In addition to the usual Fed boilerplate FOMC statement, today it added “There has been a lack of further progress toward the Committee’s 2 percent inflation objective.”
FOMC Statement
Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments
Quantitative Tightening (QT) Eased
In order to sound as dovish as possible in face of “lack of further progress”, the Fed will ease its quantitative tightening from $60 billion to $25 billion a month.
The Fed left intact its mortgage-backed securities QT at $35 billion. However, it is nowhere close to that amount of tightening due to the slump in existing home sales, so that’s a meaningless statement.
Inflation data has been on the hot side.
Employer costs are soaring. The Employment Cost index (ECI) unexpectedly rose 1.2 percent in 2024 Q1, rattling the stock and bond markets.
April 30: Wages and Benefits Rise More Than Expected, Bond Yields Jump
Insurance, repairs, and maintenance costs are up for both homes and autos. Some homeowners are skipping home insurance.
On April 19, I noted Auto and Home, Insurance & Maintenance Costs Soaring and People Are Angry
Some homeowners are skipping home insurance. What’s going on and who is to blame?
The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate
I described the Fed’s role on February 20 in The Fed’s Big Problem, There Are Two Economies But Only One Interest Rate
And as a direct result of soaring home prices, insurance and maintenance costs had to rise. The only surprise is the lag in which that happened.
Chipotle CEO on Menu Prices
Food away from home has risen at least 0.3 percent for 34 out of the last 36 months.
On April 28, I noted Chipotle CEO on Menu Prices “California Isn’t Making It Easy”
Sticker Shock in California
Higher state minimum wage went into effect April 1; chains say burritos and burgers are getting more expensive in response.
Expect another big jump in employer costs next quarter too.
The CPI Rose Sharply in March Led by Shelter and Gasoline
For discussion, please see The CPI Rose Sharply in March Led by Shelter and Gasoline
Understatement of the Day
“There is a lack of further progress” on inflation.
Indeed.
With an ignorant 2% target…
one could just as easily say the Fed has exceeded their goal.
Why isn’t zero our hero?
Interest rates are still too low to eliminate inflation.
Well they stole everything on hand and now the government is robbing the future blind. Who do you think is going to pay for the current wealth transfer to the MIC, you know those zillion foreign and domestic bases and the giant wealth MIC grift to Ukraine.
All those jobs in defense, all those jobs in domestic surveillance, all those jobs of propagandizing the plebs, all those jobs in the military, all those jobs in the federal government are a net net loss. It’s like heating your house by burning wheelbarrows of money that you borrow from grandchildren not yet born. You don’t have to burn the money, but you do it anyway because your immoral and evil.
((The Future WILL PAY))
But not in the way you think?
There are zero reasons to believe the debt will ever be repaid.
Imagine thinking the future won’t be 100 times bleaker than it is now?
I do sprints at a high school track that is completly bubbled up and unusable – they unrolled 3 stripes of rubber belting so there is at least 100 yds of usable surface. Meanwhile fighter jets roar over once an hour for 12 hours a day.
This is the future and its happening now!
Look at the unbelievably magnificent high schools built in the 20’s in Des Moines Iowa or Hibbing Minnesota. Misplaced priorities are the path to doom.
Meanwhile pigs feast on stolen money, with our approval.
It’s why the US is in terminal decline.
The US economy is still in the early stages of this inflationary and fiscal deficit problem. We still haven’t even had our 1974 recession yet much less a capstone 1982 style flush. From 1967, inflation began to surge. There’s archival photographs from 1968-1969 of women, presumably stay at home wives, picketing outside food marts and general stores to protest rising prices on food and household goods. It would take another 13 years, 4 recessions and nose bleed interest rates before inflation receded. That lengthy period of inflation was due to costly domestic and foreign policy. The genesis and fuel of the current inflationary era are not too different.
Abolish time yet?
They certainly had the “tools” to make a mess of things…
but they don’t have the “tools” to fix it.
Oops.
Let’s elect Trump. I am sure he can fix everything. Only he can do it.
Sarcasm I preume?
