Neel Kashkari ‘Happy’ to See the Stock Market’s Reaction to Jackson Hole
Bloomberg reports Neel Kashkari ‘Happy’ to See the Stock Market’s Reaction to Jackson Hole
“I was actually happy to see how Chair Powell’s Jackson hole speech was received,” Kashkari said in an interview with Bloomberg’s Odd Lots podcast on Monday, reflecting on the steep drop after Powell spoke. “People now understand the seriousness of our commitment to getting inflation back down to 2%.”
“I certainly was not excited to see the stock market rallying after our last Federal Open Market Committee meeting,” he said. “Because I know how committed we all are to getting inflation down. And I somehow think the markets were misunderstanding that.”
“One of the biggest mistakes they made in the 1970s at the Fed is they thought that inflation was on its way down. The economy was weakening. And then they backed off and then inflation flared back up again before they had finally quashed it,” Kashkari said. “We can’t repeat that mistake.”
Actively Promoting Bubbles
The Fed actively promoted a housing bubble to bail out banks following the DoCom crash. Of course, the DotCom bubble was openly embraced by Greenspan as a productivity miracle.
Not understanding bubbles and crashes, the Fed promoted the “Everything Bubble” as it is now called in response to the housing crash and great recession.
Finally, the Fed actively promoted the biggest bubble of them all in response to the Covid pandemic by the most QE and monetary stimulus ever coupled with the biggest fiscal stimulus in history.
Actively Popping Bubbles
Now, the Fed has decided it does not like the inflation it created.
The only way it knows how to fix inflation is via demand destruction. The way to do that is to kill the wealth impact from the bubbles it created.
So now the Fed is cheering the stock market decline.
Gaps Galore on the Stock Market, Where Is the Market Headed and When?
Earlier today, I commented Gaps Galore on the Stock Market, Where Is the Market Headed and When?
I think the S&P is headed to the 2400 level and the Nasdaq to the 6,000 level.
That’s roughly a 50% decline from the top on the S&P 500 and a 64% decline from the to on the Nasdaq.
Fed Pivot? Forget It!
The Fed has eliminated any talk of a pivot. It might do so, but only if there is a credit event.
We cannot rule that out, but this is not 2008.
Housing is in a bigger bubble from a price perspective, but this time there is not the underlying liar loan problem. Nor is there a huge wave of layoffs coming.
The job market is tight and unlike most other economic bears, I expect this recession will have a minimum unemployment rate rise.
Employment Levels in Retirement Age Groups
With over 22 million people aged 60 or over and roughly half of them 65 or over, millions of boomers will be retiring in the next couple years.
Employment lost due to retirement will not add to the unemployment rate.
Powell has plenty of room to hike at will especially given the massive number of openings in the Leisure and Hospitality sector.
Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession
On August 19, I commented Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession
On August 26, at Jackson Hole, Fed Chair Jerome Powell Pledges to “Act With Resolve” to Beat Inflation
Key comments: “Reducing inflation is likely to require a sustained period of below-trend growth.”
Stocks are priced for perfection, not a long period of weak growth, and with the Fed openly cheering their demise.
This post originated at MishTalk.Com.
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Mish
(+81,000); arts, entertainment, and recreation (+53,000); federal government (+47,000); and state and
local government education (+42,000). Job openings decreased in durable goods manufacturing
(-47,000). (See table 1.)”
thought that inflation was on its way down. The economy was weakening.
And then they backed off and then inflation flared back up again before
they had finally quashed it,” Kashkari said. “We can’t repeat that
mistake.”
Simple. While many may not agree with what the government did, it had to be done to prevent a deflationary crash like 2009 because of a virus from China. Now had the Fed seen the correct data in 2021, they should have hiked rates sooner. The wage spiral was a tipoff. As usual the Fed is late. This inflation spike was fully preventable.
End of an empire. This comment highlights the mega trends not previously experienced by any society. Huge governmental debt at all levels, generous government retirement benefits, aging population, younger “workforce” not emotionally incentivized to produce at a high rate, government relieving many of the young from their responsibility of paying just debts (continuation of student loan forbearance due to pandemic crisis?), mortgages and rent. Project these trends forward and you see generational conflict over a fast shrinking pie and default at a rate never seen before. Governmental resources diverted from military, infrastructure projects to support consumption. A Wall-E world awaits this grand (perhaps flawed) experiment in democracy.
Employment lost due to retirement will not add to the unemployment rate.”
You are conflating permits with production. If you grant permits where there isn’t any oil did you really do anything? No, you didn’t. It appears you did, but you didn’t actually help anyone. The permits that are needed are permits in actual oil producing areas. There is a reason oil companies haven’t jumped on the Biden permit train and it’s because those permits will never allow them to make a profit. These are very very low oil producing areas.
Trump, on the other hand, granted permits in very high oil producing areas.
And yeah, I agree with Mish about this not being like ’08 in housing for the reason he stated. There’ll be pain, but the housing market won’t lock up, or more precisely, the MBS market won’t lock up. If there’s going to be any lock-up, I’d watch out for crypto. We simply don’t know where those tentacles reach, and I doubt the Fed does either.