The ignorance is appalling.
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If you want an idea of how the current fiscal and asset bubble in the US might end, pay close attention to Bernard Connolly, esteemed consigliere to hedge funds and central bankers across the world for the last quarter century.
It will not end in a soft landing – a “chimaera” – and will certainly not end in another leg of accelerating economic growth. Nor will it end in soggy stagflation.
The invidious choice facing the Federal Reserve, he warns, is either to allow a deep economic slump to unfold, or slash rates to the bone before inflation has fallen back to target. The latter course will send the dollar into free fall and destabilise the world’s dollarised financial system, an outcome already being sniffed out by the reawakening gold market.
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“There can be little doubt that there will be a US recession unless the Fed loosens hard and soon. The labour market is weakening and ‘excess savings’ from the pandemic-era handouts are exhausted,” he said.
“The likeliest near-term outcome is that, as in 2000 and 2007, the Fed holds off cutting interest rates just yet, citing worries that inflation is not convincingly and sustainably moving to target. By mid-year the weakening of the economy will have become evident even to the Fed’s modellers. But they will not cut far enough or fast enough,” he said.
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This points to an initial rate cut in June, followed by cascading cuts in rapid succession, though still too little, too late. The Fed Board is already preparing for a hand-brake U-turn. Governor Adriana Kugler recently reminded everybody that the Fed has a “dual mandate”: jobs as well as inflation.
Days earlier, New York Fed chief John Williams said the supply-side shock of the pandemic had blown over and that US inflation had carved out a near perfect round trip, “like the Apollo missions to the moon and back.” He said three-year inflation expectations are now below their 2014-2019 average. This is a Fed preparing its alibi.
As I wrote last week, the US economy has lost a net 900,000 workers since November, based on the US household survey. This has lifted unemployment from 3.4pc to 3.9pc. The jump is close to triggering the Fed’s ‘Sahm Rule’ recession indicator.
The US economy is not as strong as widely assumed. The latest US financial accounts show that gross domestic income (GDI) grew by just 1.2pc last year. This measure has been consistently weaker over recent quarters than the GDP figure, which ought to give pause for thought.
A Fed study found that GDI is more accurate when the economy rolls over. It foretold a recession in 2007 at a time when the GDP figures (revised down later) were still signalling clear blue sky.
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The Wicksellian theme running through Mr Connolly’s book is that central banks have created a chronic ‘intertemporal’ misalignment in the western economies, starting with Alan Greenspan in the 1990s.
They have let asset booms run unchecked but have always stepped in to prevent the economy coming back into balance during downturns. But you cannot pull consumption from the future forever without consequences. The future catches up with you.
“The real difficulty with the Greenspan maxim – that a problem deferred is a problem solved – is that you have to keep on deferring, via ever-bigger bubbles that ultimately threaten to destroy both capitalism and democracy,” he said. Furthermore, this reflex obstructs the Schumpeterian cleansing process of creative destruction.
As Joe Biden’s budget boom deflates this year it will become clear that the US economy cannot handle interest rates anywhere near the current level of 5.33pc. America and the West will discover that they are on the same conveyor-belt towards “ever-lower real interest rates”, requiring drastic cuts to refloat the next bubble in equities and credit.
My angle is slightly different. Deflation will keep coming back to haunt us with each cycle – requiring zero rates and crazy money – because of ageing demographics, digital technology, and above all the Asian saving glut.
The cardinal fact is that China produces 31pc of global manufactured goods but accounts for 13pc of total consumption. Xi Jinping’s regime is dumping massive excess capacity on the rest of us. It is reverting to the worst practices of Leninist capitalism. This is the elephant in the global rowing boat.
Whether Mr Connolly is right or savings glut theorists are right, both imply a secular collapse in the natural rate of interest and the subversion of western free market system.
The central banks and the academic priesthood are floundering because their canonical DSGE model – new neoclassical synthesis – assumes that the economy comes back into equilibrium when it patently does no such thing. The model is self-evidently defective but all other voices – Wicksellian, monetarist, Austrian, or old Keynesian – have been shut out of the debate.
The priests were badly wrong in 2007-2008. We will find out who is badly wrong this year soon enough.
Well yea, so why can't everyone see that? Anyone old enough to give a fuck about the fed and their interest rate, is old enough to realize that what I posted is objectively true.Because they're lying, nonstop.
We actually have. You've simply come to be able to see it for what it is. Plenty of dirty dealings and lies have been going on for longer than either of us have been alive.Truth and Government, are two words that never go together; but neither have we endured such a constant, nonstop barrage of transparent, intelligence-insulting LIES.
Not until now.
Stubbornly high inflation could push the Federal Reserve into a more cautious stance this year regarding interest rate cuts, the central bank's former vice chair said Friday.
Richard Clarida, who served as Fed governor until January 2022 and is now a global economic advisor at asset management giant Pimco, said his former colleagues need to be on guard against sticky prices that could thwart plans to ease monetary policy this year.
At its meeting earlier this week, the rate-setting Federal Open Market Committee indicated it would likely decrease rates three times this year, assuming quarter percentage point intervals. Chair Jerome Powell said receding inflation and a strong economy give policymakers room to cut.
