Inflation is literally burning a hole though the pockets of Americans. The Flexible Price CPI is raging at 18% YoY. The Dallas Fed has their preferred measure of inflation, the trimmed mean CPI, is growing at only 3.05% YoY. The classic measure of inflation, CPI YoY, is growing at 7.12%.
That is of course if you can find things to buy at the grocery store.
I remember when Fleetwood Mac played at Bill Clinton’s first inauguration party. Perhaps Fleetwood Mac can play at the midterm election party commemorating the rampant inflation under Biden’s “leadership”: Bare Shelves.
Well, the COVID hysteria from the Biden Administration and the media preparing us for a horrible jobs report was … incorrect. In fact, the January jobs report was “exceptional”. 467,000 jobs were added and average hourly earnings growth ROSE to 5.7% YoY.
The bad news? Thanks to surging inflation, REAL average hourly earnings growth YoY FELL to -2.36%.
Unemployment ROSE to 4.0% from 3.9% as more people dropped out of the labor force in January. On the bright side, labor force participation rate rose to 62.2% from 61.9%.
Leisure and hospitality employment (one of the most vulnerable to inflation) expanded by 151,000 in January, reflecting job gains in food services and drinking places (+108,000) and in the accommodation industry (+23,000).
The reaction in the bond market? US 10-year yields are up 6.9 basis points as Eurozone is up across the board.
Energy prices are up (except natural gas futures).
Yes, its a cold one out there. But the Biden Administration is engaging in reducing fossil fuel supply and pushing towards “green” energy such as inefficient solar panels, eagle-killing wind turbines, and ocean turbines.
As a consequence, natural gas futures are up 93% from January 1, 2021 while coal futures are up 133% and WTI Crude spot price is up 82%.
Any wonder why food prices are up 40%?
Stay warm. It’s a cold one out there today. And The Federal government doesn’t care.
Raphael Bostic and Goldman Sachs are both calling for dramatic rate increases to fight inflation … that they helped cause with their monetary stimulypto. I call this The Fed’s March of the Toreadors as The Fed now attempts to kill the bull market.
(Bloomberg) — The Treasury yield curve flattened to the lowest level in over a year on Monday as the prospect of a super-sized Federal Reserve rate increase in March gained traction, weighing disproportionately on shorter-dated tenors.
Two-year U.S. yields climbed as much as 4 basis points after Raphael Bostic, the president of the Fed’s Atlanta branch, said the U.S. central bank could raise its benchmark rate by 50 basis points if a more aggressive approach to taming inflation is needed.
That narrowed the gap with ten-year counterparts — which rose about half as much — to the least since October 2020. The last time the Fed delivered a half-point increase to borrowing costs was at the height of the dot-com bubble in 2000.
The repricing extended a move spurred last week, after Fed Chair Jerome Powell underscored the policy maker’s determination to put a lid on inflation. The market positioning may have been exacerbated by hedge funds that had been leaning the wrong way before Powell’s address.
Traders are currently betting the Fed will deliver 32 basis points of tightening in March, more than fully pricing an increase of a quarter-point. That puts the implied probability of a 50-basis-point increase at almost 30%. The odds of such a move in December were zero.
Consumer prices rose an annual 7% in December, the fastest pace in almost four decades. Powell left the door open to increasing rates at every meeting, and didn’t rule out the possibility of a 50-basis-point hike.
In an interview with the Financial Times, Bostic stuck to his call for three quarter-point interest rate increases in 2022, while saying that a more aggressive approach was possible if warranted by the economic data. Bostic is a non-voting member of the FOMC this year.
Since the rapid growth in inflation was caused by a combination of too much Fed stimulus, too much fiscal stimulus and “green” energy policies, it is unclear whether an increase of 50 basis points will do much, particularly if Bostic’s own Atlanta Fed GDPNow forecast of 0.051% is accurate. Raising ratesif the economy is slowing??
To be clear, Bostic and others are trying to signal The Fed’s intent well in advance to avoid a surprise knock-down of the stock market. Or a killing of the bull market.
The misery index is traditionally inflation rate plus U-3 unemployment rate. The RENTER misery index is the Zillow Rent Index YoY + U-3 unemployment rate to demonstrate the hardship of renters because of soaring home prices.
Notice that because of rising home prices, the Renter misery index has overwhelmed the improvement in unemployment.
As I typically do, I will now include The Fed’s balance sheet (as a proxy for Fed stimulus and supporting Federal government expenditures). Yes, you can see that The Fed and Federal government are responsible for our modern day “Grapes of Wrath.”
If we look at the TRADITIONAL misery index, we see that misery remains above 10 (it was below 6 prior to the COVID outbreak in early 2020).
