Inflation/stagflation Thread

Fed +0.75% it is, as expected, although markets sold off a bit.

  • FED HIKES INTEREST RATE BY 75BPS TO 3.25% VS 2.50% PREVIOUS
  • FOMC: Voted 12-0 For Fed Funds Rate Action
  • Fed Officials See Fed Funds Rate at a Median of 4.4% at End of 2022
  • Fed Median Forecast Shows Rates at 4.6% In '23, 3.9% In '24
  • Fed Is ‘Highly Attentive to Inflation Risks’
  • Fed Officials See Inflation of 5.4% at End of 2022; 2.8% for 2023; 2.3% for 2024; 2.0% for 2025
  • Fed Officials See 0.2% GDP Growth at End of 2022; 1.2% for 2023; 1.7% for 2024; 1.8% for 2025
  • Fed Sees Path of Rate Increases Continuing Through 2023
  • Fed Raises Interest Rates to Highest Level Since 2008

market reaction on the fixed income side -

  • FUTURES AFTER FOMC DECISION IMPLY TRADERS SEE 89 PCT CHANCE FED RAISING RATES ANOTHER 75 BASIS POINT AT NOVEMBER MEETING
  • US TWO-YEAR TREASURY YIELDS JUMP TO 4.121% AFTER FED, HIGHEST SINCE 2007
  • US FIVE-YEAR TREASURY YIELDS RISE TO 3.861%, HIGHEST SINCE 2007
  • US 10-YEAR TREASURY YIELDS RISE TO 3.64% AFTER FED MEETING STATEMENT, HIGHEST SINCE 2011
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So did the market sell off because 1% was seen as potentially being the last big rise, but 3/4% means it’s likely there will be another significant increase next meeting?

The odds of :arrow_up: 0.75% today were at 80% and another :arrow_up: 0.75% in November were at 50% for a few days already, so none of it is a surprise.

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Not a significant increase, no, but perhaps +25bp more than was expected. Here’s a good recap:

https://wellsfargo.bluematrix.com/links2/html/f8e86a3f-a3c7-4c42-8c4b-309827888761

The Committee hiked the fed funds target range by 75 bps, as was widely expected, but delivered a more hawkish projected path for short-term rates through this year and next. The median FOMC participant now expects the fed funds rate to rise an additional 125 bps in the two remaining meetings of this year. The FOMC sees rates staying high through next year, with the median estimate for the fed funds rate ending 2023 at 4.6%.

At some point, the FOMC will feel comfortable enough to slow the pace of tightening from 75 bps per meeting to 50 bps or 25 bps. We expected a downshift to 50 bps at the November FOMC meeting, but with today’s dot plot in hand and just one CPI report between now and the November meeting, another 75 bps rate hike is squarely on the table. The balance of risks are clearly tilted to the upside for our current forecast of a peak fed funds rate of 4.00%-4.25%.

If you look at the current market odds, they’re saying 1/3 for +50bp in Nov and 2/3 for +75bp. And then another +50bp on top of that for Dec, and then probably staying flat in the mid 4%’s range going forward.

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For those who are members. But what about the five dollar rotisserie chicken?

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Macro and Fed speculation, with nice charts

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And a pro-criminal article on how to fill more jobs.

Yeah, that part was kinda weird. I guess JPM is pushing a pro-criminal political stance, so he had to include it if possible. Normally this guys articles don’t have that kind of thing.

Of course the last email I got from JPM listed the authors pronouns in their signature, so maybe that’s how things are going over there…

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Perspective and a reminder from the Red Queen

here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!

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Something seems off in the representation of this data if “average hourly wages” are being shown to have outpaced “housing”.

(especially since it looks like the two were tightly in-line from 2000 - 2008, which seems “off” given the run-up in housing during that time)

Makes me wonder what is bundled up in the “average hourly wages” label.

But it could also just be a starting-point issue for the chart, where the relative-unaffordable housing vs average hourly wages issue could predate 2000, I suppose.

(or it’s an “average-vs-median” issue – would be interesting to see the decile breakdown on the wage increases)

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Wow! What a chart. While @arch8ngel 's comment opens an inquiry, it should be pretty easy to verify/check. What is even more shocking are hospital services and college tuition. I would have expected a dip in the former, due to Covid cancelling so many procedures and tests. Likewise there should have been a dip in college tuition due to classes going online. I presume that colleges gave refunds/discounts since their facilities weren’t being utilized/consumed.

