Inflation/stagflation Thread

Finance
1873

this is just the pitch, not the final approved by Congress, but gives you some idea where at least the left is trying to take us.

  • WHITE HOUSE BUDGET PROPOSAL ESTIMATES FY 2025 DEFICIT OF $1.781 TRILLION VS $1.859 TRILLION IN FY 2024, $1.694 TRILLION IN FY 2023.
  • BIDEN BUDGET SEES US DEBT HITTING $45 TRILLION IN A DECADE
  • BIDEN UNVEILS $7.3 TRILLION BUDGET FOR FISCAL YEAR 2025
  • TOTAL DISCRETIONARY SPENDING HITS $1.67 TRILLION
  • ASKS FOR $895 BILLION FOR DEFENSE-RELATED PROGRAMS
  • SEEKS $621 BILLION IN DOMESTIC DISCRETIONARY SPENDING DEFICITS
  • WOULD [FUND] $3 TRILLION WITH TAXES ON RICH, COMPANIES

You know what they say, “A trillion here, a trillion there…”, with apologies to Everett Dirkson.

  • WHITE HOUSE ESTIMATES REAL INTEREST RATES AT 1.2% IN FY 2025, 1.3% AVERAGE OVER FY 2025-2034 PERIOD.

Good luck with those interest rates, esp when your budget is running $2T/year in deficit and GDP is slowing.

2 Likes
1874

China has serious demographic problems, and Brazil has lurched to the left so I don’t think their currences are candidates for reserve status. On the other hand, Saudi Arabia and other large oil producers want to find an alternative to the dollar for pricing oil. That might happen.

https://money.usnews.com/investing/articles/de-dollarization-what-happens-if-the-dollar-loses-reserve-status

De-dollarization: What Happens if the Dollar Loses Reserve Status?

One of the more intriguing financial trends that gained steam last year was the de-dollarization movement. This is an effort by a growing number of countries to reduce the role of the U.S. dollar in international trade. Countries like India, China, Brazil, Malaysia and Bolivia, among others, are seeking to set up trade channels using currencies other than the almighty dollar. With so much of the world economy reshaping itself in the post-pandemic landscape, is the reserve status of the U.S. dollar going to be the next domino to fall?

Here’s what investors need to know for 2024 as foreign countries flirt with ditching the dollar.

Beyond geographic diversification, there are several more specific ideas that could prosper in a world where the U.S. dollar loses reserve status. One of these would be to invest in emerging markets. It seems likely that countries like China and Brazil would enjoy a substantial increase in the values of their currencies and assets in a world where capital was gushing out of dollar-based assets. As much of the strength of the U.S. economy is tied to the technology sector, a de-dollarized world is probably one where the technology industry has lost value and other industries such as manufacturing or basic materials have gained in importance. Many emerging-market economies are based around these latter two industries.

The investing playbook for inflation also applies for fighting de-dollarization. That is to say that if the dollar plunges in value, there is likely to be a large rise in inflation within the American economy. In times of inflation, assets such as energy, precious metals and real estate tend to fare well. An investor could consider an allocation to these sorts of holdings not just as a hedge against a falling dollar, but also for the benefits they provide in times of inflation or geopolitical unrest.

1 Like
1875

Would you effectively invest in the debt of the countries forming that basket of currencies? Some of these have inflation in double digits year in year out. Quite a few have recently defaulted in their international debt obligations. Some as recently as 2020. That seems to me like pretty shaky fundamentals for a stable global currency. Bitcoin would be more stable than that.

1876

Feb CPI is out, +0.4% for the month which is 4.9% annualized. Core CPI running at the same rate. Don’t believe the year/year numbers, which look lower since they include lower prior months a while back. Things are pretty hot and remaining so.

