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St. Louis Fed President Says Faster is Better for Rate Hikes, Hoping for a Soft Landing

St. Louis Fed President James Bullard wants faster rates hikes which he says can yield a soft landing.
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James Bullard from Bloomberg video clip via Twitter.

James Bullard from Bloomberg video clip via Twitter.

Select Quotes

  • Patrick Armstrong, Plurimi Wealth Management: "I think Europe probably is going to fall into recession"
  •  Francisco Blanch, BoA Global Research: "The economy is being very impacted by exceptionally high fuel prices."
  • Patrick Armstrong, Plurimi Wealth Management: "If Powell is as hawkish as he is trying to make us believe, a recession isn't far fetched."
  • Ian Lang: BMO Capital Markets: It's getting harder and harder to imagine that we are going to have a truly soft landing at this pace of tightening."
  • James Bullard: "The Fed needs to move aggressively to keep inflation under control. We need to get to neutral at least so that we are not putting upward pressure on inflation." 
  • Bloomberg to Bullard: "And you can get a soft landing?"
  • Bullard: "I think so."

Overoptimism Abounds 

With the exception of Ian Lang, every quote above is overly optimistic. I find the notion of a soft landing ridiculous. 

Neither Europe nor the US can possibly escape recession. Europe is likely is in one now. 

Reflections on Steel 

Bullard is Very Disingenuous 

Regarding a soft landing, please recall that Bullard was not too long ago scared of an inverted yield curve because it meant recession.

Dot plot courtesy of the Fed, annotations by Mish.

Dot plot courtesy of the Fed, annotations by Mish.

Now Bullard says he thinks the Fed can engineer a soft landing with inflation raging and the Fed having little control.

What Can the Fed Do About the Price of Food, Medicine, Gasoline, or Rent?

Percentage weights in the CPI from BLS, chart by Mish

Percentage weights in the CPI from BLS, chart by Mish

Scroll to Continue

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The Fed can easily destroy the demand for houses. But home prices are not in the CPI, rent is. The demand for renting is inelastic. So how does the Fed bring down rent?

Ironically, it's home and apartment building that takes pressure off rent. So what happens if we slow construction?

Q: What Can the Fed Do About the Price of Food, Medicine, Gasoline, or Rent?

A: The answer is nothing or next to nothing. Rates hikes will not impact inelastic items.

Too much of the CPI, especially food, rent, and energy is inelastic. 

Also note No Steepening, Just Relentless Bearish Flattening of the Yield Curve Plus Inversions

This soft landing thesis is ridiculous.

This post originated at MishTalk.Com.

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