President Biden is giving his first State of the Union address tonight with rebuttals from Iowa Governor Kim Reynolds and The Squad’s Rashida Talib (yes, a Republican is giving the rebuttal to Biden’s SOTU speech, and a Democrat is rebutting a Democrat President??)
Let’s look at a short list of Biden’s economic triumphs. I will ignore Biden’s catastrophic Afghanistan withdrawal and his weak response to the Russian invasion of Ukraine.
If you want higher oil and gasoline prices, Biden is a tremendous success.
If you like rampant government spending, then Biden is your man. Home price growth is up to 18.84%, making housing unaffordable for millions of American families.
Wages? They are up, but declining after 7.5% YoY inflation. And GDP is almost zero.
Biden can only point to rising average hourly wages, but not REAL average hourly wages.
Inflation? Highest in 40 years, due to excessive Federal spending, The Fed’s crazy printing and Biden’s energy mandates.
I am scratching my head to think of accomplishments for Biden to mention in the SOTU. But I am sure that he will say something positive. Otherwise, Biden’s SOTU speech should be the Billy Preston song “Nothing from Nothing.“
In August 1979, when Paul Volcker became chairman of the Federal Reserve Board, the annual average inflation rate in the United States was 11%. Inflation peaked in 1980 at 14.6%. Volcker raised the federal funds rate from 11.2% in 1979 to 20% in June of 1981.
Inflation (defined as CPI YoY) declined from over 14.6% in 1980 to 3.6% by 1985. But 30-year mortgage rates resumed their upward trajectory and peaking in October 1981 at 18.63 before beginning a gradual decline as inflation was tamed.
But will Powell enact another Volcker moment by raising the target rate abruptly?
The bank is joining others on Wall Street in ramping up bets for faster policy tightening, after U.S. consumer prices posted the biggest jump since 1982 in January. Goldman Sachs Group Inc. is forecasting seven hikes this year, up from its earlier prediction of five.
“We now look for the Fed to hike 25bp at each of the next nine meetings, with the policy rate approaching a neutral stance by early next year,” the JPMorgan team, led by chief economist Bruce Kasman, said in a research note.
January U.S. inflation readings “surprised materially to the upside,” the economists wrote. “We now no longer see deceleration from last quarter’s near-record pace.”
On inflation, the economists said a “feedback loop” may be taking hold between strong growth, cost pressures, and private sector behavior that will continue even as the intensity of current price pressures in the energy sector eventually fade.
Strong growth? 1.3% is strong growth??
Be that as it may, the US economy is at a different place today than under President Jimmy Carter. When Volcker started raising The Fed Funds Target rate, US public debt was still under $1 trillion. It has ballooned to over $30 trillion today.
9 rate increases is above what is being priced in The Fed Funds FUTURES market which is 6 rate increases over the coming year.
With 7.5% inflation, the Taylor Rule suggests a target rate of 15.45%. Talk about “Shock and Awful!”
We are starting to see GOLD (gold) surging and Bitcoin (yellow) falling as The Fed prepares “shock and awful” rate hikes and Biden continues to beat the war drums over Russia invading Ukraine.
If The Fed actually raises rates 9 times and dramatically pares back its massive monetary stimulus, it will be “shock and awful.”