Federal Open Market Committee says inflation remains somewhat elevated and the economic outlook is increasingly uncertain, leaves DFF between 4.25 and 4.5, i.e. 4.33

 

Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. ...

More.

Week over week US Treasury yields in the aggregate popped 5.8% on net to an average 4.335% after declining for months from 4.5 to 4.0 and everybody's freaking out like this hasn't happened, what, six times now in the current era

Most of the pissing and moaning is from investors who pulled the bond trigger too soon, plowed into fixed income, and got burned badly because interest rates reasserted themselves.

The press this weekend is instead full of apocalyptic language about the Treasury market and the implications for America on a grand scale. It's complete rot and I'm ignoring it. It's all designed to pressure the Fed to lower their rate again.

The last time the Fed embarked on rate cuts is instructive. It was late September 2024. The average of the aggregate of the curve had fallen to just north of 4. Inflation rates seemed to be trending down. So the Fed cut, and voila! Treasury rates hilariously shot upward!

The burn was real.  

$TLT investors, who were down 4.76% in 2021, 31.41% in 2022, up 2.96% in 2023, went down again, 7.84% in 2024 as a result. Ouch.

They are back, itching again for a policy reversal like they have a flea infestation, so bad they are bleeding.

As things stand year to date, long term investment grade investors in VWESX, for example, are down 1.43%. It wasn't supposed to be this way, not again.

So everyone hates the bond vigilantes with the heat of 1,000 suns, and urges more imprudence.

Meanwhile in "cash" you go on making 4.3% or so, and in gold you have made a killing, while stocks reel under Trump's stupid tariff shotgun blasts which are wounding everyone in the field, including himself.

If the Fed had done a proper job against inflation by jacking up the Fed Funds Rate to meaningfully combat the core pce inflation rate of its average 5.35% in 2022 instead of going only where it did, which was 1.69% on an average basis, maybe we wouldn't still have this lingering inflation for the bond vigilantes to demand payment against. Core pce inflation hasn't moved materially off 2.8% in a year now, still much too high.

The bond market is "she who must be obeyed". She doesn't tell you everything you need to know, but she does tell you the most important thing.

But what the hell do I know. I'm just some punk keyboard warrior blogging in his underwear in the basement to the money men. So yippee-ki-yay, you earned it. Especially you Donald Trump, you complete ignoramus.

 

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -3.7 percent on April 1, down from -2.8 percent on March 28

Reported here.

 

Atlanta Fed GDP Now Model predicts -2.1% real GDP for 1Q2025 in today's update

 Here.

This is the 10th of 19 estimates scheduled through the end of April for 1Q.

This is the 4th negative estimate.

The revenge of the bond vigilantes

 The Fed started cutting the Federal Funds Rate last September (DFF 5.33 then, 4.33 now), and average yields for notes and bonds started climbing and haven't stopped lol.

 

 

US Treasury yields are steepening and by duration are normalizing

 This is actually a good thing.

Longer dated securities should pay more than shorter, unlike most of 2024 when Bills paid far more.

Bills yields on average on Friday match the Daily Federal Funds rate exactly, falling in tandem with it in 2024 from the 5.33 range to 4.33 now. They've been pretty stable at this level for five weeks now.

The fall in Bills yields actually ran in front of the Fed decision to make the first rate cut in September by many months.

The fall commenced after May when the Fed announced it would institute a slight decrease to its tighter money policy through balance sheet operations involving UST beginning in June.

Bills yields fell hard for four months into September even as core inflation year over year remained flat at 2.7% over the period. Investors locked in higher but rapidly disappearing return.

Yields on Notes and Bonds also plunged, but against most predictions they rebounded in the face of the Fed rate cuts, which is quite amusing. Longs got their lunch eaten.

The simplest explanation is that longer dated securities anticipate more inflation, and the Fed simply pushes on a string. Bond vigilantes demanded more return for the rising risk.

People who didn't appreciate fixed income turning into a casino like the stock market hid out in cash and did just fine. VMRXX returned 5.24% last year.

