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Stubborn US Economy Won’t Go Gentle Into That Good Night
Every day it's the same story. Or, rather, the same question: Is good news bad news and vice versa?
For years, markets operated on some version of that paradox. Bad news was good news because it gave central banks plausible deniability to persist in accommodation in a disinflationary environment. Good news was bad news because it raised the odds of incrementally less accommodative monetary policy.
In 2022, that framework no longer works. To lapse briefly into the colloquial: Inflation screwed
The Fed is more concerned about spread product. That has widened out. They have the room right now to tighten a little more and they will. I would not be surprised to see a 50 next time though. In any case, right now I am more concerned about what is actually going in the economy than speculating about the FOMC. It is pretty clear that we have hit some kind of inflection point. Whether that will be a gradual slowdown or something greater is my biggest concern.
The high prices Volcker was credited with “fixing” were already high for a decade or more and gone into and exited Nixon’s price controls. When Volcker came in and started “pushing” he had to shove funds rates all the way to 20%, with prime rate of 21.5 and an average funds rate of 11.7% before the job was done and we were in a deep recession. Where I lived there were three banks and seven S&Ls., All seven of the S&Ls essentially died and one bank closed. Six of the S&Ls disappeared along with the bank and I was hired by the guy the feds tapped to fix the last of the S&Ls to provide the strategy we would use. We had to shrink it in half, change it to a stock bank from mutual, write the equity into the red and recapitalize it to fresh equity of 2% of assets. We fixed it and sold it four years later (for a huge profit) bailed out the investors and let a bigger fish end up with the revived corpse. This was 1982 and the recession was so deep that my wife and I could build our dream house and be the only residential building permit issued in that top 250 SMSA that year. We going there again? I’m ready. Last time my bond profits paid for the house in three years.
https://www.theonion.com/financial-experts-say-stock-market-constantly-plunging-1830913240
“Every day it’s the same story. Or, rather, the same question: Is good news bad news and vice versa?”
Good news could be bad news and bad news could be bad news . . .