the Fed does.
If the Fed pauses, three doves will howl. If the Fed cuts, three hawks will howl (perhaps some silently). So, expect dissents no matter what the Fed does.
Well, good thing we won’t know October’s number. As all kids know, if you close your eyes then it doesn’t exist!
Massive government spending and Fed policy must have nothing to do with inflation. Alice In Wonderland economy.
“This lack of progress appears to be due to tariff effects . . . Some firms have indicated that they expect pass-through of pricing pressure from tariffs to pick up in the fourth quarter . . .”
Who is this guy? Which is it dude? Have the tariffs been the primary culprit for rising inflation over the last six months or are we just now expecting it to become an issue later this quarter?
And why doesn’t he give any specific example(s) of inflation rising primarily due to tariffs? Not a single example?
From that Wolf guy late Sept:
“Inflation Is in Services despite Powell’s Denials: PCE Price Index for Core Services Accelerated Further. Durable Goods Prices Fell for 2nd Month”
“But the PCE price index for durable goods, many of which are tariffed, fell (negative readings) in August for the second month in a row, while inflation in services, which are not tariffed, accelerated further.”
Then Powell shouldn’t have cut interest rates last time amount when the inflation rate was a full point above the target number of 2%, let alone enough below (say at 1.5%) to consider lowering rates. He lost his leverage over Trump when he did so.
Unless Powell dropped rates to help his banking friends who are in trouble.
An excellent grasp of what has been obvious since at least last April, if not sooner.
Pretty sure Joe Biden is still asleep, so I doubt he’ll be the furious one. Maybe Kamala or Gavin?
But there’s even more insanity
Why do many believe in long monetary policy lags?
Divisia aggregates and Marcus Nunes don’t believe in lags. That’s wrong. The distributed lag effect of money flows are mathematical constants for over 100 years.
The flash crashes in stocks, 5/6/2010 and bonds 10/15/14 are prima facie evidence.
The market is selling off at the November end of the rate–of-change in money flows. I.e., flows have peaked.
I haven’t back tested the new time series since Powell eliminated legal reserve requirements. But old theory still triumphs.
It looks like the best time to short the market will be in February.
Contrary to Wolfstreet and George Selgin, banks don’t lend deposits.
https://fedguy.com/
Primer: A Deposit’s Life
See Richard Werner
HYPERLINK “https://www.youtube.com/watch?v=EC0G7pY4wRE”
But the corollary is that all bank-held savings are lost to both consumption and investment. That’s where Philip George’s The Riddle of Money Finally Solved comes into play.
“For nearly a century the progress of macroeconomics has been stalled by a single error, an error so silly that generations to come will scarcely believe that it could have persisted for as long as it has done.”
George: “The logic was that such precautionary holdings are not intended to be spent and hence do not qualify as money.”
And Mises subtracts out small savings deposits from their TMS money number.
Did Wolf really say banks lend deposits?
https://wolfstreet.com/2025/06/13/money-market-funds-cds-americans-and-their-piles-of-interest-earning-cash/
“Deposits – loans from customers to banks that form the primary funding of banks – are generally “sticky,” especially in checking accounts and low-yield savings accounts that customers are too lazy to empty out.”
Does he convince you more than those of us that have been explaining this for some time?
spencer,
“banks don’t lend deposits.”
Clueless BS. You keep posting it, and I’m really tired of seeing it and deleting it. So take this to heart. I will say this only once:
1. The banks have a liability called “deposits” on their balance sheet. This is the amount they owe their depositors.
2. When you put $100 in the bank, the bank makes two simultaneous entries on its balance sheet:
1. It credits your deposit account with $100 (increases the amount it owes you);
2. It debits its asset account “cash” with $100 (increases its cash balance by $100).
3. The bank can then do whatever with this cash in its asset account, such as lending it to consumers, lending it to the government (buying Treasuries), or lending it to the Fed (depositing the cash in its reserve account at the Fed).
4. If the bank lends this $100 cash to a consumer, it credits its asset account “cash” with $100 (lowers its balance) and debits its asset account “consumer loans” with $100 (increases its balance).
This is a hugely important concept for you to understand. If you deposit $100 in the bank, the bank takes this cash and does whatever with it, including lending it out. What else is it going to do with your $100 in cash? Eat it? Plus it notes down that it owes you $100.