Redux 1979-1980, need a cowboy to ride into town on a white horse to fix this mess!
The unsaid portion of the speech: “But monetization of our unsustainable debts from excess US Gov spending successfully continues”
Did Mish create that image of Fed building with bandages on it? It’s pretty creative if he did.
The FED is going to have to do some splaining come November.
When Trump points out to Biden, over and over again, that $1.6 trillion is being spent by the Federal Government to service our debt, Biden will point to how the FED Funds rate should be 0% and not 5.25%.
The terminal FED Funds rate is 0%.
0% is one of the prerequisites for a FIAT currency to fail. Japan is the post WWII example of a failed FIAT currency. We’re next.
I thought the TCJA was supposed to pay for itself ? Lol. It’s ironic if Trump points out anything related to spending given he made a career out taking out loans and going into bankruptcy multiple times. It would be poetic justice if he becomes the president again. He is the posterchild for spending. He never had a problem with all the free handouts during covid. I have a check I never cashed with his name on it.
Endorse it and send it to Priests For Life.
While regime media applauds the Fed’s “wisdom” and cherry picks the best assets that spiked on this backdoor maneuver for showcasing Bidenomics, will all the forced renters and young voters see the additional damage this effectively did to them for wealth building?
Its not new, but reducing the drawdown from the balance sheet is a form of loosening. Increasing the drawdown would surely have been considered a form of tightening.
It’s not just the fact that it’s an election year that has them stymied.
If they raise rates any higher we will have a full-blown banking crisis on our hands due to massive unrealized bond losses on bank balance sheets.
They have painted themselves into a tiny corner which won’t allow a higher Fed Funds rate than we have now – inflation be damned.
The losses can be dealt with. After the 2008 crisis, the banking industry effectively is owned by the Fed. They institutionalized bailouts. I expect a quarter point hike this summer. And it will cool things down unexpectedly.
The unrealized bond losses get “realized” when the bank has to liquidate them because of deposit flight. It is either that or raise deposit rates to “market” levels to stop the flight and incur a massive loss that way.
But in the end the Fed and Treasury will backstop anything. It was written into law after TARP and TARP II. it’s institutionalized.
Geez.
It was written into law in 1913.
It is the way the system was designed.
Good. Raise rates AND roll off at 10x the pace and let the banks and top 5% eat Raman.
Fuck Powell and his cronies
If only.
It won’t matter because fewer people will want to borrow, so bonds will be held until maturity instead of being sold. 5 year bonds have 12-18 months to go. 10 year bonds have 6-7 years to go.
I’m not averse to a banking crisis in and of itself as a corrective process, but for the Fed there’s a big problem. The default response to a banking crisis (as shown by SVB last year) is de-facto QE to backstop the FDIC and cover the bank balance sheet holes. That effectively undid a lot of QT. The Federal Reserve cannot afford to repeat those kinds of bailouts and still fight inflation. I wonder whether bail-ins are in the offing (the Cyprus model, since legalized worldwide), at least for banks that are not in political favor at time of failure…
The plan has always been to prevent the banks from collapsing tonight.
Inflation can be fought another day.
Powell said, “Money for nothin’, chicks for free”
But I do like that cash is now a relatively ok investment. The high-yield rate at Marcus (Goldman Sach’s bank) pays 4.4%. It was lowered from 4.5% last month which looks a bit fishy. There are other high yield savings platforms out there. So not a plug for Goldman. I am just familiar with them. How long will it last? Not sure…..but it’s been a good ride.
Check Charles Schwab. CD rates over 5% for short and long term.
You can get 5.25% on a 13 week US Treasury.
And you can only collect more US paper when it matures.
Cash is NOT “relatively ok”. After taxes and inflation I am still getting less than no return.
P.S. If you want 5+% AND liquidity, try CIT bank (not Citi) savings account, or just use the sweep accounts at Fidelity or Vanguard. I doubt the ability to name-drop Marcus (or Goldman) is worth 0.6%/year to anyone…
Chill dude. Take your meds and don’t overthink a post. You will live longer and pay taxes for more years!
Bank Of China 5.25%, Bank of India 5.25% both 3 month.
