Wu-Xia employs an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. It can be used to summarize the macroeconomic effects of unconventional monetary policy (ZIRP + QE). The Shadow Rate is now -1.7021%.
And you wonder why we have inflation and house prices going into orbit?
With inflation also going into orbit, we see that breakeven 10 year inflation rate rising above the 5Y5Y (nominal forward 5 years minus US inflation-linked bonds forward 5 years). In other words, the US has abnormally high inflation and is expected to grow and NOT be transitory.
The Shadow knows … that the US is hyperstimulated. And inflation isn’t going away anytime soon.
Combine vaccine mandates that lower the workforce and the flood of economic and monetary stimulus by the geniuses in Washington DC, and we have a Thanksgiving problem.
Supplies of food and household items are 4% to 11% lower than normal as of Oct. 31, according to data from market-research firm IRI. That figure isn’t far from the bare shelves of March 2020, when supplies were down 13%.
For grocery shoppers this holiday season, it means that someone with 20 items on their list would be out of luck on two of them.
Although U.S. supermarket operators started purchasing holiday items early, aiming to avoid shortages, many holiday essentials are already in short supply.
Turkeys are very low in stock. By the end of October turkeys were over 60% out of stock—lower than the same time last year by more than 30 percentage points. A spokesperson for Butterball LLC, one of the largest U.S. turkey processors, said the company has been experiencing similar labor and supply challenges as other organizations and industries.
Even if you can find a turkey, prices on foodstuffs in general are up 36% from last year.
And to get to the grandparents’ house of Thanksgiving, gasoline prices (regular) are up 24.5% from last year.
Biden could lower inflation by 1) stop mandating vaccines, 2) stop shutting off energy pipelines and oil exploration, 3) stop spending trillions of dollars other than Social Security, Medicare and defense.
Frankly, Thanksgiving has gotten so expensive due to Biden’s Reign of Error that I am thinking of alternatives to turkey. Like a Jersey Mike’s turkey and provolone sub.
Yes, the US economy has been greatly overstimulated by the Federal government (fiscal stimulus) and The Federal Reserve (monetary stimulus). This has caused inflation that we haven’t seen in a long time.
How overstimulated in the economy? The REAL 10-year Treasury yield (nominal less CPI YoY) is now -3.9364% and the 30-year REAL mortgage rate is -2.30%.
Nothing has been the same since Covid struck in early 2020.
CMBX BBB-, the reference basket for CMBS 6, was climbing to around $95 prior to the Covid outbreak and resulting recession. The CMBX reference basket is now at $72.25.
CMBX 6 is largely composed of retail and office, both hit hard by Covid and the ensuing lockdowns and fearmongering by the Federal government and main street media.
With central banks around the world signalling tighter policy amid rising prices, Lagarde said the ECB had done much “soul-searching” over its stance but concluded that inflation was still temporary, so a policy response would be premature.
Soul-searching? The ECB is just doing what Powell and the Fed (aka, Jerome Jett and the Blackhearts) are doing. Keeping the foot on the monetary gas pedal in the face of inflation.
Let’s start Eurozone inflation. It is now sitting a 4.10% YoY. And core inflation is sitting at 2.10% YoY. Inflation is now the highest since 2009 while core inflation is at the highest since 2001.
Like the Federal Reserve, the ECB still has its foot on the monetary accelerator pedal despite booming inflation.
So, Christine, 19 nations in “Europe” having negative 2-year sovereign yields isn’t low enough for you?
The ECB’s platform in Frankfurt reminds me of a bad TV quiz show where participants try to guess prices next year. Call it “The Price Is Wrong.”
Unless, of course, the ECB sees a massive depression ahead.
And with a wave of her magic wand, Treasury Secretary Janet Yellen (aka, the Incredible Janet Yellenstone) will make inflation magically return to less than 2% after mid-2020.
Treasury Secretary Janet Yellen said she expects price increases to remain high through the first half of 2022, but rejected criticism that the U.S. risks losing control of inflation.
Inflation is expected to ease in the second half as issues ranging from supply bottlenecks, a tight U.S. labor market and other factors arising from the pandemic improve, Yellen said on CNN’s “State of the Union” on Sunday. The current situation reflects “temporary” pain, shesaid.
“I don’t think we’re about to lose control of inflation,” Yellen said, pushing back on criticism by former Treasury Secretary Lawrence Summers this month. “Americans haven’t seen inflation like we have experienced recently in a long time. But as we get back to normal, expect that to end.”
On Friday, Federal Reserve Chair Jerome Powell sounded a note of heightened concern over persistently high inflation as he made clear that the central bank will begin tapering its bond purchases shortly but remain patient on raising interest rates.
The S&P 500 Index posted its first decline in eight days, while benchmark Treasuries rallied to send 10-year yields down by the most in more than two months. Inflation expectations remain elevated — the 10-year breakeven rate of 2.64% is within 15 basis points of the record high reached in 2005 — and rates traders maintained bets the Fed will hike at least once within a year.
Powell said policies are “well-positioned” to manage a range of outcomes.
So Janet, are you saying that home price growth is going to slow to 2% YoY after mid-2022? Or that the Biden Administration is going to build the Canadian pipeline to help ease energy costs? Or that west coast ports get magically unclogged? Or that chips for cars will magically begin appearing?
