What’s it all mean? Are we at an inflection point in market land now, and the big bull market is over? Probably not just yet. That said, Quad hangovers can indeed extend several days, as traders reposition and rethink their futures roll outs. But make no mistake, the Fed’s statements, along with Bullard’s opinion, has changed the narrative some. We might see a much more volatile next two weeks as they try and square up all of this. Caution is warranted.
Neil Irwin reminded us yesterday morning that a lot of hopes are riding on inflation easing this year. But it hasn’t happened yet—or over the last year.
Consumer prices surged more than expected over the past 12 months, suggesting a bleak outlook for inflation and increasing the likelihood of more than a few interest rate hikes this year.
The CPI (all urban index) rose 7.5% in January over a year ago, the Labor Department reported yesterday—the highest since February 1982. Economists were expecting an increase of 7.2%.
The so-called core CPI, which excludes volatile food and energy prices, increased 6%, compared with the estimate of 5.9%—its highest since August 1982.
Inflation raged on in February, driving consumer price increases to a place we haven’t been to in four decades.
The latest numbers include a paucity of signs that inflation us leveling off, muchless subsiding.
What’s more, they largely exclude the impact of Russia’s invasion on oil, gas and other global commodity prices.
Most economists and WallStreeters, the Biden administration and members of Congress—especially Democrats—have been counting on inflation peaking early this year.
Unfortunately for them—not to mention consumers and businesses—the numbers are suggesting persistently high inflation for the foreseeable future.
The CPI index, it vividly shows how the value of the dollar has steadily dwindled over the last ten years.
As Bloomberg News' Joe Wiesenthal tells us, straightening this line — or at least slowing its downward spiral — is the Fed’s real goal.
Although the U.S. Dollar Index has been inching higher and higher — over the past year, it's risen almost 11%, from 91.05 to its closing today at 100.8 — it's actually been weakening at the fastest pace since the 1980s.
Last fall, aerial drone photos showed dozens of huge, multi-colored container ships backed up outside the Port of LA.
Even then, it looked like inflation was going to be with us for longer than the Fed and many others were predicting at the time.
It’s simply transitory – temporary – they insisted. Turns out, they were wrong, by a long shot.
Inflation, as measured by the Fed’s preferred, if somewhat mythical, metric – the Core Personal Consumption Expenditures Index (i.e., excluding food and energy) – has steadily risen since the pandemic was declared in March 2020.
The core PCE consistently hovered at or below the Fed’s 2% target from late 2008 until the 1st quarter of 2021.
In February 2020, just before the pandemic was declared in the U.S., the core PCE was roughly 1.8%.
Since then, it’s risen every quarter, from its low of 1.0% in Q2 2020 to 5.2% at the end of March 2022 – more than double the Fed’s target.
Of course, the broader core Consumer Price Index (CPI-U) rose an even higher 6.5% in March (8.4% when you include food and energy prices).
There's an encouraging sign that Americans view painfully high inflation as a temporary phenomenon, according to Courtenay Brown and Neil Irwin.
It comes in the form of another sharp drop last month in how steep consumers expect inflation to be in the upcoming years, as shown in the New York Fed's latest Survey of Consumer Expectations.
Expectations for the level of inflation over the next year fell by about half a percentage point in August – a historic monthly decline in the survey's nine-year history and second only to July's record-breaking drop.
Consumers' expectations for year-ahead price increases for gasoline also saw another sharp drop. Now, consumers expect gas prices to be roughly the same a year from now.
The Fed's huge fear is that consumer expectations for steep inflation will become a mainstay of the economy, which could force them to act in ways that would help inflation spiral upward.
For what it's worth, that worst-case scenario doesn't appear to be materializing.
Respondents also aren't nudging up expectations for higher wages in the future. For the eighth straight month, earnings growth expectations held at 3%.
Even as inflation expectations move in the right direction, the survey shows consumers expect inflation to be much higher than the Fed's 2% target in the years to come.
Economists expect that the CPI – out tomorrow – will show that prices fell by -0.1% in August.
Core inflation – which strips out more volatile food and energy prices – is expected to have risen by 0.3%, matching July’s pace.
First off, let me start with this. Sunday is my 40th wedding anniversary. Forty years ago, my better half lost her mind and said yes in front of a crowd of 100 people at our little church in South Amboy, NJ.
I’m not terribly sentimental about things, but it’s hard to not remember the wedding or the days leading up to it. My friend Jack from “college” ( trade school) flew in to be my best man. Well on the night before the wedding, Jack and I are in my condo, getting ready for bed and there’s a ring of the doorbell. Hmm that’s odd, it's a cold February night in Highlands NJ, it’s snowing, and it’s almost midnight.