Fed is concerned about Regional bank system. Still quite a few Banks who if actually had portfolios marked to market would be out of business. Banks once again borrowed short/inflow deposit and lent long/bought Treasuries, caught in squeeze that inflation caused.
Reducing Tapering of QT means more liquidity. Helping out Yellens’ refinancing and Regional Banks.
Powell won’t touch wages as source of inflation and dodges that subject.
Powell continues to er, uhm, maybe, will see. He is all over the place.
They did do something about Liquidity in face of his denial that Inflation is no longer priority #1.
Something is causing them to go neutral and stretch out fighting inflation.
But Powell did say that “rents are barely up”….so you see everything is awesome!
Am doubting any person who rents is going to agree with that statement.
Am of mind there are some serious problems developing in general economy when it comes to average consumer.
Fed in past has cut rates going into recession. Today has some of that “Deja Vu All Over Again” feel to it outlook.
On another note I watch USD and normally Powell is Kiss of death for USD bulls. As of this post hardly sold off at all. Demand for Bucks is stronger then I thought it would be. There is demand and it is not all only about yield differentials.
Marked to market is a 1990s term. We have derivatives industry bigger than the entire global economy.
Derivatives are financial Fiat. Looks good on paper. Problem happens when they all do the same trade such as we have now.
Exactly. The Fed will have to make a bunch of bank mergers between counterparties happen. We’ve seen this movie before. We know how it ends.
All the accounting gimmickry that could be used to facilitate endless federal government spending has been used up. If Biden’s plans for $2 trillion budget deficits ($3.5 trillion spending deficits) as far as the GAO will project happen, then the US treasury will end up like every other banana republic.
Either the Federal Reserve raises rates to attract lenders for this endless spending, or the spending has to be severely cut back — to balanced spending (not balanced budget, balanced SPENDING).
In the 1980s, Jack “neutron” Welch eliminated roughly 2/3rds to 3/4 of the headcount at GE. GE survived (and then repeated the problem). A decade later, Louis Gerstner eliminated 2/3 to 3/4 of IBM’s headcount. IBM survived, and the jury is still out on its fate. Other firms, like GM and Kodak, tried the softie approach — and they no longer exist (Govt Motors is not General Motors).
Uncle Sam is now in the same position, and the Federal Reserve’s mandate are to fight inflation (aka higher rates), facilitate Treasury borrowing (aka higher rates), and hopefully keep employment (the tax base) from imploding (neutral rates).
The fly in the ointment is that politicians think they can spend like there is no tomorrow, even when tomorrow comes. We can argue when during the next ten year note this will explode in Uncle Sam’s face… maybe this year, maybe in a few years… but it will explode no later than 2033 (nine years hence) when social security is unable (not unwilling, UNABLE) to pay.
Try selling a 10yr US treasury to foreign creditors who know you cannot pay them back, and most of your legislature is too old to remember when they last pee’d themselves.
I don’t know if “neutron” Trump has it in him to fire a million federal bureaucrats and eliminate the headcount for good. Government employees are unproductive, bordering on useless. Sure, there are some exceptions that prove the rule, but for the most part the DMV and the US Post Office and the federal bureaucrats are all just an annoyance that could have been an automated email.
If Trump doesn’t “neutron” the federal bureaucracy, then foreign creditors will do it around the year 2030. They will put repayment first, and US taxpayer needs second (or lower) priority. This is in keeping with all foreign creditors, and its how the US treated foreign governments that owed us money in the past. It makes no sense to think we will be treated special.
Trump slashes the federal headcount in 2024-2028 applying US criteria, or China/Saudi does it in 2029 using their criteria.
Powell could fire a lot of useless Federal Reserve staffers as a start, but the real cuts need to happen in official government payrolls (federal, state and local).
Like the UAW and USW before them, I don’t imagine the federal government unions are going to go quietly, but there is no longer any other option
Both Kodak and IBM still exist, but neither is what it once was. They failed to adapt to changing markets, and that wasn’t just a headcount story.