Remember that the REAL average hourly earning growth of Americans is NEGATIVE. Gains in wage growth more than offset by inflation.
I won’t even mention how inflation is crushing retirees since Social Security and pension plans rarely adequately compensate retirees for inflation.
Now for the really bad news. 81-year old senior, House Speaker Nancy Pelosi, has announced that she is running for Congress yet again from leftist-stronghold San Francisco. Although she has an expensive home in Georgetown and a beautiful vineyard in Napa Valley. Pelosi’s vineyard only sells grapes to other wine makers. Not bad for a career civil servant!
I really wanted Pelosi to produce a wine called “The Grapes of Wrath” in honor of her insider trading and massive wasteful spending of taxpayer money that has helped generate inflation, rampant government debt growth and hurting retirees and hourly workers.
No, not the Klaus von Bulow type of “reversal of fortune” (when he killed his wife). I am talking about a reversal in fortune for America.
Let’s look at the 10Y-2Y Treasury curve. It typically falls below 0 basis points before every recession. Except the mini-COVID recession of 2020. But notice that the Treasury curve did not recover from the COVID recession as it typically did. More along the lines of 1984-1985.
Speaking of Reversal of Fortune, everything changed once Fed Chair Powell started to speak after Tuesday’s FOMC meeting.
Hmm. Midterm elections, possible Russian invasion of The Ukraine, further problems in China, etc. While The Fed Funds Future data implies that The Fed may raise their target rate 5 times over the coming year, we’ll see.
If 2021 was a great year for the US housing market, 2022 faces “a new normal” marked by a slowing down of home price rises, job layoffs in the mortgage industry, and concerns over rising inflation and interest rate hikes, according to Douglas Duncan (pictured), Fannie Mae’s senior vice president and chief economist.
Duncan said “a shift” was underway in the market and the wider economy, which would result in far more moderate home price appreciation, expected to be between 7% and 7.5% this year due to the ending of fiscal and monetary stimulus.
“One of the elements of the shift is that you’re going to see house prices up, but not nearly as far as they were in the last two years because that was driven hugely by the fiscal and monetary stimulus (now) being removed,” he told MPA.
Ominously, he added that low interest rates “may never be seen again”. Or at least until Biden appoints more doves to The Federal Reserve Board of Governors.
Here is a lesson in Bidenomics. “Going Green” sounds great to some (like Al Gore, Leonardo DiCaprio and Greta Thunberg), but there are costs to not growing America’s energy supply.
Rising energy costs have helped create the rise in consumer prices and inflation. Not to mention chip shortages for car and trucks. The University of Michigan conditions for vehicles plummeted to 46 (100 baseline) as used vehicles prices sky rocket.
Under Biden’s reign of error, West Texas Crude futures prices have risen 87% (regular gas prices are up 49% even with Biden’s releasing two days of supply from the Strategic Petroleum Reserve.
On the housing front, the University of Michigan buying conditions for houses fell to 72 (baseline of 100) as home prices are roaring at a 18.81% YoY clip.
To paraphrase the comic strip “Gasoline Alley,” “Unca’ Joe, what have your done t’ US?”
Pending home sales in the USA tanked 6.64% YoY. Yes, it was for December, but down 6.64% YoY means that pending home sales are lower than last December.
And the stock market was up across the board as Powell refused to take his foot off the monetary gas pedal.
Gold is down along with Bitcoin for you ALT investment types.
Yes, The Federal Reserve could have raised their target rate at their January meeting, but chose not to raise rates. Instead, Chairman Powell said that rate increases are a comin’!
I hope Powell wasn’t hoping for a slowdown in inflation, because today’s Q4 GDP report showed a surge in GDP to 6.9% QoQ. But with that GDP surge we also got a surge in prices paid by consumers to 6.9% as well. Thanks to the continuing massive Federal stimulus being poured into markets.
Despite the positive news on Q4 GDP, we are still seeing 7% inflation and a diving 10Y-2Y yield curve.
Along with that surprising GDP report, we are seeing the Bloomberg Commodity Index rising like a bat out of hell (RIP, Meatloaf).
Despite inflation growing at 7% (versus The Fed’s target rate of 2%) and U-3 unemployment being only 3.9%, one would have thought that Jay and The Gang would have started increasing rates at the January meeting.
But nooooo. The Fed actually sat on their hands and did nothing.
What did The Fed say?
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March. Beginning in February, the Committee will increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgage‑backed securities by at least $10 billion per month.“
According to The Fed Funds Futures data, the market is anticipating 1 rate increase at the March FOMC meeting. And another at the June FOMC meeting.
The Taylor Rule (not used by Jay and The Gang), suggests that The Fed should have their target rate at almost 18%! NOT 0.25%.
Confounded Interest - Anthony B. Sanders 
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