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Richmond Fed President Thomas Barkin Is Not Convinced About Rate Hikes

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39 comments on Richmond Fed President Thomas Barkin Is Not Convinced About Rate Hikes

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Barkin Quote Regarding Next Rate Hike Meeting

“I could imagine many different outcomes based on whether you can convince yourself that inflation is starting to settle, or you convince yourself it’s not — and you convince yourself that this was a blip that is sort of largely behind us, or you’re convinced that this is a continuing situation,” he said at a roundtable with reporters at the University of Richmond. 

The above from Bloomberg

About Convincing

The Fed routinely convinces itself regarding economic models that do not work and never did. 

The Fed was convinced that inflation was transitory. It wasn’t. 

The Fed presidents are convinced about asinine models such as the Phillips Curve and Inflation Expectations despite the fact that Fed research shows neither model works.

Inflation Expectations are Crashing

On August 8 2022, the New York Fed noted that inflation expectations were crashing.

I accurately commented Inflation Expectations are Crashing. So What? It Doesn’t Matter.

So What? Inflation Expectations Are Nonsense

Inflation expectations are a ridiculous concept. Two independent Fed research papers accurately make that conclusion.

Please consider Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?) by the Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board.

The paper accurately concluded “What little we know about firms’ price-setting behavior suggests that many tend to respond to cost increases only when they actually show up and are visible to their customers, rather than in a preemptive fashion.”

Fed Studies Debunk the Phillips Curve

Both studies were done by Fed staffers.

Yet, Fed Chairs Janet Yellen and Jerome Powell did not believe the Fed’s own study.

If you feel a need to gag I can help.

Janet Yellen Accepts Financial Security Award

If Inflation Expectations Mattered

If inflation expectations mattered, the above chart would not exist.

From 2013 to 2021 inflation expectations averaged well over three percent. Even with the Fed pumping hard with QE, the Fed could not get measured inflation over two percent!

It wasn’t really lack of inflation of course, but rather how senseless economists measure inflation. Factor in home prices and asset bubbles and there was plenty of inflation.

Elastic vs Inelastic Demand

  • Elastic items in the CPI total only 19.59%.
  • Inelastic items total 80.41%.

People will not rent two homes if they perceive prices will rise. Nor will people stop paying rent and wait for declines in they believe prices will fall.

The same applies to buying food, gasoline, insurance etc. And home prices are not even directly in the CPI. 

This is why inflation expectations theory is total nonsense.

Second Fed Study Concluded Inflations Expectations Theory is Nonsense

Also consider A Fed Economist Concludes the Widely Believed Inflations Expectations Theory is Nonsense.

The Fed study has some amusingly accurate comments regarding belief in failed models.

It is far, far better and much safer to have a firm anchor in nonsense than to put out on the troubled seas of thought. John Kenneth Galbraith (1958).

Few things are harder to put up with than the annoyance of a good example. Mark Twain, The Tragedy of Pudd’nhead Wilson (1894)

Tom Barkin is not convinced. Would everything be OK if he was?

I’m Convinced

I’m convinced the Fed consists of collective bunch of clueless charlatans who are constantly convinced of the wrong things.

Convince me I’m wrong. 

This post originated at MishTalk.Com.