FedGov will also need to adapt, it’s not as “in charge” as it thinks it is. Be careful who you vote for in November, at every level of government, since the crisis is pretty well timed for early FY25 now. Almost no one in government today has any real experience dealing with an actual budget crunch, but that’s what they’re going to get as rates stay high and deficits explode across the board.
They can stop buying but there will be a great depression. There are no good choices. Export driven countries cannot handle a huge drop in demand.
The Fed can hike to 10% or lower to -10% but it won’t fix the demographic problem. Huge leak in the labor market and no way to plug it, demographics is destiny. It’s like watching someone drown in the ocean while nearby people on the ship toss all sorts of strange things to save the person like anvils, boulders, feathers, straws, etc. and wondering why it’s not working.
Plan accordingly…
“It’s turtles all the way down and inflation all the way up!”
Uncontrolled spending will kill Uncle Sam before the demographics do.
But you are right: demographics also play a role longer term. Controlling spending is only step one.
The demographics (like unfunded social security) will be a serious problem within 9 years.
Longer term, debt to GDP ratios in the USA are near third world levels. The only way to get GDP growing faster than interest on the debt, is to have more commerce. Younger populations tend to have more commerce, and 65+ populations tend to have less.
Octogenarian politicians (both parties) who are unlikely to be around when the next 10yr Treasury matures are not looking that far ahead
It’s the demographics that is largely causing the uncontrolled spending. medicare and social security eat up at least 1/3 of the budget and the problem is growing exponentially.
The treasury won’t default, it will cut social security and medicare and let seniors hang out to dry before they let a default happen. Sad times ahead for the elderly.
A default is a default. Legally, social security is just a promise of future spending (its not binding). Legally, US Treasury debt is a binding promise. But Uncle Sam has to keep its word, or not keep its word.
Once some promises are broken, everyone starts asking what promise will be broken next.
Historically, collapsing governments have broken promises to foreign creditors first, because the angry pitchfork and torch carrying mob outside the capital is more immediately scary.
If history holds, then foreign holders of Treasuries – like Russia for example? – get defaulted on first. Its a very slippery slope after that.
Younger demographics can help in the long run, but one can only have so many babies and integrate so many productive immigrants per year. Its a slow process. Spending beyond one’s means is immediate
Nukes fix this.
And Russia has lots of them…
@Mish … I clicked on the thumps up for MPO45v2’s comment, but the counter immediately went to red “-1”??? Did two other people click thumbs down at the exact same time? Very weird
PS.. the “green” thumbs up is showing on my browser. I did not click the wrong button
Those numbers don’t refresh every minute. So in the time between when you opened the window to read the article and comments and when you clicked your own thumbs-up two people had clicked thumbs-down. Not at the same time as you – just in the minutes between open-window and you clicking.
That’s why I hate this new system.
With separate tallies for up and down you can see the level of balance, and you can also see the level of interest.
Imagine if the Commitments Of Traders didn’t show volumes.
5 upvotes and 5 downvotes is not the same as 100 upvotes and 100 downvotes.
.
Yesterday was May Day, all the Marx Bros were dancing in Europe and markets were closed, so low liquidity, the machines dumped longs as options markets wagged the dog, today Jerry does his thing and adds a little more liquidity by capping UST runoff, VIX getting crushed as call buyers back, lets see how this little rally develops, sound and fury or a tactical buy. Inflation is bad. Markets are dogs with a bell.
The FED is caught between a rock, a hard spot and the Biden administration … inflation is going up not down … any lowering of rates later this year It will be like a fuse on a firecracker … The banks and the economy will go boom … this ain’t Rocket Science …
and it couldn’t happen to a more deserving bunch of banker wankers.
Frog, pot, stove top. These games always end in a bang. You know what inflation is if you live outside of the bubble. Anything else they say is meaningless. Asset bubbles always end in tears.
Many months ago Sen. Liz Warren opposed the Fed increasing interest rates, saying that increased rates will not fix the economies higher price problems = supply chain knots and corporate greed.
Her statement remains correct, but her reasoning is likely wrong. The problem is supporting wanton Biden government spending, and so far increased rates have had no effect on that. Can the Fed cause another effect, on general public spending, that will compensate for excess government spending? If so, how will the public react?
