Another Fed interest rate pause and dashed hopes for a March rate cut, so the greedy money men throw a little temper tantrum

 Core inflation has a long way to go before it's like it was in the Trump era.

Meanwhile the little people continue to pay, and pay, and pay.

Core pce inflation is out and shows itself running ahead of the 10-year US Treasury yield for four consecutive years 2020-2023, which is unprecedented

Jerome Powell is the biggest phony inflation fighter the country has ever seen.

He was appointed by Trump! So much winning!

Core pce inflation previously exceeded the ten year yield in 1974-75 and in 2012 (barely).

The Fed's primary inflation-fighting tool has been the Federal Funds Rate, but it let inflation run wildly out of control before even lifting a finger to stop it in March 2022 when the Fed finally acted and started raising the rate.

It is a shameful episode which has benefited businesses which hiked prices higher than inflation to goose profits, and the federal government which desperately needed to devalue its mounting debts, all at the expense of the average American.

The lack of outrage over this is a study in the depth of American servitude. Slavery didn't end in 1865 for African Americans. It became the common lot of us all.

 

 

It's been a terrible year so far for investors in US Treasury securities because of the rising rate environment, but great for stocks

UST yields rose a net 1.31% in the aggregate week over week on 7/28.

DFF rises to 5.33% after the latest FOMC rate hike.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year to date Treasury, Total Bond, Cash, and Total Stock performance using popular Vanguard funds:

VFISX +0.75% VFITX 0.90% VUSTX 1.58% VBTLX 2.05% VMFXX 2.75% lol VTSAX 19.99%!

Stocks have been the place to be, and cash has beaten even the total bond market.

Meanwhile stocks are obscenely overvalued at 169 using the latest report of GDP out Thursday:

 

Core PCE inflation in the United States remains elevated at 4.6% yoy in May 2023, services at 5.3%

 The Federal Funds Rate at 5.07% is ineffective. It should be double that.

The Fed left the Funds Rate unchanged yesterday, and no members of the Federal Reserve Board currently anticipate a rate lower than at present through the end of the year

 They anticipate higher, but not by much, which means more rate hikes this year.

The yield curve aggregate yesterday closed just 4 basis points lower than the current cycle high of 4.674% achieved on March 8th, at 4.671%. That's the sum of the basis points for all US Treasury securities marketed yesterday divided by 13 (ranging from 1-month securities to 30-year).

To say the Fed's response to inflation has been timid would be an understatement.

In the 1980s the Fed's response to core inflation such as we experience today at 5.3% year over year was a Fed Funds Rate in excess of 10%. We're at 5.08%. The yield curve is not steppin' and fetchin' when the big dog won't bark.

This is not a serious country, and is perversely more than willing to inflict the worst tax on all, namely inflation, mostly because the whole damn economy is predicated on 2% inflation, which halves your nestegg in 35 years.

At 5% it does that in just fourteen.

It's criminal.

The Fed is all talk and no action fighting inflation

 The effective federal funds rate stands at 2.33% and $8.85 trillion remains on the balance sheet while Powell makes speeches.

Borrowing is still very cheap for the big boys and the Fed's finger on the scale makes it impossible to know the true value of its mortgage backed securities and US Treasuries.

Meanwhile inflation rages at 8.5% in July.

The market "rout" is merely another yawn as Americans get punished at the grocery store and the gas station.

Current GDP of $24.883 trillion, reported 8/25, implies a fairly valued market level of around 1,600 not 4,057. The S&P 500 remains 153% above that.

They remain rich, and you remain . . . the reason why.

 

If the Fed folks think raising the Federal Funds Rate will help control inflation, they are sadly mistaken . . . again

From 1983 through 2001, the Federal Funds Rate was aggressively high and averaged 6.27%, and the Consumer Price Index averaged 3.24%.*

From 2002 through 2020, the Consumer Price Index was much lower on average at 2.01%, as the Fed pursued an aggressive low interest rate policy, which averaged just 1.36%.

So, lower Federal Funds Rate, lower inflation, higher Federal Funds Rate, higher inflation, just the opposite of what the Fed says it intends.

But only a numbskull thinks these are correlated. The Fed is merely reactionary to complex existing phenomena, not pro-actively creating conditions.

 

 

 

 

 

 

 

 

 

 

* I used the average of the annual averages.

Jason Lewis on the Rush Limbaugh Show this week was lighting his hair on fire about inflation

Jason Lewis' remedy for inflation, which came in at 5% year over year in May, actually 4.9%, is the standard remedy: The Fed should raise the interest rate, which is effectively zero at the moment and has been for some time.

Aggressive low-interest-rate policy has been the rule since 2002, with the brief escalation from 2005-2007 during the housing bubble being the exception. Over those 19 years through 2020, the average effective federal funds rate (DFF) has been 1.36%.

Contrast that with the 19 year period previous to that, from 1983-2001, when the DFF averaged 6.27%.

That should have kept inflation under control, right?

Well, no.

Under the low interest rate regime we've had an average annual change in CPI of just 2.01%. For the previous period with the higher DFF we had higher inflation, 3.24% per annum on average.

All inflation is bad. At 2% per annum the value of your pile of assets is cut in half in 35 years. At 3% it's closer to 20 years.

What kind of conservatism is it to advocate for either one?

Real conservatives believe in sound money. Less unsound money won't do.

The evidence is the two things, the fed funds rate and CPI, aren't correlated.

And CPI is rightly mocked because its components do not capture the inflation which has infected the cost of education, health care, housing, stocks, gold, intellectual property, et cetera in our life times.

It's the purchasing power of the dollar which has continued its inexorable decline which is the problem. We haven't had a sound dollar policy since the advent of the Great War in 1914. The desire for an independent monetary policy conducted by a Federal Reserve from 1913 came at the price of the ongoing robbery of the wealth of the people. World War couldn't have been financed without it, nor the Welfare State after it.

It's hardly a coincidence that political conservatism has been in retreat from the same time. You make a lie of the money in your pocket, you make a lie of everything else, too. Slowly at first, and then suddenly.

This American swindle will not continue forever.

 

The Fed fiddles with the red line while the blue line burns

On lowering the Federal Funds Rate when the economy is just fine

The S&P 500 climbed to an average record high 2996.11 in July 2019 despite the Federal Reserve raising the Federal Funds Rate seven times in 2017 and 2018 to 2.50%

Average Effective Federal Funds Rate by chairman of the Fed in the post-war

William McChesney Martin (15 years)  3.62%
Arthur F. Burns (8)        6.49%
G. William Miller (2)    9.56%
Paul Volcker (9)           10.45%
Alan Greenspan (19)     4.86%
Ben Bernanke (8)          1.58%
Janet Yellin (less than 1) .09%

Average Effective Federal Funds Rates in the post-war by decades

1955-1960  2.62%
1961-1970  4.58%
1971-1980  7.72%
1981-1990  9.44%
1991-2000  4.96%
2001-2010  2.35%
2011-2013  0.12%
2014 to date .09%

Post-war average (six decades): 5.3%