There are over $6 trillion in T-bills outstanding at the end of 2024 vs. $2 trillion to start 2018, out of a total of approximately $28 trillion total UST outstanding.

Unfortunately for buyers of houses and cars, long money is going to cost you more, as yields on Notes and Bonds climb again in anticipation of recalcitrant inflation and increased deficit spending under Trump.

The average four year new auto loan was 9.36% and the 30-year mortgage 6.93% last week.

 

ThE fEd RaTe CuT wAsN't PoLiTiCaL aT aLl

 

CNBC fact-checks Joe Biden, now that it doesn't matter

 But the article name-checks Donald Trump five times because he's an opponent of Fed decisions.

There's a whole movement out there that wants to End the Fed, composed of Republicans, Democrats, and libertarians, which CNBC is loathe to mention.

Many of them argue that the US 2-year Treasury Note should be the benchmark for the Federal Funds Effective Rate, not the whim of the Fed Chair and the Federal Open Market Committee, who are un-elected, well-connected, and VERY WELL PAID elites who watch out primarily for the interests of the banksters.

For example, despite the disastrous Zero Interest Rate Policy post-Great Recession, DGS2 resisted it and outran DFF throughout the period under Obama and Trump, and anticipated the recent inflationary outburst by starting to rise in the spring of 2021, a full year before the Fed moved to "combat inflation" by raising the funds rate in the spring of 2022. 

Similarly DGS2 also started to fall in November of 2023 despite no change to Fed policy, anticipating the recent decline of inflation rates by almost a year.

The role of the US Treasury Secretary, AS MUCH A CREATURE of the Executive as the Fed Chair, is also huge for interest rates because the Secretary decides how to divvy up the debt securities for auction by duration.

Biden's Treasury Secretary Janet Yellen has been in the news for driving up the issuance in T-bills to 22% when 15% has been customary, which has contributed to longer rates falling and stocks rising, just in time for the election.

But the costs of this have been dramatic, financing deficit spending at the highest rates and driving interest payments on the debt to the third spot in the budget, behind only Social Security and Medicare.

Avoid people who insist that the US Dollar is losing its status as the world's reserve currency

 There's an index for 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 investment cheerleaders in the US are arrayed against the Fed's rising interest rate regime and lie when they say interest rates are coming down

The yield curve recovered 98 basis points in the last week to close at 5488 on Nov 18.

Despite all the alarming volatility in US Treasuries, the curve is little changed from Oct 28 at 5487 or Oct 19 at 5486, one month ago.

The upward trend remains intact. Raising the Fed Funds rate to 3.83% has produced an overall yield curve at 4.22%.

There's plenty more to be done.

The lying rhetoric is designed to persuade the Fed to halt ("You've done enough!"), enlisting as many dupes along the way as it can to join the chorus, since easy money is the industry's goose that laid the golden egg.

But easy money is why this country is $31 trillion in debt, and why inflation is raging at an average of 8.3% in the first half of 2022.

Since March foreigners have held $300 billion less of the stuff on net through September, which is not a good sign.

But consider that there's about $2.9 trillion in US Treasury notes issued in 2020 alone paying just 0.6% on average and maybe you can understand why.

Meanwhile investors holding bonds are down 30.95% year to date (TLT) at the same time the S&P 500 is down 17.33%. A total bond index like VTSAX is down less, 16.92% year to date, which is cold comfort.

But that's not the Fed's biggest problem.

The Fed's biggest problem remains the so-called "dual mandate", to maintain stable prices AND full employment at the same time.

Our disgusting Congress foisted the latter on the Fed in 1978, which was nothing but a damned if you do, damned if you don't abdication of its own political responsibility dumped onto the appointee of the executive.

But the disgusting Congress represents the disgusting people, who want tax cuts AND infrastructure spending at the same time.

The dual mandate didn't stop Paul Volcker from doing what needed to be done to subdue inflation from 1979, but those were different times when the political tables were the reverse. Volcker was a Democrat appointee saddling a new Republican president with an unemployment rate of 9.7% by jacking up the cost of money. 