They haven’t YET is the key.
Charts going forward for Federal interest rate payments are showing 1 trillion and beyond in 2025 if rates don’t come down. In other words the rates will eventually force Federal government’s hand because they have to refinance lots bonds over the next 18 months that are at 0-2% at 5-6% which means payments going up and eating ever more of the tax revenue.
When you have good credit you can always take out another loan to pay interest.
“Many months ago Sen. Liz Warren opposed the Fed increasing interest rates, saying that increased rates will not fix the economies higher price problems”
ANY meaningful increase in rates reduces “higher price problems.” ALL you have to do to “fix” them, is keep raising. At a million percent a minute, prices WILL be reduced.
That’s about as elementary as economics get. Of course, being merely elementary for anyone even at an average 5 year old’s intellect, in no way guarantees the idiot army that is the entire US ruling class; nominally “public” as well as “private”; will ever be able to comprehend it.
Liz Warren crawling on her hands and knees under a streetlight. She lost her keys in the woods but it’s dark in there. So she’s looking under the streetlight.
This is because the Fed is either dishonest or idiotic in not admitting/realizing that the last piece of inflation is due to idiosyncratic items that could not care in the least for monetary policy. But the Fed can never admit failure, so it will sink the boat as usual.
Wont be any real change in the interest rates till a new pres is sworn in. And then the rates will go back to zero, no matter who is pres.
Why would they go back to zero and send inflation to the moon. They will go the opposite way to slay inflation.
Naw. If Biden, it will be his 2nd term, and a 2-term pres is considered a successful pres by history, and after that, who cares about inflation? And Trump left the rate at zero throughout his presidency allowing his rich friends to borrow at zero and buy up everything that wasnt nailed down (thats why theres no starter homes left to buy). We’re going back to zero no matter what. 35 trillion in Federal debt cannot pay interest without bankrupting America.
For Scott Craig LeBoo’s thesis to work The Powers That Be will have to find some non-price non-interest-rate method to squelch non-governmental borrowing, growth of the money supply and thus inflation. Credit allocation. Paying interest on bank reserves deposited at the Fed has done that the past few years.
(solemn-voice) All money must go to government to be spent to accomplish national purposes. (/solemn-voice)
Its just another prediction. There are lots of predictors. We’ll see.
Its just another prediction. There are lots of predictors. We’ll see.
Its time to end this private banking consortium’s ownership of our country. End the FED.
Can’t do that unless you also end the federal government’s spendthrift ways.
The Fed was created to finance WW1 spending, and then the roaring 20s (1920s) spending, and, and, and… End the Fed, and Uncle Sam is forced to live within its means and to pay its past debts.
Prescient November 20 – 30 1910.
The Fed was created in 1913. WW1 didn’t start until a year later and was NOT predicted by anyone to require US war spending. Fail.
The Austrian banking system had been in decline for many years, its collapse was not a surprise to the global banking system. JP Morgan (the man), the Rothschilds, and Equitable Trust (aka the Rockefeller bank) had all executed emergency lending and liquidity to the then emerging economy of the USA. JP Morgan famously imported millions worth of gold to keep the US banking system liquid in 1907 — a full decade before the US entered WW1.
The war officially started in Europe in 1914, when a worthless peasant shot an octogenarian archduke — and everyone in Europe realized the Austrain empire had failed and started fighting over who would replace them. Despite the “British victory” over the peasant that shot the archduke, no effort was made to restore the Hapsburgs. The war was about dividing the Austrian empire, not saving it.
The US officially entered the war in 1917, a full decade after JPMorgan’s famous liquidity play. But the world suspected the US had been supplying war materiel to England before 1914. When the Lusitania was sunk in 1915, everyone was shocked at the explosion (more than any torpedo) and how fast it sunk. About 20 years ago (2005-ish?) explorers found the wreck of the Lusitania and it was obvious the entire forcastle had been filled with US made explosives destined for England… proving the US government had been involved in the war effort at least since 1915 (well before the official entry). The US banking system had been involved since the late 1800s / early 1900s. And it was reaching serious levels of crisis (officially) by 1907, years before you were apparently caught unaware.
