International Forecaster Weekly

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DESPITE FED RATE HIKES, Inflation Expectations at Record Highs

Guest Writer, March 30 2022

Even though the Fed has started hiking interest rates to rein in inflation running at a 4-decade high, consumers and investors think price rises will be tough to slow.

A new reading of consumer sentiment on Friday from the University of Michigan confirms that Americans’ inflation expectations remain at their highest level since 1981—and continue to grow.

The survey’s chief economist Richard Curtin observed that inflation is the chief culprit in consumers’ rising pessimism, with expectations of a 5.4% rise for the year ahead.

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PUTIN TRIES PROPPING UP THE RUBLE & MOEX - Another Bank Sees Gold at $2,200 by End of Year

Guest Writer, March 26 2022

Russia's ruble has rebounded in recent weeks, as the Kremlin patched together an aggressive defense of its fiat currency.

The ruble was valued (vs. the U.S. dollar) at 80.41 on February 23, the day before Putin’s invasion. It skyrocketed to 131.50 on March 7. It plunged to 90.72 on the Ides of March (the 15th). And it opened today at 94.75.

Matt Phillips reports that Moscow’s latest attempt to shore up support came in the form of a direct demand from His Rogueness (Putin) that the EU pay for natural gas with rubles instead of dollars or euros.

It's a not-so-veiled effort by Russia to create demand for its struggling currency—with the ruble jumping 8% on the news.

Widespread sanctions imposed after Russia's invasion of Ukraine in late February have hammered the ruble, wiping out 90% of its value against the dollar at times.

Moscow took measures—like doubling interest rates, halting currency trading, and demanding that Russian companies exchange their foreign earnings for rubles—that slowed the bungie jump and prevented a crash.

But Putin's latest scheme has already been called a breach of contract by Germany, the eurozone’s largest buyer of Russian natural gas. 

If the breach prompts a full rupture with Europe, which buys 40% of its gas from Russia, the ruble will likely take another tumble.

Such a break, however, would also make Europe's energy crisis a lot worse. To wit, European natural gas prices jumped 30% after Putin made his latest demand.

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FED IS FULL SPEED AHEAD Gold & Silver Off to a Good Start

Guest Writer, March 23 2022

The economy doesn’t want for problems—there are plenty of them, both at home and stemming from rising geopolitical volatility in eastern Europe.

But as Neil Irwin writes, wherever the movers and shakers of the Federal Reserve look right now, “they're seeing flashing green lights that the world wants them to get moving on raising interest rates.”

Yes, the Fed acts independently based on its best analysis of economic data—in theory anyway. 

But other factors shape the tone and outcomes of internal debates, too—like discussions by outside economic thinkers and financial market reactions to potential and actual Fed moves.

Right now, Irwin believes those reactions are almost uniformly pointing toward more aggressive action to try to rein in high inflation.

In fact, Fed future traders say another rate hike by the Fed’s May meeting is a done deal—38.4% see a hike of 50-75 basis points (0.5%-0.75%), while 61.6% see a hike of 75-100 basis points (0.75%-1.0%)

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Fed Keeps Its Promise; Hikes Interest Rates - Oil and War Big Factors in Where Things Go from Here

Guest Writer, March 19 2022

Tightening by the mightily bloated Federal Reserve is off and running. 

The Fed’s Open Market Committee kept its word the other day, with the first of what’s expected to be 6 or 7 quarter-of-a-percentage point interest rate increases by the end of the year to put inflation in its place.

Today, Fed Governor Christopher Waller warned that the Fed may need to enact one or more 50 basis point hikes in 2021.

Though he voted this week for just 25 basis point because of economic uncertainty over Russia’s invasion of Ukraine, Waller said he thinks the Fed may need to be more aggressive soon.

“I really favor front-loading our rate hikes, that we need to do more withdrawal of accommodation now if we want to have an impact on inflation later this year and next year.” 

“The way to front-load it is to pull some rate hikes forward, which would imply 50 basis points at one or multiple meetings in the near future.”

In addition to the rate hikes, Waller said he thinks the Fed needs to start reducing its holdings of Treasuries and mortgage-backed securities sooner than later.

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STATE OF THE UNION IS SAD As Inflation Expectations Hit Record High

Guest Writer, March 16 2022

Morale among American consumers —I prefer "people"— worsened earlier this month by generation-high inflation and a major war in eastern Europe.

The latest University of Michigan survey showed overall consumer sentiment falling in March for the fifth time in the last six months to an almost 11-year low.

These days, on top of a dreadful and frustrating two-year Covid malaise, everyday Americans are asking, "Why does anything matter?"

The Michigan numbers show the public mood souring over inflation worries have totally surpassed other indicators that show an otherwise strong (albeit volatile) economy.

The mood also bodes particularly ill for members of Congress and state houses hoping not to be, well, unelected.

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Guest Writer, March 12 2022

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.