Jay Powell is a Republican appointee who will have to do the same to a Democrat president to end the current madness.

The pressure on him to relent comes from every quarter. 

We'll see if the new Republican House has the cojones to back him, which it should if it gives a fig about the future of the country.

But Jay Powell will have to prove that he has the cojones first, because the Congress is full of girly men.

He has hardly begun to fight.

The Fed chair was looking for evidence of transitory inflation for twelve months while actual, raging inflation was staring him in the face the whole time and he did nothing about it

 In his testimony yesterday, Jerome Powell said he uses a table of the last twelve months of 12-month readings of inflation.  In other words, year-over-year readings.

It showed him no evidence of inflation coming down, in other words, of inflation being "transitory".

"We're exactly where we were a year ago." In other words, yep, inflation is raging. It's not transitory.

If you aren't appalled by that, I don't know what to say.

In April 2021 inflation year over year was already at the 2008-level of bad, and the Fed chair decided to wait and see if it became a "problem".

 

 

 

 

 

 

 

He waited a year, until Mar 2022, to begin raising the main interest rate.

I'm sure the reason is that in April 2021 he was focused on the pandemic as the number one problem. Vaccine uptake reached its crescendo that month, and Jay was praising the COVID stimulus orgy to restart the economy.

But the pandemic wasn't his job. Stable prices is his job, and he let it slide because of the extraordinary circumstances.

Now we're in a whole other big mess. Gutting the bond market is going to be life-changing for far longer than the pandemic will be.

Here's the video from yesterday with the key interchange.

This is Trump's boy, by the way.

 

It's March 2011 all over again, the Fed can't stop it

 

The Fed was supposed to tighten its balance sheet starting Jun 15th: Nearly three months later it's down a measly $110 billion to . . . $8.822 TRILLION

 The Fed is all talk about combating inflation, no action.

Because the top 10% of the country has 89% of the money that way, dummy.

True populism would throw the bums out and end The Fed, but we haven't got any.

WALCL.

Seeing this headline html first thing Saturday morning is disorienting

 https://www.marketwatch.com/story/u-s-stock-futures-slip-as-investors-await-fed-chairman-powells-jackson-hole-address-11661508928

Investors await Powell's address?

That was published 24 hours ago, before the Powell speech, and the contents were updated last evening just before 5:00 PM.

But the pain surely ain't in the Fed.

The only pain described in the story is in households, businesses, families, not in the Fed.

Those Fed guys are rich, and get paid very handsomely.

The top 100 employees each made $274k or more in 2020. They are all named, here.

That puts them in the top 2% of all wage earners in the US.

They're the elites.

They experience no pain.

The Federal Reserve System had 23,517 employees in 2021, with a total system operating expense of $5.7353 billion, or about $244k per employee.

They live in a bubble. 

Everybody's just phonin' it in and getting the hell out of Dodge for the weekend. 

Especially Drudge.

 

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.

 

The Fed's quantitative tightening is a complete farce, same as under Trump: In the last two months it reduced its balance sheet by $83 billion when in the two months from Feb-Apr 2020 it increased it by $2.5 trillion

 

 

These people should be in jail for their crimes against capitalism.

Present inflation is much worse than the Fed graph indicates, according even to Larry Summers

 COMPARING PAST AND PRESENT INFLATION

 BIANCO RESEARCH

This is 1974 all over again, not 1951.

 

 

.

.

LOL, after one month the Fed has reduced its balance sheet by a whopping 0.37%, only $8.899 trillion to go!

 

 

 

At this rate it will take only 22 more years and Jerome Powell will be 91.

The Fed has raised the Fed Funds interest rate to 1.58% and the celebrity investors are squealing like stuck pigs, too

 

 

 

 

 

 

 

 

 

 

 

 

 

Paul Volcker was Fed Chair from 1979 to 1987.

His peak average Fed Funds Rate was north of 16% in 1981.