Powell Says Taper Could Start in 2021, With No Rush on Rate Hike (Could, Not Would)

Federal Reserve Chair Jerome Powell said the central bank could begin reducing its monthly bond purchases this year, though it won’t be in a hurry to begin raising interest rates thereafter.

That is COULD, not WOULD.

At the Fed’s most recent policy meeting in late July, “I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year,” Powell said.

“The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the delta variant,” he said. “We will be carefully assessing incoming data and the evolving risks.”

At the July Federal Open Market Committee meeting, most Fed officials agreed it would probably be appropriate to begin tapering the central bank’s $120-billion-a-month bond-buying program before the end of the year, according to a record of the gathering. Some are pushing for a move as soon as next month.

Monetary policy makers would like to conclude the purchases before officials begin raising interest rates, and several in June saw a possible need for rate increases as early as 2022 amid inflation that is running above the central bank’s 2% target. The Fed cut its benchmark rate to nearly zero and relaunched the crisis-era purchase program last year at the onset of the pandemic.

To quote the hunter from Jurassic Park, “Clever girl.” Rather than announce a hard taper and rate increase, Powell just hinted at a taper and rate increase.

Here is a photo of Fed Chair Powell being watched by Wall Street.

Inflation Watch! July PCE Deflator Rises To 4.2% YoY (Home Prices Growing At 16.6% While M2 Money Growing At “Only” 12.1%)

Fed’s Favorite Inflation Measure Surges At Fastest Pace In 30 Years As Spending, Incomes Rise!

Federal Reserve Chairman ~~Mao~~ Powell will be speaking at 10am EST in his virtual Jackson Hole KC Fed Conference speech. He might actually save his blockbuster comments for the next Fed meeting, instead just hinting at what The Fed might do to reduce the behemoth monetary stimulus. After all, The Fed has already slowed the growth rate of M2 Money to 12.1% YoY.

But before Chairman ~~Mao~~ Powell speaks, the PCE deflator numbers were released this AM showing that the PCE Deflator YoY rose to 4.2%. For households for a fixed income, this is bad news unless they receive a COLA (not a Pepsi, but a cost-of-living adjustment).

I would be remiss if I left out the largest assets for most households: housing. The Case-Shiller National Home Price Index is rising at a 16.6% YoY pace, making housing more expensive for those who are currently renting.

Speaking of which, the US Supreme Court overturned the Biden Administrations rent moratorium meaning that renters can be evicted for failure to make rent payments. (This sounds cut and dry, but the ability of landlords to evict non-paying rents varies from state-to-state and county-to-county).

Having said that, we can see that Personal Spending only grew by 0.3% in July while REAL personal spending fell by -0.1%.

Personal income grew by 1.1% in July and 2.7% YoY , which is lower than the PCE Deflator YoY of 4.2%.

University of Michigan sentiment is out at 10AM EST. Stay tuned!

US Q2 GDP Prices Rise 6.10% Compared To Home Prices Rising At 16.61% YoY While Avg Hourly Earnings Rising At 4.70% YoY (UGLY Chart Warning!!)

For your viewing pleasure.

Looks an awful lot like 2005 before the housing price crash, financial crisis and Great Recession. US home prices, HOUSING inflation, is growing at 16.61% YoY, GDP Price index QoQ (annualized) is growing at 6.10%, and average hourly earnings is growing at 4.20% YoY.

Let’s see what happens in Jackson Hole this weekend!

Fed’s George Says Time to Get Taper Started, Despite Delta Risk (Too Much Stimulus With Q2 GDP Growth Of 6.6% QoQ And Personal Consumption Of 11.9%)

Policy makers should “get started” and begin to slow asset purchases even though the delta variant poses a risk to the U.S. economic outlook and to job growth, Federal Reserve Bank of Kansas City President Esther George said.

“The economy continues to grow at a strong rate,” George said, adding that in terms of the potential risk of the delta variant, “you can imagine that it might slow down some of the returns to the labor market. But I don’t expect at this point that it will derail the economy as we saw last year when we first had to deal with the virus.”

Yes, US GDP QoQ just checked in at a whopping 6.6% with personal consumption growing at 11.9% for Q2.

Of course, The Federal government and Federal Reserve have over stimulated the economy and financial markets. Compare the collected benefits (unemployment, pandemic, extended, etc.) compared to before Covid struck in March 2020.

And compare The Fed’s monetary stimulus since Covid struck in March 2020.

Although Esther George is not a voting member of the FOMC, I think she has a good point. There is too much monetary stimulus in the market.

Will the Open Market Committee heed George’s warning? Or will they treat her like Ohio State great Eddie George as just another voice?

Fed Reverse Repo Usage Climbs to Fresh Record $1.147 Trillion (All-time High!!)