Perhaps **YOU** were surprised by WW1, but the banking industry was anticipating a huge US military buildup and global banking liquidity issues in 1907 – at least five years before the peasant shot the duke (and actually before that).
Just because **YOU** were surprised doesn’t mean the folks assembled at Jykel Island (to create the Federal Reserve) didn’t know about it.
The job of America before WWI was to move gold in Europe to New York.
For safekeeping.
To be returned later.
Maybe.
Uhh, sure, if you say so… no references, lots of easily verifiable facts entirely in error… how do you expect anyone to believe this??
Let’s start with noting that the assassinated Archduke, was 51 years old, not an octogenarian. Fail #2…
BTW, I might agree with you the creation of the Fed was not at all in the national interest, shall we say, but you do your cause no favors by mangling history like this.
RICO the Fed. Debasing the currency is treason.
You and your government and your employer cannot borrow money from a bank that you just eliminated (in your dreams).
The Fed was created to finance bigger borrowing across the whole economy. Eliminate it, and debt levels would have to be MUCH lower.
Imagine your taxes and government benefits if the Treasury is forced to prioritize repaying creditors, and after that is forced to cut spending down to tax receipts ($3.5 trillion in immediate forced cuts).
Pay your bills in cash or pay your banker to borrow – those are your choices whether you like it or not.
The Fed isn’t your true enemy. Your enemy is the face you see in the mirror each morning, and his stubborn unwillingness to live within his means
50 years ago some liquor stores would cash paychecks for customers.
That is not the same as giving you a home equity line. And its vastly different from your government borrowing trillions to give you “free” stuff
“The Fed isn’t your true enemy.”
Yes it is. The Fed is the true enemy of anyone even remotely competent. None of whom are currently in a position to live off even a fraction of the means they create. All because The Fed robs them of their value-add, in order to hand the loot to utterly incompetent, fully Fed dependent, pure leeches, so that those nothings can “make money from their home”, their “portfolio” and their anything whatsoever Except anything of use or value, since they produce none.
“Your enemy is the face you see in the mirror each morning, and his stubborn unwillingness to live within his means”
For The Fed to enable everyone to systemically live above their means, The Fed would have to create value. After all, living above means, refers to obtaining more value than one creates. Since printing dead guys’ faces on paper pieces does NOT create any additional value, it is trivially obvious that The Fed does not perform any such tooth-fairy function as enabling “us” in aggregate to live any better than absent The Fed.
Net value is not increased one iota, no matter how many paper pieces with Mugabe’s face some charlatan prints up and hands to his retarded buddies.
Instead: ALL that The Fed does, is enable some to live above their means. By transferring purchasing power TO them. But then, by necessity of any such transfer, FROM someone else.
Those FROMs are inevitably productive people.Otherwise they would have nothing for The Fed to take.
That’s all The Fed does: Transfer productive people’s value-add to deadweight leeches who produce, create, add nor contribute nothing. Such that the latter can live beyond their means. While productives are limited to live, and hence produce/invest, far below their ability. It’s a pure wealth transfer scheme. Nothing else at all.
More money flows out of government than comes in. Biden and the democrats pet funding projects, sending billions to foreign countries and forgiving billions in student loan debt. That doesn’t sound like a government that wants to fix inflation. It sounds like a government that creates inflation and expects everyday Americans to pay for their sins.
As if non-dems are doing anything different.
They’re very interested in American Youth, and drugs….
Depends on what it’s spent on. One time money for a wall is VASTLY different than repeating child tax credits/child care/welfare etc.
It’s always better to waste money on 1 time things than on entitlements.