"This may be more of a hope than a forecast," Clarida said during an interview on CNBC's "Squawk Box." "I do hope that the Fed really moves into data-dependent mode, because there can be a very good case if inflation is sticky and stubborn that they shouldn't deliver three cuts this year."
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What they say is more important than what they do.
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As I wrote last week, the US economy has lost a net 900,000 workers since November, based on the US household survey. This has lifted unemployment from 3.4pc to 3.9pc. The jump is close to triggering the Fed’s ‘Sahm Rule’ recession indicator.
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Closely followed measures of U.S. inflation have come in hotter than expected so far this year, and economist Claudia Sahm is getting nervous: A recent batch of economic reports implies that pricing pressures aren’t abating steadily, which could give the Federal Reserve an excuse for what she views as “foot-dragging” on cutting the interest rates that have made mortgages, car loans and credit-card balances more expensive.
“I would really have them take 25 basis points off next week,” Sahm said in mid-March, after the release of the February consumer-price index.
In a series of conversations with MarketWatch over the past month, Sahm said she wants the Fed to ease rates — which are currently in the range of 5.25% to 5.5% — ASAP. She’s not advocating for a dramatic cut but says the Fed needs to get the ball rolling on easing the tight monetary policy it has implemented over the past two years to help cool the economy and quash out-of-control inflation.
Given everything she’s heard from policy makers in recent weeks, Sahm suspects that the first cut might not come until July. The delay raises the risk that the Fed will cut interest rates too late and cause a recession, she said, by leaving a too-restrictive policy in place for too long. ...
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- The personal consumption expenditures price index excluding food and energy increased 2.8% on a 12-month basis and was up 0.3% from a month ago, matching estimates.
- Core PCE was up 0.3% for the month and 2.5% at the 12-month rate, compared to estimates for 0.4% and 2.5%.
- Consumer spending shot up 0.8% on the month, well ahead of the 0.5% estimate. Personal income increased 0.3%, slightly softer than the 0.4% estimate.
“Nothing really super surprising. Obviously not the numbers the Fed wants to see, but I don’t think this is going to catch anybody off guard when they come back to work on Monday,” Victoria Greene, chief investment officer at G Squared Private Wealth, told CNBC. “I think everybody is going to pivot to labor pretty quickly and say well maybe if we see some weakness and cracks over here, this little stickiness in inflation and PCE isn’t going to matter as much.”
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We all know that there is a coming "rock, meet hard place" moment coming. At some point, the gov will not be able to afford growing interest costs, and they all know it.Maybe this is a bigger reason to cut rates than just so Joe can get re-elected.
Hartnett: US Interest To Hit $1.6 Trillion By Year End, Making It The Largest US Government Outlay | ZeroHedge
ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zerowww.zerohedge.com
San Francisco Federal Reserve President and FOMC member Mary Daly said that she feels no urgency to lower interest rates, and that notwithstanding the central bank’s latest ‘dot plots’, three cuts this year is not guaranteed.
“There is really no urgency to adjust the rate,” Daly said at an event in Las Vegas, Nevada on Tuesday. “Standing pat is the right policy at the moment.”
While she acknowledged that inflation has been coming down it the United States, she characterized the journey as “bumpy and slow.”
Markets have all but abandoned hope of a May cut to the Fed funds rate and are approaching a coin toss for the likelihood of a June cut.
Daly said that while she still sees a path to cut interest rates this year, “we’re just not there yet.”
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Federal Reserve Governor Michelle Bowman said Friday that it's possible interest rates may have to move higher to control inflation, rather than the cuts her fellow officials have indicated are likely and that the market is expecting.
Noting a number of potential upside risks to inflation, Bowman said policymakers need to be careful not to ease policy too quickly.
"While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse," she said in prepared remarks for a speech to a group of Fed watchers in New York. ...
... it has been reported that the Bureau of Labor Statistics (BLS) has a list of preferred users like JP Morgan that get information not available to everyone. ...
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Fiscal doom loop on aisle 7.
Soaring debt levels threaten to render the Federal Reserve powerless, taking away its ability to fight inflation, warned Tavi Costa, macro strategist at Crescat Capital.
In a recent interview with Jeremy Szafron, Anchor at Kitco News, Costa highlighted the increasing irrelevance of traditional monetary tools like interest rate adjustments in the face of unprecedented fiscal challenges.
Costa remarked on the alarming trajectory of the U.S. national debt, which, according to the U.S. Treasury, recently exceeded $34.5 trillion, emphasizing the gravity of this fiscal challenge. The Congressional Budget Office recently projected that U.S. federal government debt, which was 97% of GDP last year, is projected to rise to 116% by 2034. This projected level would surpass the debt levels experienced during World War II.
"At some point, the debt problem is going to be so large... that will cause the Fed to become almost irrelevant because they can't raise rates. They can't use interest rates as a mechanism to fight inflation," Costa explained. This scenario paints a bleak picture of central banks struggling to exert any meaningful influence over economic stability.
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$8.9 trillion this year, to be exact. That means the gov is going to need to sell in excess of $10 trillion in debt this year.From what I understand, there is a whole lot of low interest government debt coming due in the next few months and ready to roll over.
And the Supreme Court might look a lot different if the bidet and his dem minions get re-elected, because they want to load it with woke commies to help change everything currently good about America.The nation's central bank might look quite different if former President Donald Trump wins the upcoming election.
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