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How Powell Destroyed His Inflation War as he Eats the Poor
I’m going to save discussion of today’s CPI report for my Deeper Dive this weekend because it requires digging deep into the numbers involved in the report to show why it is not the game-changer for the new trend in inflation that the stock market made it out to be today. Not even close. It could, of course, become a first blip in the direction of a new downward trend against the rising trend for inflation that has held all year, but this year’s trend, so far, remains firmly anchored.
Even Minneapolis Federal Reserve Bank President Neel Kashkari said today, after the CPI report came out,…
that he is unsure how restrictive monetary policy is right now, and that borrowing costs should stay where they are as U.S. central bankers take stock of inflation. “The biggest uncertainty in my mind is how much downward pressure is monetary policy putting on the economy? That’s an unknown,” Kashkari told the Williston Basin Petroleum Conference in Bismarck, North Dakota. “And that tells me we probably need to sit here for a while longer until we figure out where underlying inflation is headed before we jump to any conclusions.”
In fact, another article out today claims, as I’ve been claiming here, that Fed policy is not restrictive at all; and that’s the interesting point for the day I want to focus on as I think the article says it well:
Time and again, Jerome Powell has made it clear. Financial conditions, the Federal Reserve’s key lever for cooling the US economy, are tight.
HOWEVER …
After an $11 trillion rally in US equities since late October — and the sudden revival of meme-stock fever — many on Wall Street think he’s dead wrong…
…click on the above link to read the rest of the article…
How Powell Destroyed His Inflation War as he Eats the Poor
I’m going to save discussion of today’s CPI report for my Deeper Dive this weekend because it requires digging deep into the numbers involved in the report to show why it is not the game-changer for the new trend in inflation that the stock market made it out to be today. Not even close. It could, of course, become a first blip in the direction of a new downward trend against the rising trend for inflation that has held all year, but this year’s trend, so far, remains firmly anchored.
Even Minneapolis Federal Reserve Bank President Neel Kashkari said today, after the CPI report came out,…
that he is unsure how restrictive monetary policy is right now, and that borrowing costs should stay where they are as U.S. central bankers take stock of inflation. “The biggest uncertainty in my mind is how much downward pressure is monetary policy putting on the economy? That’s an unknown,” Kashkari told the Williston Basin Petroleum Conference in Bismarck, North Dakota. “And that tells me we probably need to sit here for a while longer until we figure out where underlying inflation is headed before we jump to any conclusions.”
In fact, another article out today claims, as I’ve been claiming here, that Fed policy is not restrictive at all; and that’s the interesting point for the day I want to focus on as I think the article says it well:
Time and again, Jerome Powell has made it clear. Financial conditions, the Federal Reserve’s key lever for cooling the US economy, are tight.
HOWEVER …
After an $11 trillion rally in US equities since late October — and the sudden revival of meme-stock fever — many on Wall Street think he’s dead wrong. Not only are popular gauges of the investing climate famously loose — some are looser than before the Fed kicked off its historic monetary-tightening campaign more than two years ago.
…click on the above link to read the rest of the article…
Bank Failure: MAYBE nothing to see here this time.
Regulators seized their first bank of the year on the same day that regulators are telling other regulators and financial institutions to ready themselves for possible trouble in the major financial clearing houses. (At least, same day in terms of when it hit the news.)
Reminder: It was a badly failed clearing house that became the epicenter of the repo crisis that I referred to as the “Repocalypse” back in 2019, and I have been saying 2024 looks poised for possible similar problems later in the year in that deep layer of interbank lending that keeps financial institutions running through the night to the next day—keeps the system from seizing up.
Clearing houses are often enormous, handling trades totaling trillions of dollars. One might reasonably wonder if the concern to ready financial institutions against a systemic failure that could happen from one of these institutions, as the warning was put, suggests one or more such institutions may be showing signs of trouble. (Nothing in the information provided indicates that is the case, but then nothing ever does. We typically find out on a Monday morning after something crashes … or on a Friday after markets close for the weekend.)
Clearing houses are intermediaries for settling financial transactions of many kinds.
As for Republic First, the small regional bank that failed in the Pennsylvania area, there are no indications in initial announcements that commercial real-estate played an outsized role in the bank’s failure, and 4-5 good seizures of this kind a year are normal. So, with this being the first of the year to be seized by the FDIC, and sold as meat that ran past its sell-by date to Fulton Bank, based in Lancaster, Pennsylvania, there are no immediate fears to be had from the announcement unless something more endemic or systemic is revealed in the days ahead. Just your garden-variety bank failure for now.
…click on the above link to read the rest of the article…
Inflation is Causing Tectonic Shifts
Inflation is Causing Tectonic Shifts
Even if stock investors are acting as if nothing happened along the road they are walking, they will soon wish they had not missed the obvious.
Yesterday when stocks crashed hard, I wrote the following caveat to their epitaph:
Whoa! Delusions broken. At least, for today, but give investors a wisp of faint hope tomorrow, and greed may go from free fall to free floating again.
Indeed, the faintest wisp was all they got in today’s PCE inflation report, but that was all it took to send them deliriously positive in a state of euphoria and denial again. That won’t likely last long, foolish as it is, because the road is likely to be more than bumpy from here on out on the inflation front—more like jagged—and because bond investors today refused to give up the tougher edge they took yesterday with the bond vigilantes holding out for better returns. Never underestimate the foolishness and denial that undergirds this stock market, causing investors to miss the obvious signs on each side of them.
… Because, as I also wrote yesterday …
The 2YR yield is now getting very close to 5%. At those levels Treasuries will be seriously sucking money out of stocks for the practically free ride of doing nothing but sitting home with zero risk and clipping interest coupons. Those days won’t be long in coming.
That is what we saw today in bond action as yields continued to rise. A few articles in the news today highlighted how bond traders are now demanding higher yields from US Treasuries and not letting go of the reins…
…click on the above link to read the rest of the article…