I forget. The Fed doesn’t consider housing or energy prices in their inflation measurements. So, Yellen and The Fed ignore that most important expenditures for households.
The Fed’s breakeven inflation rates are considerably lower than current core inflation (green line).
No wonder Yellen and Powell can make inflation magically disappear. Don’t count it!
Between The Federal Reserve’s unorthodox monetary policy and insane spending from Congress and Biden Administration, we are seeing a near 20% rise in home prices for August.
Please note that pre-COVID the Case-Shiller home price index (national) was growing at 4%. Thanks to Fed Stimulypto, home prices are roaring at near 20% YoY.
Phoenix AZ home prices are growing at a 33.31% pace. The slowest growing? The US “shoot ’em up” capital, Chicago, is growing at 12.72% and is the slowest growing Case-Shiller 20 city.
I feel like I am living in the movie “Cloverfield” with The Federal Reserve as the uncontrollable monster.
UPDATE: Columbus Ohio as of Q2 2021 is growing at a 13% YoY pace.
The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2021 is 0.5percent on October 19, down from 1.2 percent on October 15. After recent releases from the US Census Bureau and the Federal Reserve Board of Governors, the nowcasts of third-quarter real personal consumption expenditures growth and third-quarter real gross private domestic investment growth decreased from 0.9 percent and 10.6 percent, respectively, to 0.4 percent and 8.4 percent, respectively.
US real GDP nosedived to 0.5% according to the Atlanta Fed GDPNow real-time tracker.
Again, The Fed and Federal government pumped trillions of stimulus into an unprepared economy resulting in massive bottlenecks. So, we are getting declining GDP and rising inflation.
Yesterday’s industrial production dove leading to the 0.5% GDP figure. Today’s housing starts didn’t impact GDP in a meaningful way.
Has The Federal Reserve lost control of the economy? And inflation? The answer is likely yes. Why?
The Covid crisis has been played by the Federal government as an excuse for insane levels for spending coupled with massive monetary stimulus from The Federal Reserve.
As an example of The Fed losing control is US savings. The Fed’s model is to drive savers into consumption, therefore raising production and increasing GDP growth. But alas, The Fed can’t overcome the fear faced by consumers with Covid, Covid shutdowns, and rapidly rising prices.
(Bloomberg) — Consumers in Europe and the U.S. aren’t rushing to spend more than $2.7 trillion in savings socked away during the pandemic, dashing hopes for a consumption-fueled boost to economic growth on both sides of the Atlantic.
In the wake of lockdown easing during the northern hemisphere’s summer holiday season, excess savings in euro-area bank balances declined only marginally in August, and Italy still recorded an increase, according to calculations by Bloomberg Economics. In the U.S. there has also been no drawdown, the figures show.
The absence of a consumption surge that had been anticipated by some economists may speak against the prospect of a lasting inflation shock feared by central banks. While higher balances could help households cope with skyrocketing heating bills, tepid demand might temper businesses’ ability to push through permanent price increases.
In the USA, we see accumulated savings despite near-zero deposit rates at banks.
To be sure, The Fed reacted (or overreacted) to the Covid outbreak by increasing the money supply and their purchase of Treasuries and Agency MBS as the Federal government went on a wild spending spree.
But with trillions in Stimulypto Federal spending and Fed money printing, the bottlenecks in the economy (which apparently weren’t known before … ) have contributed to massive price increases that aren’t going away any time soon.
Notice how Fed monetary policies changed after the housing bubble burst and ensuring financial crisis/Great Recession. Before 2008, The Fed periodically whipsawed their Fed Funds target rate. But since late 2008, we have seen hardly any move from The Fed (except for 2017-2020 while Trump was President). For Obama,
Here is a look at The Fed’s record under Obama, Trump and Biden. The Fed raised their target rate only once under Obama until Trump was elected. Then The Fed raised rates 8 times. Then began lowering them again (5 times) leading to a big drop when Covid stuck. So for Trump, The Fed changed their target rate 13 times compared to 1 rate change under Obama and none under Biden.
And the above chart is only The Fed’s target rate. My point is that Yellen failing to raise rates under Obama has resulted in this over DC-Stimulypto we are seeing today.
Note the difference in Fed policies BEFORE the financial crisis. We need to return to a normal Fed policy rather than the hyper-inflationary zero-rate, QE policies since 2008.
M2 Money velocity (GDP/M2 Money) remains near an all-time low.
But given DC’s spending spree and all-time lows for M2 Money Velocity, The Fed is going to need to keep purchasing trillions in debt at low interest rates. The abnormal Obama years (Bernanke/Yellen) are the NEW abnormal. Or should I say abby normal policies?
Dr. Frederick FrankensteinAre you saying that I put an abnormal brain into a seven and a half foot long, fifty-four inch wide GORILLA?
So, yes, Bernanke and Yellen put into place abnormal policies that Powell is following into the world’s largest economy (or gorilla).
Only Igor and The Federal Reserve would pick such abnormal policies that ultimately lead to massive misallocations and inflation.
On a side note, do Biden and Transportation Secretary Pete Buttigieg really believe that they can fix the backed-up ports that are flooded with cargo thanks to Stimulypto? By Christmas??
Not with natural gas prices up 90% since January 4th!
Confounded Interest - Anthony B. Sanders 
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