❖ U.S CPI (MOM) (FEB) ACTUAL: 0.4% VS 0.3% PREVIOUS; EST 0.4%
❖ U.S CPI (YOY) (FEB) ACTUAL: 3.2% VS 3.1% PREVIOUS; EST 3.1%
❖ U.S CORE CPI (MOM) (FEB) ACTUAL: 0.4% VS 0.4% PREVIOUS; EST 0.3%
❖ U.S CORE CPI (YOY) (FEB) ACTUAL: 3.8% VS 3.9% PREVIOUS; EST 3.7%

https://www.bls.gov/news.release/cpi.nr0.htm

Market response

  • ANALYST: THIS CONSISTENT INCREASE IN PRICES, ESPECIALLY EXCLUDING FOOD AND ENERGY, IS WORRYING BECAUSE IT INDICATES THAT THE INFLATION SEEN IN JANUARY WASN’T JUST A ONE-TIME THING

  • TRADERS STILL SEE JUNE AS MOST LIKELY START OF FED RATE CUTS AFTER INFLATION DATA

3 Likes
1877

That seems a bit far fetched to me. The Fed will get 3 more data points before the June meeting and I don’t see them getting enough data pointing to the 2% range in that time frame. If anything, it seems to me that inflation is stabilizing around 3+%. Job market is still hot enough. Not sure I follow the traders but maybe that’s why I’m not one. Not that I mind terribly inflation at 3% and getting 5.2-5.4% on cash for a while longer.

1 Like
1878

What influence will this have on the United States Fed?

  • BOJ raised its short-term interest rates to 0% to 0.1% from -0.1%, according to its statement at the end of its two-day March policy meeting.
  • The central bank abandoned its yield-curve control and ended most of its asset purchases aimed at policy easing.
  • The move sparked a sell-off in the yen against major currencies, with bond yields slipping as the Nikkei stock index closed higher after a volatile trading session.
2 Likes
1879

JPow gave his talk today, no change of course for now, expectations for 0.75% of cuts this year. I’ll believe it when i see it.

  • FED HOLDS BENCHMARK RATE IN 5.25-5.5% TARGET RANGE
  • THE FED DOES NOT EXPECT TO CUT RATES UNTIL IT HAS GREATER CONFIDENCE THAT INFLATION IS MOVING SUSTAINABLY TO 2% TARGET.
  • FED’S POWELL: WE’RE LIKELY TO CUT RATES AT SOME POINT THIS YEAR, BUT THE OUTLOOK IS UNCERTAIN AND WE REMAIN ATTENTIVE TO RISKS.
  • FED: VOTE IN FAVOR OF POLICY WAS UNANIMOUS.

you don’t say? maybe we’ll cut rates, maybe? more

  • U.S. (MAR) FED INTEREST RATE DECISION ACTUAL: 5.50% VS 5.50% PREVIOUS; EST 5.50%
  • FOMC MEDIAN 2024 CORE PCE INFLATION EST. UP TO 2.6% VS. 2.4%
  • FOMC MEDIAN FORECAST SHOWS 75 BPS OF RATE CUTS IN 2024 TO 4.6%
  • FOMC MEDIAN RATE FORECAST FOR 2025 RISES TO 3.9% FROM 3.6%
  • FOMC: Inflation Has Eased over Past Year But Remains Elevated
  • FED REPEATS WAITING FOR GREATER CONFIDENCE ON INFLATION TO CUT
  • FOMC Does Not See Rate Cuts Until It Has Greater Confidence that Inflation Is Moving Back to Target
  • FED PROJECTIONS SHOW 2024 POLICY RATE VIEW UNCHANGED AT 75 BASIS POINTS OF REDUCTIONS
  • Fed Officials See Fewer Rate Cuts in 2025, 2026
  • FED: ECONOMIC ACTIVITY IS EXPANDING AT A SOLID PACE, JOB GAINS REMAIN STRONG, UNEMPLOYMENT RATE LOW.
  • FED: RISKS TO EMPLOYMENT, INFLATION GOALS ARE MOVING INTO BETTER BALANCE.
  • FED PROJECTIONS SHOW ONE FEWER RATE CUT IN 2025 THAN PREVIOUSLY FORECAST.
  • FED POLICYMAKERS UPGRADE 2024 GDP GROWTH FORECAST TO 2.1% FROM 1.4%, SEE UNEMPLOYMENT RATE AT 4.0% VS 4.1% IN DECEMBER PROJECTION.
  • TRADERS PRICE IN ADDITIONAL FED EASING IN 2024.

