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Why The Fed May Only Deliver Half Its Planned Rate Hikes
How much is too much?
That's the question everyone wants answered vis-à-vis Fed tightening at the onset of a hiking cycle the Committee imagines will eventually see rates turn moderately restrictive, somehow without triggering a recession.
Traders are dubious. As noted here on countless occasions over the past several days, market pricing now indicates a pivot to easing sometime between mid-2023 and end-2024, not exactly a vote of confidence in Jerome Powell's "soft-ish" landing objective.
S
Re: “unlikely Powell will be able to follow through on all the promises”
It’s likely that the election in the Fall will play a role in this Kabuki, primarily because if the Fed is too aggressive in it’s policy mistake, we’ll see an accelerated amount of demand destruction in the economy.
The Fed’s attack strategy is almost like class warfare, which tosses jet fuel on inflationary bottleneck problems, needlessly compounding an already complex puzzle. The vast amount of lower income people will be the ones to feel the greatest impacts from the Fed, which serves absolutely no purpose. Instead of helping stabilize the most needy, the plan is to bulldoze them off a cliff and pretend this attack is about fighting inflation. Pushing people to extremes helps pave the way towards trumps coronation, a perfect storm where poor people will unite behind a monster who will destroy them, it’s pure genius, making America Great Again.
I don’t buy the conspiracy aspect – whether meant literally or figuratively. Powell and the few remaining standard Republicans (rather than Trumpers) are very invested in maintaining the status quo and I suspect they’d prefer Biden over Trump in 2024.
That said, you are correct that the Fed (and Biden) are being crushed between a rock and a hard place : inflation pisses people off (and they vote Trump). Recession pisses people off too (and they vote Trump).
There doesn’t seem to be much of a way out for Biden in 2024… except that it’s still 2 years away so maybe some random event(s) will save him?
There is no conspiracy. Plainly stated, Republican governors are refusing to use already allocated Fed funds to help their poor populations simply because a D is in the White House. They do this because it helps them hold onto power, it gives them an easy scapegoat to mirror the right wing media perpetual scapegoat that Democrats are your enemy.
The simple solution to all of this is using Fed funds to support poor people during inflationary periods while the Fed uses its tools to squeeze the rich. That way inflation abates and poor folks don’t feel the pain of it happening. Unfortunately, that will never happen because politics are always in play.
I’ve been watching the sun come and go down for 71 years, scratching my head trying to figure it out. Meh. ‘Shit happens’ and people blame whoever in charge at the time.
Here’s an oldie but a goodie from this site. For some reason the ‘.png’ files are missing, but the text gives you the idea.
Dear America: Here’s What Egregious Wealth And Income Inequality Looks Like
https://heisenbergreport.com/2018/01/04/dear-america-heres-what-egregious-wealth-and-income-inequality-looks-like/
It won’t be Trump, but somebody just as bad or worse.
Part of the Fed’s goal should be to keep government interest expense from increasing to a “too significant” percentage of the Federal budget.
The 2022 Federal budget is about $6T, which is $1.9T more than the revenues. The interest is about $300B.
Hmmmmm
It is a very complicated puzzle with intended and unintended consequences occurring from the Federal Reserve’s (among others) actions. Hopefully, Powell is a genius and can see into the future.
Luckily, in an “emergency situation”, he also controls the printing press.
H-Man, nice post. Food for thought.
If this supposition is right, that the Fed will flip back to easing within this year, then that means sustained inflation. Sustained inflation will then be built upon again with more transitory -> sustained inflation and I guess we speed up the USD demise to somewhere within my lifetime.
If all of this is try to save the Dem majority later this year, it’s a fools errand. The R’s will attack their D opponents on inflation and the economy which is continually being reported as bad under Biden (from all media outlets) despite meaningful gains. The majority of voters who don’t know how to do their own research will implicitly trust their favorite propagandists and vote against their conditioned literal enemy (the some vitriol Dems). When R’s take back over it’s more tax breaks for the rich and more cuts to social spending programs. Inflation will grow again within a year.
And why are we here? Because the Fed was late to recognize inflation and late to respond to it. Because Republicans, by and large don’t care about their voters, they care about power and campaign donations from dark money institutions. Because Democrats can’t get on the same page like Republicans do and actually agree to pass meaningful change in their legislative actions. Because we are watching the fall of Rome in real time.
Patrick Howley writes for the National File
https://nationalfile.com/author/patrickhowley/
During last Sunday’s episode of his “The Campaign Show,” Patrick Howley had a screaming meltdown over the fact that he has not achieved the comfortable life to which he believes he is “entitled” as a white man in America and that he is instead being “screwed” by a system that is actively trying to replace him with non-white citizens and committing genocide against white people.
‘I Want to See the Manager!’
White Nationalist Patrick Howley Has a Meltdown
As cdameworth says, things are bad, but what can you do?
You can analyze things all you like but, in the end, it all VERY UNFORTUNATELY comes down to people like Patrick Howley.
H-man — I’m flaunting my ignorance here, but can you explain why a TIGHTENING in credit spreads is constraining for the Fed? My lizard brain would have expected the opposite. And my ignorant two cents is that I don’t think the Fed is as lost as they look and they realize their predicament — hence I think we continue to see a lot of strong talk and jawboning (the appearance of tightening) to help bridge the gap between how much they’d like to tighten and how much they will reasonably be able to. Would be ironic if FedSpeak is what upends the market, rather than actual tightening.