(Bloomberg) — Usage at the Federal Reserve’s facility for overnight reverse repurchase agreements Wednesday rose to a new all-time high.

Seventy-seven participants took $1.147 trillion, which exceeded Tuesday’s volume of $1.13 trillion, and the previous record of $1.136 trillion reached on Aug. 23.

The facility pays an overnight rate of 0.05%, helping to temporarily reduce the quantity of reserve balances in the banking system.

Nothing has been the same since late 2008 and shock troops from The Federal Reserve and their seemingly never-ending monetary stimulus.

The Jackson Hole Omen: What Will Powell Announce At Fed Conference? (Can Overstimulated Market Survive Without ZIRP/QE?)

The financial markets are overstimulated like a cranky child after too much sugar (aka, sugar rush). So what will happen to overstimulated markets if Fed Chair Powell announces withdrawal of monetary stimulus?

The famous Hindenburg Omen is already flashing WARNING ahead of this week’s Fed meeting at Jackson Hole. Will Powell take the punch bowl away?

The Shiller CAPE ratio is at a high since the financial crisis and stock market correction in 2008 and early 2009.

I would expect Powell to walk softly since he has the opportunity to terrify financial markets. But I expect Powell will announce a small adjustment to the growth of The Fed’s balance sheet in line with The Fed’s DOTS project signalling interest rate increases in the futures.

Throw Covid, a slowing China and Europe into the mix, and Powell and the gang had better think long and hard about they are going to withdraw the record monetary stimulus from the cranky financial markets.

Meanwhile I hope that have a few beers from Bond’s Brewing Company, the best beer in Laramie, Wyoming!!

U.S. Bonds Sink as Yields Spike Higher (Treasury And Dollar Swap Curves Steepen As European 10Y Sovereign Yields Range Breach)

U.S. 10-year yields are spiking upwards in what was supposed to be a sleepy day before the Fed’s Jackson Hole conference. The 2s10s curve is the steepest in two weeks. Eurodollar yields too have risen sharply and are up 6-7 bps in the blue and gold packs.

Over the last week, we have seen a steepening in the US Treasury Actives curve and the US Dollar Swaps curve.

This may be linked to the range breach in German 10-years and Italian 10-years. In fact, France, Spain, Portugal, Netherlands and Greece has all seen 6 bps leaps in 10-year sovereign yields today.

Does this mean that Chairman ~~Mao~~ Powell is likely to announce the paring-back of Fed monetary stimulus at J-Hole?

US Mortgage Purchase Applications Rise 1% From Previous Week, But 16% Lower Than 1 Year Ago

Mortgage applications increased 1.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 20, 2021.

The Refinance Index increased 1 percent from the previous week and was 3 percent higher than the same week one year ago. You can clearly see the Refi Wave associated with the Covid outbreak and sudden Fed monetary stimulus resulting in a lowering of 30-year mortgage rates.

The seasonally adjusted Purchase Index increased 3 percent from one week earlier. Notice the general slowdown in purchase applications with soaring home prices.

The unadjusted Purchase Index increased 1 percent compared with the previous week and was 16 percent lower than the same week one year ago.

Rolling, rolling, rolling, keep those mortgages moving.

US New Home Sales Rise To 708K Units SAAR In July (+1% From June) While Median Price Soars To $390K

The good news! US new home sales rose 1% in July to 708k units SAAR.

The bad news? The median price of new home sales is $390k.

More bad news for the midwest and northeast. New home sales dropped. Most of the growth in new home sales occurred in The West.

Hot, hot, hot! But not in the northeast and midwest. There it is not, not, not.

Battle Of The Fiats! Bitcoin Hits $50,000 … Again And Backs-off As US Dollar Sinks (What Happened To Bretton Woods?)

Since President Nixon helped take the US off the gold standard, the US Dollar has become FIAT currency. That is, not backed any precious asset such as gold, silver, platinum, etc. What ever happened to the Bretton Woods system?

The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the International Monetary Fund (IMF) to bridge temporary imbalances of payments. Also, there was a need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies as well.

So much for Bretton Woods. We now live in a FIAT world where The Federal Reserve can print money almost without any limitation.

Enter cryptocurrcies such as Bitcoin and Ethereum.

Bitcoin, the favorite of many, broke through the $50,000 barrier yesterday, only to level off below $50,000 this morning. Ethereum is level after rising yesterday. Meanwhile the US Dollar (the preferred FIAT model of The Federal Reserve) is falling.

Here are some of the cryptos out there, but I only follow Bitcoin and Ethereum.

Since Nixon and dropping off the gold standard, we have seen US Federal debt (and spending) blow out of control with the decline in M2 Money Velocity to its lowest levels.

This should be the new emblem of the US Federal government AND The Federal Reserve.