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

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

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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.

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

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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Mike Shedlock

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22 Comments
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Lisa_Hooker
Lisa_Hooker
4 years ago
Q: What is a hard landing?
A: The plane crashes into a mountainside.
Q: What is a soft landing?
A: The plane crashes into the ocean.
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vanderlyn
vanderlyn
4 years ago
very insightful points. this is why i’ve been reading your analysis for many years. thanks.
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LawrenceBird
LawrenceBird
4 years ago
As I said this morning, if this is truly what the Fed believes why are the screwing around with 25bp? Just have a press release tomorrow that the target rate is now 1.5% or 2% or whatever they think it “should” be by end of year. Then everyone can go about their business. Why this water torture of rate increases if they are so darn certain that rates need to go much higher?
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  LawrenceBird
I’ve said it before. Just set it to 2% or whatever number and never change it again. This way everyone’s expectations will adjust forever. This will also end speculation in commodities and other assets and allow the market to deflate to where it should be. I think come 2023, there is good reason to lobby your congressional representative to effectively dissolve the Fed and have a fixed policy forever.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  LawrenceBird
This is simply an attempt by Powell to codify Lingchi into the management of the U.S. dollar. It is a traditional Chinese methodology.
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Mr. Purple
Mr. Purple
4 years ago
Bullard is just talking his book. What else can he say, that the FED is powerless, ignore the man behind the curtain? FED statements reveal economics for what it is — psychosociology, a religion if you will.
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vanderlyn
vanderlyn
4 years ago
Reply to  Mr. Purple
bingo. economics was for centuries properly in philosophy departments of universities. just recent century it was so jealous of hard science they pumped to be like them. but alas, econ is a very very soft science. more akin to sociology, psychology and philosophy. many learned men are fooled though. many modern men of science are fooled by econometrics……..and more. i’ve got both econ degree and hard science degrees. love them both. econ is fun. like a board game we all loved as children. but very soft. there is no there, there. hat tip to you, mr. purple. hope mrs. purple is well.
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Mr. Purple
Mr. Purple
4 years ago
Reply to  vanderlyn
Kind words Vanderlyn, thank you and I wish you and yours the same!
They call economics the “dismal science,” but as you point out, it’s mostly art — entertainment, magic, storytelling and gambling with just a patina of game theory. When politics is so interwoven into the economy, it can be nothing else.
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jiminy
jiminy
4 years ago
Reply to  vanderlyn
Astrology works as well but neither predict well.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  vanderlyn
As Truman pointed out years ago, there is a serious shortage of one-armed economists.
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RonJ
RonJ
4 years ago
“Regarding a soft landing, please recall that Bullard was not too long
ago scared of an inverted yield curve because it meant recession.”
One has to wonder what is going on in secret.
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RonJ
RonJ
4 years ago
“St. Louis Fed President James Bullard wants faster rates hikes which he says can yield a soft landing.”
I remember when Bullard said in August 2014, that QE3 shouldn’t end. Then when it did end and Japan took over, Bullard said his August remark was misunderstood. Bullard’s August comment goosed a slumping stock market to a new all time high. Market manipulation.
It is rather odd that the week after the FED managed just a 1/4 % rise, that members are now pushing for 1/2 % increases.
Something just seems fishy.
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ColoradoAccountant
ColoradoAccountant
4 years ago
Punish the savers! Punish the savers!
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Tony Bennett
Tony Bennett
4 years ago
Per Mortgage News Daily
todays move on rates
Average 30yr +6bps … 4.72%
Average 15yr +11 bps … 4.08%
Average 30yr FHA +13 bps … 4.38%
One year ago average 30yr 3.36%
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Mr. Purple
Mr. Purple
4 years ago
Reply to  Tony Bennett
I refinanced at 2.99% in November 2021. Holy moly did I time that right. A move of 1.75% in 4 months is unreal.
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Mr. Purple
Did refi in December at 2.75 no points.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  Tony Bennett
This will cool the housing market. If employment tips over in any way, housing will slow down dramatically.
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amalagoli
amalagoli
4 years ago
Do these people really believe their own bull? Do they really live in this la-la land where they think their theoretical fantasies apply to the real world? What will interest rates accomplish when supply constraints are the problem and the only solution would be to finally invest in supply chain infrastructure in the real economy?
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  amalagoli
The problem is they are secure in their personal wealth. This is why they have time to fantasize. Working for a living isn’t something they are remotely familiar with.
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thimk
thimk
4 years ago
housing is a tough nut to crack . the only way to reduce housing price pressure is to increase housing supply on the market via liquidation of the asset. And in an inflationary environment seems that money “rotates” from “fuzzy” assets to more tangible ones . So HODL it is. I think what you are witnessing here is Mr. Market decoupling from the FED. Jus a thought . – jus got back from LOWES to get replacement lumber for my aging deck , OUCH .
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Siliconguy
Siliconguy
4 years ago
Reply to  thimk
I did the same last week. Three pressure treated pieces of lumber, $75.
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FlyNavy1
FlyNavy1
4 years ago
Good luck Powell. The last “soft landing” in 1994-95 came after rates doubled to 6%, Orange County went bankrupt and Mexico was bailed out by the IMF. Luckily there was no war in Europe, post-pandemic supply bottle-necks and a $9 trillion deficit. So I’m sure it’ll be easier this time…
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