The Fed's rhetoric has basically put them in the position of throwing the markets pretty much under the bus.
As for the consumer/worker/ordinary American--he always gets thrown under the bus. Volcker did it. Greenspan did it. Bernanke did it big time. Yellen did it. Powell did it.
The markets are convinced Powell is going to cave on rates and restart QE. But if he doesn't soon, it won't much matter.
Warren Buffett once made an observation about investing to the effect that once the tide goes out you can tell who's been swimming naked. That sums up the situation for Wall Street rather nicely, I think. And the longer Powell lets the tide roll out, the more naked swimmers will be exposed.
After a while restarting QE would be a pointless exercise.
The perversity of the whole situation is that if Powell does trigger a Volcker-like recession AND the economy and the country survive it (big "ifs" all around), the economy would be in a healthier state of balance in the end.
It's shock therapy with one hell of a price tag attached. One that everyone is scared to pay (and with good reason).
On the stock market front: higher interest rates and a tighter monetary policy will push down prices. Stock market funds that rode the indices on the way up will get shellacked on the way down.
On the housing front: the picture is a bit murkier. Mortgage rates are sure to keep rising in the short term. This will cool off housing demand, but it will also likely cool off housing construction and investment. The net effect on housing prices is still likely to be ultimately disinflationary, but the timing is up in the air.
On the job front: there will be layoffs. Some are already starting.
Food price inflation is likely to stay elevated through the rest of the year. Outlook for 2023 depends on how good the harvests are the rest of this year.
Energy (gas for your car) is going to get more expensive. Some pundits are talking about $200 for a barrel of crude oil.
Disposable income is likely to keep declining, as job cuts reduce overall weekly earnings.
That will cut into overall consumption. Less disposable income means less money to spend.
If Powell sticks to the Volcker playbook, interest rates will stay high for a while, forcing a long and deep recession, vis-a-vis the 1980-1982 recession.
If Powell capitulates and restarts QE--basically printing money --inflation will go high, stay high, and potentially destabilize the economy, precipitating a 1929-style crash and depression.
These are, of course, not good outcomes on either side. Working folk take it in the shorts either way. Even the bottom tiers of "the rich" are going to feel some pain, as their investments crater and their assets shed value.
How certain is it that these things will come to pass? Broadly speaking, the inflation is going to happen, and the disinflation as inventories turn into gluts is going to happen. Job losses are already starting, and future unemployment figures are likely to start trending up.
How bad will the magnitude of these things be? That is a question yet to be answered. I am not sanguine about the odds of the magnitudes being small.
The US has several structural advantages over Sri Lanka, not the least of which is the capacity to wholly provide its own food supply (and even energy at least for a time). Sri Lanka, like a number of developing countries, depends heavily on food and energy imports.
Food and energy are, along with housing, the most crucial economic goods there are, for obvious reasons. A country which cannot provide them internally is always going to be vulnerable to external shocks.
People can withstand not being able to buy new iPhones and Nike running shoes. They cannot withstand not being able to buy rice, beans, meat, and other essentials for survival.
Wow, those numbers are terrible!
They have painted themselves in to corner but good.
Are we looking at the mother of all bailouts again?
Not right away, at least.
The Fed's rhetoric has basically put them in the position of throwing the markets pretty much under the bus.
As for the consumer/worker/ordinary American--he always gets thrown under the bus. Volcker did it. Greenspan did it. Bernanke did it big time. Yellen did it. Powell did it.
The markets are convinced Powell is going to cave on rates and restart QE. But if he doesn't soon, it won't much matter.
Warren Buffett once made an observation about investing to the effect that once the tide goes out you can tell who's been swimming naked. That sums up the situation for Wall Street rather nicely, I think. And the longer Powell lets the tide roll out, the more naked swimmers will be exposed.
After a while restarting QE would be a pointless exercise.
The perversity of the whole situation is that if Powell does trigger a Volcker-like recession AND the economy and the country survive it (big "ifs" all around), the economy would be in a healthier state of balance in the end.
It's shock therapy with one hell of a price tag attached. One that everyone is scared to pay (and with good reason).
IтАЩm having trouble visualizing what this scenario looks like in real life. What does it mean?
On the stock market front: higher interest rates and a tighter monetary policy will push down prices. Stock market funds that rode the indices on the way up will get shellacked on the way down.
On the housing front: the picture is a bit murkier. Mortgage rates are sure to keep rising in the short term. This will cool off housing demand, but it will also likely cool off housing construction and investment. The net effect on housing prices is still likely to be ultimately disinflationary, but the timing is up in the air.
On the job front: there will be layoffs. Some are already starting.
https://www.minds.com/newsfeed/1389377970904240137
Food price inflation is likely to stay elevated through the rest of the year. Outlook for 2023 depends on how good the harvests are the rest of this year.
Energy (gas for your car) is going to get more expensive. Some pundits are talking about $200 for a barrel of crude oil.
Disposable income is likely to keep declining, as job cuts reduce overall weekly earnings.
That will cut into overall consumption. Less disposable income means less money to spend.
If Powell sticks to the Volcker playbook, interest rates will stay high for a while, forcing a long and deep recession, vis-a-vis the 1980-1982 recession.
If Powell capitulates and restarts QE--basically printing money --inflation will go high, stay high, and potentially destabilize the economy, precipitating a 1929-style crash and depression.
These are, of course, not good outcomes on either side. Working folk take it in the shorts either way. Even the bottom tiers of "the rich" are going to feel some pain, as their investments crater and their assets shed value.
How certain is it that these things will come to pass? Broadly speaking, the inflation is going to happen, and the disinflation as inventories turn into gluts is going to happen. Job losses are already starting, and future unemployment figures are likely to start trending up.
How bad will the magnitude of these things be? That is a question yet to be answered. I am not sanguine about the odds of the magnitudes being small.
So youтАЩre predicting we wonтАЩt be Sri Lanka 2.0?
Whew.
The US has several structural advantages over Sri Lanka, not the least of which is the capacity to wholly provide its own food supply (and even energy at least for a time). Sri Lanka, like a number of developing countries, depends heavily on food and energy imports.
Food and energy are, along with housing, the most crucial economic goods there are, for obvious reasons. A country which cannot provide them internally is always going to be vulnerable to external shocks.
People can withstand not being able to buy new iPhones and Nike running shoes. They cannot withstand not being able to buy rice, beans, meat, and other essentials for survival.
Sri Lanka is experiencing the latter situation.