US Core Inflation Jumps By Most Since 1991 (While Rent Inflation Fell To Lowest Rate Since 2015)

Well, The Federal Reserve finally got its wish: INFLATION!

U.S. consumer prices rose in July by more than expected on a bounce in auto and apparel costs. The so-called core figure, which excludes volatile food and fuel costs, climbed 0.6% from the prior month, the biggest surge in almost three decades, according to a Labor Department report Wednesday. The headline figure also increased 0.6%, following the same gain in June. The trend reflects a rebound in demand for goods and services from the depths of the pandemic-induced lockdowns earlier this year.

But on a YoY basis, core inflation rose only 1.6%.

But rent inflation fell to 2.8% YoY, the lowest since 2015.

The Fed’s Abysmal Quantitative Easing Velocity Of <1 (QEV)

When we think of velocity in economics, we usually think of M2 money velocity.

The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period.

M2 velocity declined during “The Great Recession” as GDP declined. But M2V continued to decline after The Great Recession as Bernanke, Yellen and then Powell continued to flood the economy with liquidity. And then Covid struck leading the US into another recession.

But if we look at GDP/QE (Fed Velocity of Asset Purchases), the picture is even more stark. QE Velocity was over 4 prior to The Great Recession (due to little quantitative easing prior to 2008), but continued QE after 2008 led QEV (or QE velocity) to fall under by 2015 and then crashed below 1 in the Covid recession.

While QE has not generated GDP growth like before The Great Recession of 2008/2009, it has certainly help the top 1%!

Rough seas ahead, mateys. For the bottom 50% of wealth, …

The Federal Reserve’s TRUE Dual Mandate! Taylor Rule Suggests Target Rate Of -8.58% As Federal Spending Rages Out Of Control

The Federal Reserve has a dual mandate: stable inflation and low unemployment. Well, core inflation is currently at 1.2% (core PCE growth is at only 0.95%) and unemployment (thanks to Covid-19) is at 11.1%. Not quite on target.

The Taylor Rule model using an aggressive specification suggests that The Fed lower their target rate to -8.58%.

Of course, Congressional spending is out of control with mandatory spending (entitlement programs, such as Social Security, Medicare, and required interest spending on the federal debt) since the days of George HW Bush and Bill Clinton. And especially post financial crisis.

Of course, mandatory spending on Medicare is soaring out of control.

Defense outlays are projected to grow with non-defense outlays declining,

Of course, the TRUE dual mandate of The Federal Reserve is propping up the S&P 500 index and NASDAQ.

Good luck to everyone trying to cope with out of control Congressional spending and Fed money printing.

The question is … will Congress and President Trump/Biden reign in their prodigious spending after Covid-19 passes?

Here is my answer. Where are the Budget Hawks when we need them??

Negative Rates Next? Gold Surges As US Dollar Tanks, Fed Remains Silent (Bizarro World)

The Federal Reserve Open Market Committee (FOMC) decided to do nothing, except say that ZIRP (zero interest rate policies) are going to continue for a long time. And that MORE fiscal stimulus is needed. As long as Mayors and Governors continue their economic lockdown policies, more monetary and fiscal stimulus will be needed.

Where does The Fed go from here (given that Covid-19 seems to be growing still)? The implied Fed policy rate looks to be negative by 2021.

Gold is surging as investors figure out that our fiat currency cannot support the reckless spending in Washington DC.

Let’s see what Fed Chair Jay Powell (aka, Thurston Powell III) comes up with. Hint: Fed buying stocks and going to negative rates.

How Low Can It Go? M2 Money Velocity Sinks To 0.7

According to the Atlanta Fed’s GDPNow forecast of Q2 GDP, US GDP is expected to sink -34.7% QoQ. With the blistering growth in M2 Money Stock, the result is a historic low below a reading of 1 … at 0.7.

How low can it go?

And no, I am not going to use Ludacris’ “How Low.”

The M2 Velocity chart is courtesy of my FNAN 311 student Elena Baydina.

Atlanta Fed GDPNow Q2 At -34.7% QoQ, M2 Stock Soaring, M2 Velocity Likely To Be A Disaster (Fed Buying German Automaker Bonds)

More like Constitution Avenue Freeze Out.

US Q2 GDP will be released on July 30th. At that time, M2 Money Velocity will be officially released (Nominal GDP / M2 Money Stock).

Let’s see where are today. The Federal Reserve is printing money at a rate of 25% YoY. Meanwhile, the Atlanta Fed GDPNow forecast for Q2 is -34.7% QoQ. This will be the WORST M2 velocity is history.

Even worse, the 10 year Treasury yield is near its all time low (orange box). Meaning that mortgage rates are near their all-time low as well.

Meanwhile, The Federal Reserve is merrily purchasing corporate bonds … with the largest two of the top four purchases being German automakers, Volkswagen and Daimler (Mercedes). Japanese auto maker Toyota is at 6th and German automaker BMW is at 8th.

Negative M2 velocity and The Fed buying foreign bonds? Add in Joe Biden’s Federal spending wish list of over $10 TRILLION …

What you say, Janet (Yellen) darling?

