Equities get all foamy and excited as these numbers tail off, because the Fed can "pivot" now, but the truth is much more frightening. Credit event dead ahead.
Barring a resurgence in inflation, 6% federal funds rate is not in the cards.
The May PCE report (the Fed's preferred inflation metrics) put core inflation at 4.6%, nearly 50bps below where the federal funds rate is now, and about 25bps below the 2 year Treasury yield.
Core inflation per the CPI is also below the 2 year Treasury yield at the moment.
This means that, using these inflation metrics, we are back at a point where we are starting to see real interest rates turn positive. The 10 year Treasury yield is well above headline inflation per the CPI.
Unless inflation ticks back up again, Jay Powell doesn't have the political capital to push through draconian rate hikes the way Volcker did one inflation was well on the way down. Volcker was given the Fed chairmanship as an emergency maneuver by Jimmy Carter to deal with the stagflation of the late 70s. That gave Volcker a measure of freedom Powell just doesn't have.
If the current trends continue Powell's going to have some heavy lifting to do to get a second rate hike pushed through this fall.
Equities get all foamy and excited as these numbers tail off, because the Fed can "pivot" now, but the truth is much more frightening. Credit event dead ahead.
If the Fed raises rates -- and all current indicators suggest that they will, I agree.
I'll have more to say on that tomorrow.
They have to make it to Tom Luongo's brilliant call off 600bps ffr.
Barring a resurgence in inflation, 6% federal funds rate is not in the cards.
The May PCE report (the Fed's preferred inflation metrics) put core inflation at 4.6%, nearly 50bps below where the federal funds rate is now, and about 25bps below the 2 year Treasury yield.
https://newsletter.allfactsmatter.us/p/backing-into-stagflation
Core inflation per the CPI is also below the 2 year Treasury yield at the moment.
This means that, using these inflation metrics, we are back at a point where we are starting to see real interest rates turn positive. The 10 year Treasury yield is well above headline inflation per the CPI.
Unless inflation ticks back up again, Jay Powell doesn't have the political capital to push through draconian rate hikes the way Volcker did one inflation was well on the way down. Volcker was given the Fed chairmanship as an emergency maneuver by Jimmy Carter to deal with the stagflation of the late 70s. That gave Volcker a measure of freedom Powell just doesn't have.
If the current trends continue Powell's going to have some heavy lifting to do to get a second rate hike pushed through this fall.
Pivot at the December FOMC. Bubbles all popped by then.
We shall see.
"We’re in for a bumpy economic ride for the foreseeable future."
With the government seemingly not caring about deficits, I think you termed it as mild as you could, it may get a lot 'bumpier.'
That is exceedingly likely.
The great unknown here is "how bad is 'bad'?"