The Federal Reserve has talked a lot about fighting inflation. But what has it actually done?
In practice, not a lot. It has nudged interest rates up 75 basis points. And while the Fed has ended the massive quantitative easing program that it ran during the pandemic, it pushed balance sheet reduction back from May until June. In fact, the balance sheet has crept upward throughout the entire month of May.
It’s the Fed’s “hold my beer” moment.
After more than a year in which Federal Reserve leadership appeared clueless, pollyannish, and indecisive, the Fed is conducting a full-throated messaging campaign to show that it is as serious as cancer about the inflation surge that is scaring the bejesus out of consumers, investors, and economists.
When I was about seven or eight years old, I remember my mom taking me to the bank to open a savings account. She explained that if I put some of my allowance in savings, that money would grow over time.
Well, that doesn’t work anymore.
American consumers are in a sour mood, but they haven’t stopped spending money. The problem is they’re spending money they don’t have. And they’re getting less for it.
The March Consumer Price Index (CPI) was 8.5% annually, the highest since December 1981. But the mainstream narrative was that inflation had probably peaked because core inflation, stripping out more volatile food and energy, “only” rose by 0.3%. Mainstream pundits reasoned that the oil shock in the wake of Russia’s invasion of Ukraine primarily drove the huge 1.2% month-on-month CPI gain. And since core CPI appeared to be slowing, inflation was cooling.
The April CPI data undercuts this narrative.
Jerome Powell began hinting that inflation might be a problem last August. In November, Powell retired the word “transitory.” But here we are in May and the Federal Reserve still hasn’t done anything substantive to address the inflation problem.
And now it may be too late. It’s probably time to buckle up for more inflation – and perhaps a crashing economy.
Student loan forgiveness has been in the news lately. There are a number of different plans being floated, from blanket debt repudiation up to various amounts, to more limited income-based schemes. But nobody ever talks about a key question: who is going to pay for it?
Well, you will.
Mostly we get lies, spin and obfuscation from central bankers, politicians and bureaucrats. But every once in a while, one of these people accidentally wanders into the truth.
IMF Director Kristalina Georgieva did just that during a recent panel discussion hosted by CNBC. She conceded that central banks globally “printed too much money and didn’t think of unintended consequences.”
Earlier this week, the yield on the 30-year Treasury rose above 3% for the first time since April 2019 as the carnage in the bond market continues.
Rising yields have put pressure on gold. The yellow metal flirted with $2,000 an ounce but has since fallen below the $1,950 resistance. Once again, investors are fixated on rising interest rates, but missing the bigger picture — real rates remain deeply negative.
Monday was tax day.
I don’t know about you, but my wallet is lighter. As always, I had to write a big check. But I took solace in the fact that I’m helping create a more civilized society!