There are legitimate policy concerns on some of Biden’s spending priorities. Absent direct Covid relief dollars which have largely come to an end the things you highlight are deficit side dishes. You could take large swaths of government and reduce their budgets to zero and still have massive deficits. The main course menu items in deficit spending are the usual suspects: defense budget (and non defense but related military budget line items like the VA and military pensions); Medicare/medicaid, interest on public debt. Social Security, which has a revenue source is surprisingly a non factor in year over year changes in the deficit. Outlays increased but so did inflows. The only problem with SS at the moment is that it does not produce the structural surpluses that it once did (thus off setting public debt issuance). We can talk about Biden or Trump policy initiatives but the big 4 (Defense/Defense related, Medicare/Medicaid, Interest on public Debt, and no SS surpluses) are the only real policy discussion points on deficit spending that matter!
This thread overlooked the production and tax sides of the equation.
A lot of current FedGov policies are economically negative for economic health, so even if there’s no obvious fiscal outlay by Congress, they make the deficits worse and not better. Medicare offers a long list of examples but it’s by far not the only one. Lousy education priorities, for instance, make the nation’s #1 product (kids graduating from school, worth around $1 trillion/year in output) less productive.
In addition, there’s another set of policies that result in people getting paid for “work” which benefits no one but still costs everyone.
Losses in productivity are a double whammy for inflation, because not only is less of value produced (at higher cost), less can be taxed, which exacerbates the deficits (devaluing the available money).
Both of these are “that which is seen vs. that which is unseen” sorts of loss, which lower the general standard of living and need to be considered in a thorough policy assessment.
Very good points!
As if a 5.375% Fed Funds rate is enough to do the trick.
LOL…..
Their credibility as “inflation fighters” is now zero. The gold price is proof.
100% agreement here.
question: is Mr. Market’s reaction (to-the-moon; buy all the things) a short-term knee jerk?
Powell’s comments are a direct admission that real rates (the cost of cash/credit) are high & pushing higher… which is another way of saying “inflation is stubbornly high & we can’t do anything about it… you are on your own, boyz”.
IOW, if there weren’t an election on the horizon, the Fed would be raising rates here (following real rates, as the Fed typically does).
IMO, equities are going to get killed in this scenario (the next 6 months), but Mr. Market seems to be convinced of the opposite result… what am i missing?
Well as you and Bam_Man suggested, rates should be higher but aren’t going to be because it’s an election year.
That means money going into equities rather than T-Bills (ie if rates went to 7 or 8 percent to slay inflation way more people would pile into risk free T-Bills rather than risky equities) because the only way to get close to beating inflation is going to be in the stock market casino rather than T-Bills.
understood…
…and the assumption being made here is real rates will somehow moderate/fall… because…? the Fed is tapering QT…? yikes.
i could not disagree more. tapering the tail-end of their QT cycle is a laughably impotent message+action here – pissing in the wind – and it will do NOTHING in real terms.
commodities (across the board) are taking turns pushing higher… no reversals, no relief… and treasury auctions will continue to see higher yields.
tapering QT = white flag surrender
but i could be wrong.
This is not a 3 month or 6 month problem (other commenters are suggesting T-bills should pay higher rates). Nor is it an overnight problem (Fed Funds).
Unsustainable federal spending is a 15-20 year problem. The entire yield curve needs to be priced 7.5-9%, maybe a little higher.
That would add another $trillion to the spending deficit, and would only buy some time. Uncle Sam cannot keep kicking the can down the road, creditors are already starting to ask questions. No one is going to ring the alarm until they have sold their Treasuries and created alternate payment systems (both of those are in progress).
But $2 trillion annual deficits (plus another $1.5 trillion in “emergency” spending that happens every year) would suck up every penny of investment all over the world. No one has that much. Everyone knows this crap is unsustainable, everyone is quietly reducing exposure to US Treasuries.
No one in the Biden regime has even suggested the US government does not owe Russia $600 billion that Biden now proposes to default on for political reasons. Russia bought US Treasuries fair and square, and is owed the money. Biden wants to default for political reasons. If the US government can cancel debts owed on a political whim, why wouldn’t it do so to other creditors who dare to displease Washington? And everyone, friend (Israel, Saudi) and foe (China), seems to have displeased the DC deadbeats at some point this year. Who will be defaulted on next?
The Federal Reserve isn’t the problem here (maybe elsewhere, not here). The US government and its out of control spending is the problem, and beggars should not piss off their creditors.