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39 Comments
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worleyeoe
worleyeoe
3 years ago
Given everything that’s still bolstering inflation, it’s much more likely that we’re forming a trough and it will begin to rise by June. Granted, it’s not going to shoot up to 8%, but it’s doubtful that a measly 5% FFR is going to push core PCE down to 2% or even 3% that matter in the next 18 months. The reality is that at 5% we’re at or near equilibrium. The Fed is either going to raise rates another 100 basis points and push us into recession or we’re going to live with a 5% FFR until it drags corporate earnings down to the point that real layoffs begin. 1’st time unemployment claims since the beginning of the year have not been above 206-212K and have mostly been below 200K. That number has to get up to 250K and stay there for at least 6-8 weeks for there to be clear signs a recession is around the corner.
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xbizo
xbizo
3 years ago
Reply to  worleyeoe
Agree the 5% FFR is not restrictive, It’s the addicts and financial risk takers screaming and yelling right now. Caught with their pants down.
Inflation followed the cash infusions into the economy and inflation will fall as cash surpluses are run dry. Already happening.
But without deflation somewhere in the economy, there is no way that inflation falls below 3% in the next decade. Green energy, rising middle class in Africa and Asia are going to raise the costs of commodities. Assuming labor costs are going up 4%, where will productivity spike up to save us? Can more products and services be scaled up or has that wave maxed out? AI to the rescue? IT doesn’t build houses or play sports, but I could see it crashing the on-campus college model. Want to start a list of industries that could be collapsed?
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worleyeoe
worleyeoe
3 years ago
Reply to  xbizo
And the best part is reasonably informed people can now make 5% per year on their extra money via CDs. If the USA didn’t have so much debt, keeping the FFR about 1% above inflation over the long-term would really help out the average person. That’s what is was like pre 2008 before MMT took over. The FFR got up to 5.25% before the GR.
Last, the Fed should be statutorily barred from buying treasuries beyond 5Y in maturity, meaning they can’t buy MBS. Their mucking around maturities over 5Y, long-dated yield control & MBS purchases have created an enormously overvalued housing bubble that everyone is afraid to let the old ways of rising unemployment & bankruptcies sort out winners & losers.
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8dots
8dots
3 years ago
The inelastic was very elastic on the way up. It might become elastic on the way down, though at a lower speed.
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Counter
Counter
3 years ago
commodities rallying
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Counter
Well, the uhh, counter is 30 day t-bill +15bps … 30 year bond -5bps.
Anyway, the last week of the quarter … let alone last day … when Wall Street will move heaven and earth to put lipstick on quarterly statements … represents “reality”.
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Mbartv1234
Mbartv1234
3 years ago
Ok Mish, here goes my half-hearted effort to convince you of something:
First I completely agree that the low rates and massive stimulus went to asset prices and inevitably spilled over to inflation that shows up in things like actual rent and vehicle prices.
Second, however, there really was a supply chain dislocation that jacked up prices on a lot of things (new cars, things with chips esp.) It should have been, and I believe was, temporary. Similarly energy prices.
Third, I think you’re more and more coming around to the view that wage inflation is inevitable. This is due to the shrinkage of the labor force due to the demographics that have been plain as a pikestaff for the last 40 years, as well as the Covid effect (remember what happened after the Black Plague reduced the labor force). The fed can raise rates til kingdom come and it won’t help.
Here’s to a boring next ten years in the markets, with only an occasional Bloody Mary (like SVP bailout) to ease the hangover.😎
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hmk
hmk
3 years ago
I think they know exactly what they are doing up until now. They were at the beck and call of their money masters and now that the SHTF with inflation rising Powell has grown a pair and is finally doing the right thing. The govt will manipulate the CPI until they get the desired results and can justify easing again. There are lies, there are dam lies and then there are statistics. It’ll be benefical to their wall street money masters and paying interest on govt debt and COLA on entitlements. Meanwhile Joe sixpacks standard of living declines. The reciepe for civil unrest to say the least. The wealth divide widens. BTW I think the next Minsky moment will be when CRE needs refinancing in the near future. I think the postal service will be overwhelmed with jingle mail of commercial RE. SVB was just a warm up to whats coming.
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8dots
8dots
3 years ago
KRE don’t look good in the last 8 weeks. 2 black candles
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MPO45v2
MPO45v2
3 years ago
Let’s review where we are globally:
1. Globally, inflation is still very high.
2. The world is de-globalizing and this is inflationary.
3. The world is moving to green energy and this is inflationary.
4. The western world is aging rapidly depleting the labor force and this is inflationary.
A deflationary collapse may happen because of Fed money meddling but ultimately this will lead to very high inflation as most people “give up” on working and producing goods & services.
On #4 above, today is the end of March so somewhere across America 200,000 boomers reached the age of 65 and at least 100,000 have signed up for social security. That will happen again next month, the month after and every month until the year 2030 when 40 million are out of the labor force. How is this not inflationary? Lots of consumption and little production.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  MPO45v2
A bit more than 200k/month.
The common figure is 10k/day, every day, including weekends and holidays.
This is not going to be easy.
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Christoball
Christoball
3 years ago
Reply to  MPO45v2
Over 5,000 boomers a day perish. Approximately 150,000+ a month so the net gain in SS recipients might be in the order of 40-50k.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Christoball
Is that solely the boomers leaving?
Or is it the total monthly loss to SS?
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hmk
hmk
3 years ago
Reply to  Lisa_Hooker
No in response to the vaccines. Have to thin the herd somehow.
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Christoball
Christoball
3 years ago
Reply to  Lisa_Hooker
I follow the Baby Boomer Death Clock figures because at least they are throwing a number out there.
It is hard to find relevant numbers from the CDC on yearly deaths much less the Baby Boomer demographics in question.
I was addressing MPO45v2 numbers that did not include those falling off SS due to death.
This is an important element to discovering the true numbers.
I have found it very hard to get solid death numbers that make sense from Government agencies, since the beginning of Covid.
I approach this with a purpose of discovery, not as someone who knows the exact figure.
The Death Clock figures went from 5000 deaths a day, to over 5500 deaths a day is less than a year. This shows a meaningful trend.
75 years is the average life expectancy and the oldest baby Boomers are now 77.
I expect more people to die per year in the coming years than died in the worst covid year, mainly due to the demographics that MPO45v2 reminds us of.
Perhaps the Covid year was the beginning of this cycle.
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MPO45v2
MPO45v2
3 years ago