his comments

  • FED’S POWELL: ONGOING PROGRESS NOT ASSURED THOUGH, THE PATH FORWARD IS UNCERTAIN.
  • POWELL: ECONOMY HAS MADE CONSIDERABLE PROGRESS
  • FED’S CHAIRMAN POWELL: INFLATION HAS EASED SUBSTANTIALLY BUT STILL TOO HIGH
  • POWELL SAYS FED REMAINS COMMITTED TO 2% INFLATION GOAL
  • FED’S POWELL: GDP HAS BEEN BOLSTERED BY STRONG CONSUMER DEMAND AS WELL AS HEALING SUPPLY CHAINS.
  • POWELL: ONGOING PROGRESS NOT ASSURED THOUGH
  • FED’S POWELL: RISKS TO ACHIEVING FED GOALS ARE MOVING INTO BETTER BALANCE.
  • FED’S POWELL: HIGH INTEREST RATES HAVE WEIGHED ON BUSINESSES FIXED-INCOME INVESTMENT.
  • FED’S POWELL: LABOR DEMAND STILL EXCEEDS LABOR SUPPLY, GDP FORECASTS WERE REVISED HIGHER BECAUSE OF DATA ON LABOR SUPPLY.
  • FED’S POWELL: FOMC PARTICIPANTS EXPECT A REBALANCING IN THE LABOR MARKET TO CONTINUE.
  • FED’S POWELL: NOMINAL WAGE GROWTH HAS BEEN EASING.
  • FED’S POWELL: INFLATION EXPECTATIONS REMAIN WELL ANCHORED.
  • POWELL: OUR POLICY RATE IS LIKELY AT ITS PEAK
  • FED’S POWELL: WE ARE PREPARED TO KEEP RATES HIGH LONGER IF NEEDED.
  • FED’S POWELL: UNEXPECTED WEAKNESS IN THE LABOR MARKET COULD WARRANT A RESPONSE TOO.
  • POWELL SAYS FED DID NOT MAKE ANY DECISIONS TODAY ON BALANCE SHEET
  • FED’S POWELL: A SLOWING PACE OF RUN OFF WILL ENSURE A SMOOTH TRANSITION.
  • POWELL SAYS APPROPRIATE TO SLOW PACE OF ASSET RUNOFF FAIRLY SOON
  • FED’S POWELL: THE PROJECTIONS DO NOT MEAN HIGHER TOLERANCE FOR INFLATION.
  • POWELL SAYS WE CONTINUE TO MAKE GOOD PROGRESS ON REDUCING INFLATION
  • POWELL: INFLATION DATA CAME IN A LITTLE BIT HIGHER THAN EXPECTED
  • FED’S POWELL: THERE’S SOME CONFIDENCE THAT LOWER MARKET RENT INCREASES IN HOUSING WILL SHOW UP OVER TIME, I’M JUST NOT SURE WHEN THAT WILL BE.
  • FED’S POWELL: I ASSUME WE WILL CONTINUE TO SEE GOODS PRICES CONTINUE INTO A NEW EQUILIBRIUM.
    • POWELL SAYS EXPECT TO SEE GOODS PRICES GOING DOWN LESS QUICKLY
  • FED’S POWELL: IF THERE WERE A SIGNIFICANT WEAKENING IN LABOR MARKET, THAT WOULD BE A REASON TO START RATE CUTS
  • FED’S POWELL: MY INSTINCT IS RATES WON’T GO BACK DOWN TO VERY LOW LEVELS WE SAW BEFORE.
  • FED’S POWELL: BUT THERE IS TREMENDOUS UNCERTAINTY AROUND THAT.
  • FED’S POWELL: I’M LOOKING FOR DATA CONFIRMING LOW-INFLATION DATA LAST YEAR
  • FED’S POWELL: ON LABOR MARKET, IF WE ARE GETTING A LOT OF SUPPLY AND DEMAND, YOU COULD POTENTIALLY HAVE A BIGGER ECONOMY WHERE INFLATION PRESSURES ARE NOT INCREASING.
  • FED’S POWELL: BY GOING SLOWER ON BALANCE SHEET, WE THINK WE CAN GET FURTHER.
  • FED’S POWELL: WE ARE LOOKING AT INCOMING INFLATION DATA MOST IMPORTANTLY.
  • FED’S POWELL: I DON’T THINK INFLATION WAS MOSTLY CAUSED BY WAGES.

