One of the many things I recall from Rush Limbaugh is that these “experts” are always surprised at “unexpected” data. How can they be experts and constantly surprised? It’s almost like they’re weathermen.
I’m quite pleased at the report, as it keeps my interest rate expectations on track. These results don’t create a crack that the Fed could use to back off of rate increases, although they may still slow QT.
With the latest inflation figures, nominal bonds and CDs are unattractive. On the other hand, TIPS are looking pretty good.
For TIPS. The June inflation index means that principal balances for all TIPS will increase 1.37% in August, after rising 1.1% in July. For the year ending in August, inflation accruals will have totaled 9.1%. Here are the new August Inflation Indexes for all TIPS.
Real yields on TIPS have been holding up nicely, with the 5-year now at 0.53% and the 10-year at 0.65%. I am thinking next week’s auction of a new 10-year TIPS will be a decent buying opportunity.
Fed futures now pricing very likely for a full 1% hike for the July Fed meeting, 80/20 now (and +0.75% otherwise). And another 75bp for the Sept one seems most likely also.
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
The current fed funds rate is 1.75%. Increasing by one percentage point to 2.75% is too little and too late with headline inflation of 9% and wholesale inflation over 11%.
The real problem here is the humongous money supply brought about by years of reckless deficit spending. The increase has been beyond exponential Especially during the Biden ministration. See this graph of the M2 money supply from the St. Louis fed
Lest we forget, the Democrats are pushing right now to borrow and spend another trillion to fund certain aspects of Build Back Better. It’s a last ditch effort for them given they anticipate a loss in November.
Instead of “Build Back Better” they should be calling this “Dig Hole Deeper”. And the Fed will not be able to save us from such insanity.
That vertical spike occurred in 2020, before Biden took office. The federal budget is set by congress and the fiscal year starts in October, so the budget through 9/30/2021 was set by the previous administration.
So what’s your allegation based on, besides your feelings?
Not correct. It started in 2020 but continued with enthusiasm in the last two years during the Biden administration. The Democrats are still pushing hard for their so-called build back better spending extravaganza.
Biden has only been in office for 1.5 years, and M2 hasn’t changed in the last 7 months:
Pushing for legislation does not increase the monetary supply!
It is hard to say. But from the time when Biden was inaugurated until now M2 has increased about $2 trillion
Pushing for legislation does not increase the monetary supply!
We keep arguing about this but you are wrong. Psychology has a lot to do with inflation so if businesses expect more inflation they will raise their prices and workers will demand more pay leading to an inflationary spiral.
Here is an article from the time (March 21, 2021) that puts the blame in Biden’s court from non-Republican blamers:
Larry Summers, a top economic adviser to former President Obama, blasted the $1.9 trillion coronavirus stimulus package signed by President Biden earlier this month as the “least responsible” economic policy in 40 years.
In an op-ed for The Washington Post in February, he warned that risk of inflation associated with the proposal could have “consequences for the dollar and financial stability.”
The Biden administration has pushed back against inflation fears, citing the risks of not doing enough to stimulate the economy due to the pandemic.
I can’t even tell if you’re arguing about the same thing. M2 is a measure of monetary supply, which is controlled by the Federal Reserve. It is almost literally the sum of all dollars in circulation. While I would agree that an increase in M2 may cause inflation, inflation does not cause an increase in monetary supply, and talk of possible future spending does not lead to an increase in monetary supply. Supply goes up when government prints money, like with the three COVID stimulus packages, not when they discuss printing money in the future.
Also I disagree that businesses raise prices and workers demand more pay in advance of inflation happening. Inflation occurs because more money is chasing fewer goods, so by definition there has to be more money before prices or wages could be raised. Nobody will ever give you a raise because you think there will be inflation next year. They’ll give you a cost-of-living adjustment for the previous year’s inflation (or part of it), if you’re lucky.
It’s not hard to say, the FRED graphs are very detailed.
Yeah, about $2.3T in 1.5 years. In 2020 alone it went up about $4T. So no, not “especially during the Biden ministration” as you claimed. It all likely corresponds to the stimulus packages passed by congress and signed by both presidents.
This is a crazy claim.
Businesses have to set prices for their services and goods based on their estimates of future expenses. Workers similarly have to decide on how hard to negotiate their wages or quit to find another job based on their estimates of their expenses. All of these estimates depend on their estimate of future inflation.
In our largely service based economy wages are a large fraction of business expenses and because of the low labor force participation rate (see below) workers have strong bargaining power. Once wages are increased it is hard if not impossible for businesses to reduce them.
Estimates of future inflation enter every step of this process.
You may think this, but wages aren’t going up as fast as inflation. Average wages went up ~5% since last year, even though inflation is almost twice higher.
Nothing’s going up as fast as inflation, except maybe crypto lawsuits. Unemployment numbers are near all time lows, 3.6%. This is similar to the booming economy under Trump pre covid and hasn’t been matched otherwise in the last 50 years.
https://www.bls.gov/news.release/pdf/empsit.pdf
If the average worker knew how bad inflation was, they’d be asking for even more than they are now.
I think the problem is not that the workers are not asking, it’s that the employers are not giving in.
I mean, there are lots of businesses having trouble finding enough employees and being forced to cut back hours, service, etc, as you might expect in a tight labor market. On the other hand, if demand for your goods won’t accept a 10% price hike or whatever, you can’t pay more in wages if you can’t also raise prices and still sell the same level of goods/services.
Meanwhile, we’ve seen a recent trend towards unionization among the labor force, with Apple, Starbucks, Amazon, and Target workers seeking higher wages through collective bargaining.
I think it’s just that the way salaries and wages are determined, it takes months to play out rather than something like store prices which you can change more quickly.
Speaking of inflation, the treasury is going to auction 10 year TIPS bonds on Thursday. That is too long-term for me but it might be interesting to others who want to match these bonds with future expenses. Here is a good discussion
I laugh when people talk about asking for a raise.
Nobody “asks” for a raise nowadays unless they work for a smaller outfit or are a senior leader, high up in the food chain. Simply asking for more money is not how it works - managers might have a small spot bonus budget, but they do not have the ability to give you a raise at any random time in the year just because you asked for it. Most corporations run on fixed performance review cycles and your compensation is tied to how good they perceive your performance to be for a given year. Similarly the public sector usually has a pay scale that is tied to tenure.
The most common way you get a raise in today’s environment is to leave your job for another employer. Sometimes you can get a counter offer from your current employer if you have another offer in hand, but at that point, you’ve burned a bridge and are likely better off leaving anyway.
I don’t think that’s necessarily true. As you said, the manager’s hands are tied by the budget, so showing him an offer letter gives him an excuse to go up the chain to get more money. Approach it positively and without confrontation, and if they really need you, have the money, and your manager is willing to fight for you, they’ll try to keep you. Just don’t do it too often.