Reply to  Christoball
Social security publishes a snapshot every month. You can find it here.
I monitor it monthly and there are ~100,000 new recipients added about every month. I assume they subtract the deaths so
New enrollments – dead people = Current recipients. That number as of end of Feb was about 71 million (70,862,000). It grows 100k monthly, don’t take my word for it, monitor it yourself. For January the number was 70,765,000, the difference between January 2023 and February 2023 is 97,000.
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Christoball
Christoball
3 years ago
Reply to  MPO45v2
97,000 might be a good number. I can go with that. Just saying it is not 200,000 because of the death factor.
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MPO45v2
MPO45v2
3 years ago
Reply to  Christoball
Well 200,000 reach age 65 but only 100,000 seem to be enrolling in social security. I assume some die and others continue working or retire but don’t sign up for social security because they want higher amounts later in life at 67 or some other reason. I will see if medicare has a snapshot that should show how many are hitting 65.
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MPO45v2
MPO45v2
3 years ago
Reply to  Christoball
Medicare is stingy with updated statistics. I found this for 2022 that shows 65 million enrolled in medicare as of end of 2022.
and according to Social Security at the link below, in 2022 there were 70 million on social security so there is a variance of 5 million on social security but not medicare, I assume this is young, disabled or other people.
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Christoball
Christoball
3 years ago
Reply to  MPO45v2
Government mortality statistics are purposefully vague for psych-op reasons. I am sure private sector insurance actuarials are spot on and would be helpful if they could somehow be transposed, which they can’t.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  MPO45v2
re: #4
The counter is that an aging demographic consumes less + AI / automation / whatever will more than offset.
Continued gains in productivity suggests a natural disinflationary / deflationary path.
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MPO45v2
MPO45v2
3 years ago
Reply to  Tony Bennett
I doubt robots, AI, and other “productivity gains” will outweigh the people leaving the labor force. I have a few family members in nursing homes and it takes 6 people to take care of 1 person. Multiply that x 40 million and you’ll need 240 million people to take care of aging boomers in the US when they hit the nursing home. Play around with the numbers anyway you want even with aggressive make-believe-happy numbers and it is still a nightmare.
I am seeing a lot of people complain about lack of doctor/dentist appointments everywhere. I tried to schedule an annual physical with a new doc since I moved recently and I ended up having to go to a questionable “medical office” to do it since they were the only ones taking new patients. I asked about 10 year booster vaccinations and they said they didn’t have any – shortages. I won’t be going back anytime soon.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  MPO45v2
“I have a few family members in nursing homes and it takes 6 people to take care of 1 person”
…
Sure, for those with money (top 10%). For the rest that will not be an option. Die in residence or move in with kids will be their lot.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Tony Bennett
The 12ga retirement plan will become more popular.
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worleyeoe
worleyeoe
3 years ago
Reply to  MPO45v2
The SSTF announced today that it’s going bust a year earlier than 2034. 2033 is the new date. EVERYONE should expect that date to creep towards 2030 as we move into the later part of the decade. On the bright side, the Medicare Part A trust fund isn’t going broke until 2031 now, up from 2026. Welcome news, indeed but not anywhere near what’s needed to solve our looming fiscal insolvency over the next 10-15 years.
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TexasTim65
TexasTim65
3 years ago
Reply to  MPO45v2
If you look at the population by age here
You see that there are about 21 million people age 60-64 that are about to retire (your 200K a month boomers).
If you then look at age 15-19 you’ll see there is 21 million people able to enter the labor force. Essentially the retiring workers will be replaced.
The only question is life expectancy. If it continues to rise that will be inflationary. If it levels off or decreases (disease, less food/medical care etc) then it won’t.
The only place I see a huge rise in demand is for medical care. I’ve been investing in that heavily since Obama care passed. Old people once they pass a certain age (mid to late 70’s) stop consuming anything but healthcare. They are too old to travel, don’t buy new cars and don’t care about designer clothes etc. My parents are exactly this now. They’ve stopped traveling and buying much of anything including cars etc. They simply use increasing amounts of health care.
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Webej
Webej
3 years ago
The Fed presidents are convinced about asinine models such as the Phillips Curve and Inflation Expectations despite the fact that Fed research shows neither model works.
They get paid handsomely to persist.
Since my youth, watching peers, it has never ceased to astonish me how malleable are the contents of people’s minds when advantage is perceived somewhere.
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  Webej
“contents of people’s minds when advantage is perceived somewhere.”
Or can revel in the cushy environment of their intellectual peers.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Webej
“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”
– Upton Sinclair
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Maximus_Minimus
Maximus_Minimus
3 years ago
2% inflation is price stability.
Inflation is too low.
Inflation is transitory.
Holy chit, higher for longer.
Smart gang.
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HippyDippy
HippyDippy
3 years ago
Anyone looking at the FED as an entity trying to calm the troubled financial seas is barking up the wrong tree. In fact, they’re not even in the right forest. The FED was born in darkness for a reason. Just like every other Central Banking system in history, it’s there to plunder the wealth of the many for the benefit of the few. It was that way when the Rothschilds crashed the English system upon Napoleon’s defeat to when Buttons and Hamilton destroyed the Continental. And it is that way now. All you have to do is look at anything the state does as if it were a cheap street hustler dealing you some of that sweet 3 card monte, and everything will make sense. But, slaves all choose to believe the comfort of the lie of security, rather than deal with the self-responsibility that comes with liberty. And so, here we are.
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Tony Bennett
Tony Bennett
3 years ago
Monetary policy works with a lag. Money stocks are dropping. At this point Jay Powell just needs to keep a steady hand on the helm … hold rate steady + QT as scheduled … and when (not if) stock market goes “uh oh” … just grab another beer and turn the music louder.
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Matt3
Matt3
3 years ago
Reply to  Tony Bennett
Sure. The Fed and Powell have been a disaster – but this time, they’ll get it right.
My bet is that they will screw up once again. None of us know how, but history says they will.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Matt3
No argument.
But I think the worst (quality) loans are the ones securitized. If lender kept loan made on its balance sheet you damn well know risk management better. No doubt “they will screw up once again” since way too much water under the bridge. Only hard outcomes now. The risk for Jay is that things really start to spiral out of control (my guess). But if he sees it through my children will benefit. Do It.
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Salmo Trutta
Salmo Trutta
3 years ago