Of course this year’s inflation is going poorly:

  • POWELL SAYS CAN APPROACH QUESTION CAREFULLY AND LET THE DATA SPEAK
  • FED’S POWELL: JANUARY CPI AND PCE NUMBERS WERE QUITE HIGH BUT COULD HAVE BEEN DUE TO SEASONAL ADJUSTMENTS.
  • FED’S POWELL: FEBRUARY WAS ALSO HIGH, BUT NOT TERRIBLY.
  • FED’S POWELL: THOSE JANUARY AND FEBRUARY INFLATION NUMBERS DID NOT ADD TO OUR CONFIDENCE.
  • FED’S POWELL: WE WANT TO SEE MORE DATA THAT GIVES US HIGHER CONFIDENCE ON INFLATION MOVING DOWN SUSTAINABLY.
  • FED’S POWELL: WE TEND TO SEE A LITTLE BIT STRONGER INFLATION IN THE FIRST HALF OF THE YEAR.
  • FED’S POWELL: WE DON’T KNOW IF THIS IS A BUMP ON THE INFLATION ROAD, OR SOMETHING MORE.
  • FED’S POWELL: INCOMING INFLATION DATA FOR JANUARY AND FEBRUARY VERY BROADLY SUGGESTS WE WERE RIGHT TO WAIT UNTIL WE’RE MORE CONFIDENT.
1 Like
1880

You can count on a rate cut in June, unless data indicates the economy is booming. The Fed does not want the economy starting to falter in Aug, Sept, or Oct., and will follow the June cut with others, as needed.

1881

New law takes effect on Monday, April 1.

2 Likes
1882

as always, the minimum wage is zero.

3 Likes
1883

Not to worry, they can always go on California’s generous welfare system, which includes free taxpayer paid medical care even for illegal aliens. This, despite the state running a $35 to $68 billion deficit, depending on who you believe. The state general budget is about $210 billion.

Edit. Corrected error

2 Likes
1884

More on California and inflation

California’s gas prices just topped $5.00 per gallon again, and hits as high as $5.95 in some counties. I was just in Virginia and enjoyed paying $3.20 per gallon – at the airport – which made coming back to California and filling up was painful.

Governor Gavin Newsom continues to blame oil company “excess profits” and “windfall oil profits” for the high costs of gas and diesel in California, as well as blaming the petroleum industry for imposing a “mystery surcharge” on the state. The real culprits are California’s Democrat politicians and governor for the state’s highest in the nation gas taxes and nearly all other taxes, as well as environmental costs and really bad policy.

1 Like
1885

Something like Seattle and delivery apps, or Minneapolis and Uber/Lift.

2 Likes
1886

Bidenomics is working so well we need more command economy edicts.

  • UNDER NEW REGULATIONS TO BE ANNOUNCED MONDAY, THE BIDEN ADMINISTRATION WILL CAP YEARLY RENT INCREASES AT 10%

That’s in reference to “affordable housing” which I guess isn’t so affordable after all when everything else inflates so much.

Meanwhile, blame those “greedy corporations” that were mysteriously so much less greedy under Trump.

  • BRAINARD SAYS MORE WORK TO DO TO LOWER COSTS FOR FAMILIES
  • BRAINARD SAYS CORPORATE PROFITS REMAIN ELEVATED, BIDEN WILL CONTINUE TO ASK COMPANIES TO PASS THEIR SAVINGS TO CONSUMERS

We might not like Venezuela lately, but we need their oil for re-election.

  • Biden Is Unlikely to Reimpose Oil Sanctions on Venezuela – WSJ
  • U.S. Officials Concerned That Reimposing Sanctions Will Raise Gas Prices – WSJ

Same reason we were (privately) mad at Ukraine for droning Russian refineries. Please, take your billions in aid and wait til after Nov to hit their oil production.

3 Likes
1887

The left media are spinning this positively for Biden, of course, but Tyler Durden has a more realistic view

But, of course, there is normally something for everyone in this data as last month saw ISM’s data tumble while S&P Global’s soared. Both were expected to improve marginally in March final data today.

ISM’s Manufacturing PMI surprised to the upside, rising from 47.8 to 50.3, better than the 48.4 expected (breaking a 15-month streak below 50).

But, S&P Global’s US Manufacturing PMI disappointed, falling from its ‘flash’ print of 52.5 to 51.9 - also down from the final print of 52.2 in February.

