Based on the headline numbers, price inflation cooled again in December, boosting market optimism that the Federal Reserve will continue to ease off the pedal on its monetary tightening. But this could be setting the stage for more price inflation down the road.
And a deeper look at the data reveals that a lot of inflationary pressure remains despite the optimistic headlines.
We’re just a few days into the new year. How are resolutions going?
Mine are going fantastic!
I didn’t make any.
Most people have focused on Federal Reserve interest rate cuts as it battles price inflation. But there is another element in the inflation fight most people ignore – balance sheet reduction.
It isn’t going well.
Just before Christmas, Congress passed a massive omnibus spending bill. This is yet another blow to the Federal Reserve’s feckless fight against inflation.
The Federal Reserve would like you to think that it is scientifically guiding the economy with carefully calculated monetary policy.
The truth is the Fed is making things up as it goes along.
While most central banks around the world have tightened monetary policy in an attempt to bring price inflation under control, Japan has done the exact opposite. But in a surprise move, the Bank of Japan widened its target range for 10-year Japanese bond yields, effectively raising the interest rate.
The move strengthened the yen, put more pressure on a weakening dollar, and rattled the global bond market.
‘Tis the season for Christmas specials.
I’m not going to lie – even as a grown man, I love watching Christmas specials. Snoopy decorating his dog house. The Grinch folding up the Christmas tree like an umbrella and stuffing it up the chimney. And Frosty the snowman melting in the greenhouse.
For months, Peter Schiff, me, and a few others have been saying the economy is teetering on the brink of a collapse.
But nothing has happened.
Are we just wrong?
As expected, the Federal Reserve raised interest rates by 50 basis points at the December Federal Open Market Committee (FOMC) meeting. That pushed the federal funds rate to 4.5%. The last time rates were this high was in 2007. That’s bad news for an economy addicted to easy money.
While the pace of rate hikes slowed, the messaging coming out of the Fed was substantially the same as the November meeting.
The Federal Reserve got just the news it needed to plausibly go forward with a soft pivot in its monetary policy and begin to slow its pace of rate hikes. But while price inflation appears to be retreating, it’s far from beat.
The Consumer Price Index (CPI) for November came in lower than expected, according to the latest data from the Bureau of Labor Statistics.