New cars, furniture, and clothing were net winners until 2020 Q2. Clothing still is, but barely. Technology/electronics seems to be the big bargain. Despite new technology, TV’s are 90% cheaper than 20 years ago, and software is 80% cheaper. That’s hard to believe, but I presume “equivalency” plays a role in each.

I don’t know which wage data they used, but it seems broadly in line with the Fed’s stats here. You can play with their charts for wage history based on age, industry, full time status, etc.

The last 20 years was strong at the start, 5%, and fell during the time around the 2008 crash and only recent skyrocketed in 2021. An average of 3.5-4% looks right, so for 20 years that compounds to about 80% cumulative in line with the previous chart.

image

I don’t know what this means, but the Federal Reserve has scheduled what they call an ‘expedited meeting’ for tomorrow @ 11:30.

Matter(s) to be Considered:

Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.

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Energy prices in the US I’ve been responsible for a large part of the stall in the CPI increase. This may end soon. Already the price of gasoline in California is skyrocketing.

Yeah right … Several colleges are charging an online “surcharge” for the extra equipment required to broadcast the class online.

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The Fed must be doing something right since the UN is against further rate hikes. They’re one of the few institutions with an even worse track record!

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This is just the beginning. By March, there will be a wall of signatories to a plan than cuts rates, since the rate hikes were prejudicially harmful to the “weakest amongst us”. Yes, I know it’s not the exact mantra, but I can’t think of the right word, and it was the closest substitute that I could imagine.

This is the kind of junk that the fed can expect until they succeed. It then will magically disappear. The real question in a lot of people’s minds is whether the fed will have the backbone to withstand the onslaught from nightly news reports, twits, podocasters, blogowriters, etc.

At least Volcker only had to deal with the three majors. Granted, they were the opinion setters in 1981, but he had Ronald Wilson Reagan as, not only a backstop, but a tax-cutting economic stimulator. Sadly, this weak-kneed fed has Joseph Robinette Biden, Nancy Pelosi, and the senior senator from NY. We know how they never put their finger in the wind to decide policy. :frowning:

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If it’s internationally, I think a term often used is “global South.” The global South includes countries in the Northern hemisphere too. Could you believe it?

Biden’s schmoozing with the Saudis accomplished nothing. OPEC just cut 2M barrels/day, double their original proposal and of course we wanted them to do nothing.

here’s another take on it from a hedge fund

and also this am

WHITE HOUSE’S KIRBY: U.S. NEEDS TO BE LESS DEPENDENT ON OPEC AND FOREIGN PRODUCERS OF OIL

Gee, maybe you shouldn’t have let your boss dump half our strategic reserve if you’re worried about OPEC pushing us around?

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more on oil

The confusion around the Biden administration’s petroleum policy was cleared up yesterday after a senior official revealed that the White House had made a secret offer to buy up to 200 million barrels of OPEC+ oil to replenish the SPR in exchange for OPEC+ not cutting oil production. The official said the White House wanted to reassure OPEC+ that the US “won’t leave them hanging dry.”

this offer was made through the White House, not the Department of Energy… The revelation poses political risks for Democrats who, in the spring of 2020, killed a proposal by President Donald Trump to replenish the SPR with oil from American producers, not OPEC+ ones, and at a price of $24 a barrel, not the $80 a barrel that the Biden White House promised to OPEC+.

  • UAE Energy Min Says OPEC Cutting Production in Response to Lack of Demand, Low Investments – WSJ

and Dear Leader’s response? whining, blaming energy companies (for OPEC’s actions?), and maybe dumping more of our oil reserves.

  • BIDEN DISAPPOINTED BY THE ‘SHORTSIGHTED DECISION’ BY OPEC
  • BIDEN WILL CONTINUE TO DIRECT SPR RELEASES AS APPROPRIATE -WHITE HOUSE
  • OPEC DECISION WILL HAVE ‘MOST NEGATIVE IMPACT’ ON LOWER- AND MIDDLE-INCOME COUNTRIES -WHITE HOUSE
  • BIDEN CALLING ON U.S. ENERGY COMPANIES TO BRING GASOLINE PUMP PRICES DOWN -WHITE HOUSE
  • BIDEN DIRECTING ENERGY SECRETARY TO EXPLORE ADDITIONAL RESPONSIBLE ACTIONS TO INCREASE DOMESTIC PRODUCTION -WHITE HOUSE
  • BIDEN ADMINISTRATION TO CONSULT WITH CONGRESS ON ADDITIONAL TOOLS AND AUTHORITIES TO REDUCE OPEC’S CONTROL OVER ENERGY PRICES -WHITE HOUSE
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