If you and everyone else want each their $100 back at once, the bank will say, sorry, we lent this cash to some people to buy a house with, so we no longer have this cash that we owe you, and if you all keep wanting your cash back, we’re going to collapse (= run on the bank = SVB).
A basic accounting course (where you learn about debits and credits) at your junior college is the best investment ever. I encourage everyone to do that.
I took an accounting class once. Since the US Treasury says they owe the Social Security Trust fund $2.6 Trillion, and the Social Security office says they have Trillions in their Reserve Accounts, and it will last another ten years. Then where is the cash?? Answer: It has all been spent over the last couple of decades and no longer exists.
So, the Treasury Dept just barrows cash every month and now 10 % of my monthly benefits have to be barrowed. Ten years from now 30% will need to be barrowed. Then the verbal promise of a dead President will have been fulfilled and the game is over.
Do you know his name?
Comprehensive Fed Study Finds Tariffs Lower Inflation, Raise Unemployment (frbsf.org)
They’re referring to the demand shock effect: tariffs raise prices on imports, which suppresses overall demand and reduces aggregate spending. Since inflation measures the general price level, weaker demand can offset cost-push effects, producing lower inflation readings. Technically correct – but highly counterintuitive and easy to spin.
https://www.frbsf.org/research-and-insights/publications/working-papers/2025/11/what-is-a-tariff-shock-insights-from-150-years-of-tariff-policy/
That is obvious bullshit.
Barnichon & Singh are correct. Thanks for bringing this to our attention, I was aware and consider this an interesting approach: real vs virtual (the virtual being academic)
It’s mostly nonsense and I will rebut it. In one peculiar way there is some merit.
The FED should just bite the bullet, lower policy rates while draining reserves. It should lower FDIC insurance rates back to 100,000 dollars. What would this do? It would increase the supply of loanable funds, lowering long-term interest rates. It would decrease inflation. This is the opposite the force of stagflation.
The 1966 Interest Rate Adjustment Act is the paradigm, where a recession was avoided. Reg. Q ceilings for the banks were lowered by 3/4%. Funds then flowed through the nonbanks (S&Ls). But the banks suffered no disintermediation.
The fed is not responsible for inflation. Congress is. Presidents who start unfunded wars are.
The fed is the scape goat.
Unemployment is rising in an economy where there is a large number of retires needing goods and services.
Also there is probably a bigger impact on the economy when high paying tech jobs are lost verses low paying service.
It’s both.
QE massively inflated housing prices and asset prices.
Some do not see that as inflation, but it is
True i was just saying if we had balanced budgets the last 40 years our issues would not be as bad and need the fed to step in. (As much )
Pondering
Some where along the way we lost the growth and recession cycle mentality. Yeah recessions hurt people but its good for cleaning out weak businesses and such. All growth all the time. Dump money into the economy during bad times. But no recouping that money in the good economy to clear the debt incurred
With globalization, I think it is hard for one Central Bank to control inflation? Inflation is more of a global phenomenon now?
I am surprised you haven’t called for a recession Mish. Yeah, you’ve been early a few times but I think we’re pretty much there, all it took were republican clowns running things to make it happen.
Meanwhile, in stock market world, the talk on CNBC all day today has been what I posted about Sunday re: Blue Owl.
Bong king Gundlach seems like he’s in panic mode now.
https://www.cnbc.com/2025/11/17/gundlach-sees-one-of-the-least-healthy-stock-markets-of-his-career.html
Wall Street veteran Jeffrey Gundlach said many assets are extremely overpriced right now, urging investors to keep about 20% of their portfolios in cash to protect against a major downturn.
Many people here accuse me of loving Biden or democrats and it’s no such thing. My primary concern has always been profits and republicans always crash the market and screw up the economy. Yeah, you can still make money shorting but there’s a lot more money going the other way.
The Trumptanic is sinking, smart repubs are abandoning Lt. William “Trump” Bleigh via mutiny but it won’t help anyone at this point.
Got life boat?
I did not mention it yet but I noted my own recession indicator triggered in August. I do not want to comment on that yet due to lack of data.
You may recall my trigger is a McKelvey variant, but one of my own.
Yes, we’re at an inflection point.
The people running this country are retarded. The payment of interest on interbank demand deposits lowers the real rates of interest. That in turn, stokes alternative asset prices.
