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As Dollar Plunges, Fed May Fear November Redux
Needless to say, Wednesday's US inflation figures pulled the rug out for the dollar.
This calls for a brief trip down memory lane. The "dollar wrecking ball" dynamic went into overdrive following Jerome Powell's terse Jackson Hole address 11 months ago. Within weeks of Powell's hawkish remarks, the Japanese were compelled to intervene on behalf of the flagging yen, the yuan was in a tailspin and with a little "help" from Liz Truss, the pound slumped to a record low. There's plenty more one coul
Unless rates and the US$ go down because the economy slows down……..
For a surge in discretionary spending, you need income. Real income have mostly traded water since pre-COVID, though, yes, with some composition changes that might support broader low quality consumption.
But I think the main components of inflation – COVID savings, supply chain disruptions, rapid change in demand composition and greedflation/companies taking advantage of the chaos to increase prices significantly above rising costs – are all pretty much exhausted.
Well, if you get a 2-handle headline CPI print in July, that’ll be juxtaposed with 4% to 8% YoY wage growth depending on sector. Obviously, some of the buffers are dwindling and the student loan payments are restarting in Q4, so that’s a factor in the US, but wage growth is positive again.
That’s true and the climb of the last months shows it’ll pay to keep an eye on wages; but, inflation adjusted, I believe weekly earnings for all employee are up 1% since Jan 2020… That cannot be what’s been setting the world on fire… And it could be that employees want to catch up a bit too (if they get the power to negotiate for it)
I don’t think Powell ever thought he had god like powers over the economy. I think he does what he acts in the way he best will achieve the dual mandate of the fed and he tries to speak honestly. People attribute hidden meanings in his statements. I don’t think he is trying to talk up or down the market or the economy or spending or animal spirits or the housing market or whatever. He uses the policy levers at his disposal, including forward guidance to achieve the dual mandate to the best of his ability. I don’t believe they are trying to manipulate anyone. The fed forecasts forward looking statements are just as inaccurate as anyone else’s but are their honest best efforts. Just take their statements at face value. There really is no reason to do otherwise.