Interest is the price of
credit. The price of money is the reciprocal of the price level. The money
stock can never be properly managed by any attempt to control the cost of
credit.

We should have learned the
falsity of that assumption in the Dec. 1941-Mar. 1951 period. That was what the
Treas. – Fed. Res. Accord of Mar. 1951 was all about. I.e., taking away the punch bowel.

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Tony Bennett
Tony Bennett
3 years ago
Reply to  Salmo Trutta
“The money stock can never be properly managed by any attempt to control the cost of credit.”
…
True, but (imo) Powell with rate hikes attempting to break the backs of (unregulated by FR) non banks + securitization … direct competitors to Wall Street banks (Federal Reserve’s owners). He’ll do it. IF he has the stomach for it.
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Salmo Trutta
Salmo Trutta
3 years ago
Reply to  Tony Bennett
The NBFIs are the DFI’s customers. No competition.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Salmo Trutta
“The NBFIs are the DFI’s customers. No competition.”
…
Salmo, you need to expand your thinking beyond the textbook.
I was sitting in a commercial loan officer’s office close to 20 years ago. He told me how his bank just lost a bid to finance a shopping center … the winning bidder was an insurance company who came in 100 bps lower. No chance of matching.
Since 2008 banks are (in general) well regulated and better capitalized (especially after Frank – Dodd). BUT much of the lending has moved beyond banking the past 30 to 40 years to various non bank entities (+ securitization) which is not as well regulated (if at all). Powell trying to rein in.
Of course, NBFIs are the customers of DFIs … also their competitors. Not mutually exclusive.
If you want to deny reality … that is on YOU.
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Salmo Trutta
Salmo Trutta
3 years ago
I’ve always ignored inflation expectations. I’ve watched the money #s and legal reserves for 50 years. The rate-of-change in long-term money flows, the proxy for inflation, exceeded all historical levels in November 2020. Inflation therefore couldn’t be transitory.
The roc’s are still at absurd levels (but they are decelerating).
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