I sincerely doubt they have any mental difficulties. More likely, they’re part of a big club that doesn’t include you and me, it’s inside baseball all day, every day. BOHICA
Yep. I agree. The issue every 2 or 4 or 6 years, politicians need to buy votes by making economic promises. It gets expensive promising a lot of money all the time.
Yeah probably everybody on this site is a lot closer to the bottom than the top. Even if you are doing well. It aint that well. Dont believe me. You shop at walmart rt.
re “This lack of progress appears to be due to tariff effects,”
Now you know how stupid he is. And they let this guy speak and answer questions.
The Fed is mostly responsible for the inflation we have experienced for some time. Another culprit is the financialization of the US economy. Only the spirit of Volcker can make inroads into curing this. The detoxification will be very uncomfortable and extremely unpopular. Trump had only one term. He could have used his unpopularity to begin the cure.
Volcker was an idiot. He let the economy burn itself out. He didn’t stop inflation until he imposed reserve requirements against NOW accounts.
According to you everyone who presides over you is a retard. I’m sure your observations on these matters are greatly improving your standing in life, and winning you respect for your intellectual prowess the world over.
They lack an adequate knowledge of money and central banking.
It’s funny how you get a down vote from someone that knows nothing about money and central banking.
Volcker’s era was a big lie. Volcker didn’t control total reserves. Legal reserves exploded at a 17% annual rate after the DIDMCA (contrary to Dr. Richard G. Anderson’s reconstruction).
Wasn’t Volcker supposed to control nonborrowed reserves? Volcker targeted non-borrowed reserves (@$18.174b 4/1/1980) when at times over 100 percent of total reserves (@$44.88b) were borrowed (i.e., absolutely no change from what Paul Meek, FRB-NY assistant V.P. of OMOs and Treasury issues, described in his 3rd edition of “Open Market Operations” published in 1974).
Paul Henson flew Leland Pritchard to meet with Paul Volcker and Bob Dole in 1980. We know from that meeting what a dumbshit Volcker was.
In 1980, Paul Volcker, Past chairman of the Board of Governors of the Federal Reserve System, appeared before the House Domestic Monetary Policy Subcommittee. In response to a question as to why the Fed had supplied an excessive volume of legal reserves to the member banks in the third quarter 1980 (annual rate of increase 13.2%), Volcker’s defense was that there are two types of legal reserves: 1) borrowed (reserves obtained by the banks through the Federal Reserve Bank discount windows), and 2) non-borrowed (reserves supplied the banking system consequent to open market purchases). He advised the congressmen to watch the non-borrowed reserves — “Watch what we do on our own initiative.” The Chairman further added — “Relatively large borrowing (by the banks from the Fed) exerts a lot of restraint.”
This is of course, economic nonsense. One dollar of borrowed reserves provides the same legal-economic base for the expansion of money as one dollar of non-borrowed reserves. The fact that advances had to be repaid in 15 days was immaterial. A new advance can be obtained, or the borrowing bank replaced by other borrowing banks. The importance of controlling borrowed reserves was indicated by the fact that at times nearly all legal reserves were borrowed.
Volcker tightened monetary policy at the same time long-term money flows were contracting. This caused 2 back to back recessions. Even William Barnett got this right.
It’s exactly as Lawrence K. Roos, Past President, Federal Reserve Bank of St. Louis and past member of the FOMC (the policy arm of the Fed) as cited in the WSJ April 10, 1986:
“…I do not believe that the control of money growth ever became the primary priority of the Fed. I think that there was always and still is, a preoccupation with stabilization of interest rates”.
Then came the “time bomb”, (which Dr. Leland Prichard foretold), the widespread introduction of ATS, NOW, and MMMF accounts at 1980 year end — which vastly accelerated the transactions velocity of money (all the demand drafts drawn on these accounts cleared thru demand deposits (DDs) – except those drawn on Mutual Savings Banks (MSBs), interbank, and the U.S. government).
This propelled N-gNp to 19.2% in the 1st qtr 1981, the FFR to 22%, and AAA Corporates to 15.49%. My prediction for AAA corporate yields for 1981 was 15.48% (you can ask James Sinclair).
By the first qtr of 1981, the damage had already been done. But Volcker never changed policy (supplied an excessive volume of legal reserves to the banking system), as late as 1982-83.
We need to get inflation under control (which is much higher than reported)! The Labor market will be fine in time! Rates need to be higher! Better yet, eliminate the FED and let the Free Market decide (we have not had free markets and true capitalism since 1913)!