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Guest Writer, March 9 2022

Prices at the gas pump are soaring toward an all-time high, but drivers appear to be saying, oh well—for now anyway.

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Guest Writer, March 5 2022

Fed Chair Jerome Powell told Congress on Wednesday that he supports a quarter-percent increase in the Fed’s benchmark short-term interest rate when the Fed meets in less than two weeks.

Powell did open the door to a bigger hike, like the half-percent increase called for by most of his colleagues, but only if inflation doesn’t noticeably decline this year—as the Fed expects it to.

Most other Fed officials have vocally supported a 25-basis point rise.

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WEST AND RUSSIA UNVEIL NUCLEAR OPTIONS - One is Figurative, the Other Real

Guest Writer, March 2 2022

Felix Salmon writes that until last weekend, Russia's invasion of Ukraine looked quaint, with “columns of tanks, prisoners of war [and] bombed buildings.” 

As a new week unfolds, however, the U.S., Canada and Europe on one side and Putin on the other have rolled out their respective nuclear options—the former three financial, the latter literal—although neither has actually been used.

The stakes couldn’t be higher. This is no longer just about Ukraine. It’s quickly evolved into a full-blown confrontation between nuclear powers. 

Salmon fears if the conflict continues to escalate like a hundred-yard sprint, the unthinkable could quickly become a reality.

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Eurozone Heavily Energy Dependent on Russia - The Stakes (and Prices) Just Got Higher

Guest Writer, February 26 2022

Catherine Clifford writes that Europeans had already been suffering under high energy prices in the months leading up to Russia’s invasion of Ukraine.

Those prices, and others, surged after Russia crossed the Ukrainian border, with international benchmark Brent crude oil breaching the $100 per barrel mark for the first time in 8 years. 

Natural gas prices were at least 6.5% higher after the invasion and were up about 2% as of midday Thursday.

And on Tuesday, Germany halted the Nord Stream 2 gas pipeline project, which was intended to double the flow of Russian gas directly to Germany.

Sad to say, but the European Union is heavily dependent on Russian energy sources, which Clifford says is becoming “increasingly unsustainable.”

The EU, however, is reportedly planning energy independence from Russia. That plan was expected to be announced by the European Commission next week.

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Guest Writer, February 23 2022

Does transparency promote equity? More to the point, does pay transparency promote pay equity?

That’s the goal in California, where a state senator introduced a bill last week that would require employers to disclose salary ranges for jobs they’re trying to fill and to report employee and contractor pay data to the general public.

            Pay transparency laws are being seen by equal pay advocates as the next key policy in closing gender and racial pay gaps.

They’re saying it means the next time you’re looking for a job, you might know how much it actually pays—before you’re hired.

Emily Peck reports that a similar law went into effect in Colorado last year, while another is about to start in New York City in May.

Peck says California already requires employers to disclose salary ranges, but only if asked by a prospective candidate.

Jessica Stender, policy director for Equal Rights Advocates, says, "I think the tide is turning in terms of support for stronger pay equity laws."

She noted that employers in the UK have had to disclose pay disparity data for some time now—helping to narrow certain gaps.

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Is a New Gold Standard on the Horizon? - Revaluing Gold Could Write Off Government Debt

Guest Writer, February 19 2022

Is a new Gold Standard coming to town? If one is, it’s likely to be in Europe. So says independent financial writer Jan Nieuwenhuijs. 

The gold analyst writes in The Gold Observer that Europe is the most likely to take the initiative—as opposed to the U.S.—because revaluing gold “would damage the dollar’s status as world reserve currency.” 

The euro, on the other hand, as the second most liquid currency in the world, “would enable the eurozone to revalue gold without devaluing much against other currencies and commodities.”

The more debt is being accumulated on the balance sheets of European central banks, the more likely they will revalue gold to write off this debt. 

Here’s the gist of Nieuwenhuijs’ thinking: The ratio of government debt to GDP in many countries is at record highs. And no country, leader or economist has proposed a strategy to lower those debt burdens. 

He points to the primary tools that governments can lower their debt to GDP levels:

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As Money Supply Goes, So Goes Inflation (Or As the Discount Rate Goes, So Go Interest Rates)

Guest Writer, February 16 2022

Merriam-Webster defines “discount” as “a deduction from the usual cost of something, typically given for prompt or advance payment or to a special category of buyers.”

The Federal Reserve’s “discount rate” is the interest rate charged to commercial banks (yes, they’re special) and other depository institutions on loans they receive from their regional Fed bank's discount window.

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PRICE INCREASES OFFSET WAGE GAINS - So, Put a Hold on Profits and Pay Workers More

Guest Writer, February 12 2022

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.

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WAGE GROWTH VS. MORE JOBS Does the Reward Outweigh the Risks?

Guest Writer, February 9 2022

The surprising pace of recent job growth may be catching recent headlines. But, as Neil Irwin points out, other details contain the biggest implications for markets in the months ahead; namely, wage growth.

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