I went down to answer the door and there’s a truly “knock out” beautiful girl standing there, dressed like she just came back from a night in the clubs. Oh, and she was definitely “buzzed.”
She said she needed to see David, she needed to see if she could spend the night, because for some reason she couldn’t go home. Well David was the person that owned the condo before me. So I had to explain to her that Dave’s not here any longer, he moved with the military, and I hope you can try another friend.
But she was insistent. She needed a place to stay for the night and wanted in. She was pleading to come in, and then suggested she could make it worth my while. It was at that point, I started to think ‘Hey, I bet one of my goofy friends is behind this, and I’m getting set up here.” So I told her, “I’m getting married at noon tomorrow, and no I can’t let you in, it wouldn’t quite look right. “ She finally left in a huff, cursed me out and to this day I don’t know if it was coincidental, or if I was being tested somehow. Well it’s 40 years later and I guess I passed.
It’s been wonderful. Have there been rough patches? You bet. But you take the bad with the good, and in the end, it has worked out as well as I could have asked for. For all you out there that are working on 30, or 40 or 50+ years, Congrats and Kudo’s. We’ve become a rare breed.
Okay so the high stakes game of chicken continues. Not only did the CPI come in hot, the PPI came in hot. But the market ignored both and every dip was bought. They wouldn’t let it fade. Then to top it all off “The Bullard” and fed head Menard both suggested that they wouldn’t be against a 50 basis point hike in March.
Over the last several months, consumers’ expectations of future inflation have been steadily falling – a sign perhaps that Americans had confidence in the Fed's war on prices.
Courtenay Brown and Neil Irwin, who say that changed last month, pointed out today that for the first time in six months, median inflation expectations of everyday households in the year ahead rose.
They increased, in fact, by a half-percentage point to 4.7%, according to the New York Fed's latest Survey of Consumer Expectations.
The report comes as expectations for the level of price increases for everyday goods and services — like food, gas, rent and medical care — decreased in March.
After 2023's hotter-than-expected inflation reports, the March data suggest that the public now believes inflation won’t fall quite as much as they have been anticipating.
Brown and Irwin caution, however, that one month of new numbers doesn’t necessarily mean that “inflation expectations are becoming unanchored. But,” they add, “more readings of this kind could worry officials.
Median inflation expectations at the three-year-ahead horizon ticked up by 0.1%, to 2.8%, but they fell slightly (by 0.1 percentage point) to 2.5% at the five-year-look-ahead timeframe.
Consumers also pushed up expectations for household income growth and, for the first time since last fall, how much they plan to spend.
Mean unemployment expectations — or the mean probability that the unemployment rate will be higher one year from now — increased by 1.3 percentage point to 40.7%.
The average perceived probability of losing one’s job in the next 12 months decreased by 0.4 percentage point to 11.4%. But the average probability of voluntarily leaving one’s job declines by 1.5 percentage points to 19.3%.
They warned, too, that it was getting harder to get a loan – a point Brown and Irwin say is worth watching in the wake of the recent bank failures and bailouts.
The share of households reporting that it was more difficult to access credit compared to one year ago rose to the highest level in the survey's 10-year history.
Notably, year-ahead expectations about households’ financial situations also improved – with fewer expecting to be worse off and more respondents expecting to be better off a year from now.
We recall how the Covid pandemic upended our lives and economy – as well as those of people around the world.
The largely mandated shutdowns in early 2020 caused a devastating reduction of economic activity and huge job losses not seen since the Great Depression.
The downturn came as government restrictions and citizens’ fear of the virus kept people at home and businesses and schools shut – both here and abroad.
Workers in jobs that paid lower wages and required face-to-face encounters with consumers – in the hospitality and retail industries, for example – were especially affected.
Those facing massive employment and earnings losses were disproportionately women, workers of color, workers without a college degree, and foreign-born workers.
Congress, the White House and the Federal Reserve enacted significant fiscal and monetary relief measures in 2020 and 2021 to prevent the economy from facing a depression and to relieve hardships faced by everyday Americans.
Most economists agree that those actions helped fuel an economic recovery starting as early as May 2020, making the deepest recession in the post-World War II era also the shortest.
According to the National Bureau of Economic Research, the consensus arbiter of official business-cycle dating, the economic downturn lasted just two months – March and April 2020.
On the one hand, the CBPP says the expansion in economic activity in the recovery from the pandemic recession was stronger and quicker than initial forecasts.
Those cautious projections may have been tainted by the Great Recession of 2007-2009, which at the time was the worst recession since the Great Depression.
The recovery from which also was disappointingly slow, with high unemployment – in the range of 6-9% – lasting several years after the economy began to grow (see chart above).