US Existing Home Sales Bounce Back In June (+20.7% MoM) While FHFA Home Price Index Declines -0.3% MoM In May

Weird, whacky stuff in housing news.

Let’s start with the FHFA’s home price index for May. It fell -0.3% MoM.

Existing home sales rose 20.7% MoM in June after falling -9.7% in May. Nice rebound!

Inventories of existing homes for sale remains low. Median price for existing home sales rose 3.5% MoM in June.

If existing home sales continue their recovery, sweet dreams are made of this.

Cleanup On Constitution Avenue? A $1 Trillion Glut of Bonds Is Dwarfing Central-Bank Demand

The world’s major central banks aren’t purchasing debt fast enough, leaving almost $1 trillion of new sovereign bonds looking for buyers in the months ahead. The flood of fresh debt, sold by governments to fund pandemic-rescue packages, threatens to dwarf central-bank buying and swamp markets in many countries, according to Bloomberg calculations. By contrast, most of Europe is set to benefit from the European Central Bank’s purchases and may offer the best shelter for investors worried about a potential surge in bond yields.

The Treasuries market alone could see more than $1 trillion in net bond supply in the six months through Dec. 31, and strategists are predicting sales will comprise fewer bills and more longer-dated notes.

So far, domestic buyers have supported U.S. debt. But some of the market’s most loyal investors appear to be stepping away just when they’re needed most. Pension funds typically buy Treasuries to match their long-term liabilities, yet a proxy for their purchases of longer-maturity bonds — holdings of so-called stripped Treasuries — has fallen consistently since February.

With Senator Schumer (D-NY), Nancy Pelosi (D-CA) and Presidential hopeful Joe Biden (D-DE) all screaming for trillions in spending, this will only get worse.

Wipe out?

Whip It! Former Fed Chairs Bernanke And Yellen Never Met A Stimulus They Didn’t Like (May Adopt Capping Yields On Short-term To Medium-term Treasuries)

Oklahoma humorist Will Rogers once said “I never met a man he didn’t like.”

Former Fed Chairs Ben Bernanke and Janet Yellen never met a stimulus they didn’t like, either.

(Bloomberg) — Former Fed Chairs Ben Bernanke and Janet Yellen warned that the U.S. economic recovery from the coronavirus shock could be slow and uneven and said the central bank may opt to cap yields on Treasury securities to help it along.

“It is possible, though not certain,” that the Fed will implement yield-curve control, they wrote on the Brookings Institution website, laying out testimony delivered Friday to the House Select Subcommittee on the Coronavirus Crisis.

The Fed has looked into the possibility of capping yields on short- to medium-term Treasuries though policy makers have suggested that further study is needed before deciding whether or not to go ahead.

Yellen told the committee that it would be a “catastrophe” if Congress decided not to continue enhanced unemployment insurance that is due to expire at the end of this month. “We need the spending that those unemployed workers can do,” she said.

Under the program, unemployed workers receive an extra $600 a week. Yellen said the program could be restructured to cap total insurance payments at a fixed percentage of regular income.

In their Brookings posting, Bernanke and Yellen said they expect the Fed to provide clearer guidance on its plans for short-term interest rates as a way to provide more stimulus to the economy.

“To maintain downward pressure on longer-term interest rates, the Federal Open Market Committee likely will provide forward guidance about the economic conditions it would need to see before it considers raising its overnight target rate,” the two former policy makers, both of whom now work at Brookings, wrote. “And it likely will clarify its plans for further securities purchases.”

The Fed has pledged to keep short-term interest rates effectively at zero until it is confident that the economy has weathered the pandemic shock and is on track to achieve its maximum employment and price-stability goals.

The former Fed chairs also called for more action on the fiscal front, including aid to state and local governments and a continuation of enhanced unemployment insurance.

“If the pandemic comes under better control, economic recovery should follow. However, the pace of the recovery could be slow and uneven,” they wrote. ‘’Fiscal and monetary policies must aim to speed the recovery and minimize the recession’s lasting effects.”

Here is a chart showing monetary stimulus AND fiscal stimulus (in the form of public debt).

Capping interest rates on Treasuries?? Price controls never works well (just ask Presidents Nixon, Ford and Carter). They each wanted to control prices and inflation.

Whip that yield curve! Whip it good!!

My Fed! FOMC Minutes Suggest Fed Will Keep Buying Bonds “For Many Years” As Fed Officials Unconvinced on Need for Yield-Curve Control

There is nothing in the world that can change The Fed.

Federal Reserve officials had “many questions” about the benefits of yield-curve control when they discussed its pros and cons during their meeting in early June.

“Many participants remarked that, as long as the committee’s forward guidance remained credible on its own, it was not clear that there would be a need for the committee to reinforce its forward guidance with the adoption of a YCT policy,” minutes published Wednesday of the June 9-10 Federal Open Market Committee meeting showed. YCT refers to yield caps or targets.

Here is today’s Treasury yield curve versus the yield curve on December 1, 2005. Looks more like wholesale panic to me.

Furthermore, Powell and The Fed have signaled in the minutes that more long-term debt will have be issued … and purchased by The Fed.

The Fed dots plot from the recent meeting shows low interest rates until after 2022.

To infiniti … and beyond!!