However, a common theme from both surveys was that of soaring prices!!

S&P Global noted that higher oil and raw material costs, plus increased transportation rates, reportedly added to cost burdens at the end of the first quarter… and the impact of rising labor costs was mentioned as a factor pushing up selling prices at a number of manufacturers.

Employment remains in contraction for the sixth straight month and Prices Paid surged to its highest since July 2022…

1 Like
1888

Higher for longer

https://www.wsj.com/economy/global/inflation-victory-is-proving-elusive-challenging-central-banks-and-markets-cef0d601

  • FED SWAPS PRICE IN LESS THAN 50% ODDS OF JUNE RATE CUT
  • BONDS, STOCKS DROP AS FED SEEN DELAYING RATE CUTS
    —-

Inflation is proving stickier than expected in the U.S. and Europe, creating a headache for central bankers and sowing doubts on whether investors are too optimistic about the world economy.

The decline in inflation from highs of around 9% to 10% across advanced economies in 2022 represent the easy gains, as supply-chain blockages eased and commodity prices, especially for energy, normalized.

The “last mile” is proving tougher. Underlying inflation, which excludes volatile food and energy prices, slowed to 3% in the second half of last year across advanced economies but has since moved up to 3.5%, according to JP Morgan estimates.

—-

Why is inflation proving stubborn?

Despite the sharp interest-rate increases of the past two years, economic growth is resilient, especially in the U.S. The Atlanta Fed said Friday its real-time indicator of first quarter U.S. economic growth ticked up to 2.3% from 2.1%. Consumer spending, adjusted for inflation, increased by around 5% on an annual basis in February, the Commerce Department said.

“The unexpected strength of real consumption” means “there is still no rush to cut interest rates,” said Paul Ashworth, an economist with Capital Economics.

—-

Central banks may be part of the problem

Central banks themselves may be inadvertently adding to inflation pressure. By signaling a pivot toward interest-rate cuts last fall, they pushed global borrowing costs down and asset prices up, supporting spending.

If central banks react to stubborn inflation by backing away from rate cuts, that would put pressure on both heavily indebted governments and employers. That could test central banks’ will to finish the last mile and push inflation all the way to target.

Higher government spending on defense and green energy, and geopolitical tensions that crimp global trade, are likely to pressure central banks to tolerate higher inflation over the coming years, according to a Brookings Institution paper published in March.

“A strengthening of central bank independence combined with a more credible public debt policy is likely needed,” said the paper, by economist Kenneth Rogoffof Harvard University and three co-authors.

3 Likes
1889

Good luck with that.

2 Likes
1890

The deficit decreased between 2023 ($1.7T) and the 2024 projection ($1.6T) due primarily to high income tax revenues. Would have been a greater reduction in deficit if it were not for interest rates increasing the net interest contribution to the debt. And that increase in revenues is almost entirely from individual income tax. Is it due to higher compliance rate due to more money directed to the IRS or is it due to other reasons? Whatever the reason(s), higher revenues is good news for the deficit.

Revenues further increase in 2026 and 2027 as the report notes which results in the decrease in deficit between 2025 and 2027 assuming the TCJA cuts lapse. I wish the CBO projected what would happen to revenues and deficits if these are extended instead of ending in 2026.

1 Like
1891

The inevitable consequences of the government of California interfering with business.

California minimum wage shocks fast food workers as restaurant closes: 'Only the beginning,' ex-manager warns | Fox Business.

California minimum wage shocks fast food workers as restaurant closes: ‘Only the beginning,’ ex-manager warns

“Two of my coworkers were actually going in to clock-in for the morning. And right after that, that’s when I got a phone call that we were closing. So they found out right as they were about to clock-in for the day,” Navarro recalled.

“We had gotten a text in the group chat that we were shutting down, and I completely thought it was an April Fool’s joke,” one of Navarro’s colleagues also told KMPH.

After speaking further with management and Foster’s Freeze’s owner, Navarro learned that the minimum wage law was the primary factor in the restaurant’s demise.

3 Likes
1892

Although anecdotic, it makes sense that some businesses that were barely profitable before are not gonna be able to make it now.

I still do not understand what makes this CA job market so dysfunctional that it requires a legally-enforced minimum wage of $20/hr.