US Inflation Rate

[Boggo]

Just wondering what the eventual effect of this will be ?

 

[sptrawler]

moXJO posted a couple of good video's about it.
The only thing that comes to mind for me, is what we said at the beginning of the pandemic and 'jobseeker', 'jobkeeper', this is the first time in my lifetime that I have seen the Government take on the major loses of a looming recession.
In the past it has been a case of the Government just saying tough luck and suck it up, then came high unemployment and crashing values, this time we have a V shaped recovery.
How that pans out is anyone's guess IMO, uncharted waters at the moment.

Agree with the speaker in the video. Pretty much sums it up.

Second video.
Interesting comment of investing into China as the US $ is on the nose.

 

[Smurf1976]

How that pans out is anyone's guess IMO, uncharted waters at the moment.

My basic thought is that it means the recession hasn't done what it needed to do.

The dead wood's still on the tree and will hamper future growth.

 

[sptrawler]

My basic thought is that it means the recession hasn't done what it needed to do.

The dead wood's still on the tree and will hamper future growth.

Yes, in actual fact, it was the technical recession that wasn't a recession. It really is uncharted waters, I don't think even the experts know what comes next.

 

[Dona Ferentes]

The Fed and other major central banks are likely to avoid rushing into rate hikes. Major central banks fear that jumping at what should be a transitory spike in inflation will risk slowing recovery prematurely and repeat the mistakes of recent times. They would rather look through any spike in inflation and allow the recovery to continue until full employment is reached, generating higher wages growth which may be a few years away – Australia needs 3% plus wages growth to be consistent with inflation at target whereas it’s now just 1.5%.

The Fed and RBA will likely follow the Bank of Canada & Bank of England in slowing bond buying – but this is not monetary tightening and if they remain dovish on interest rates as expected it will mean any near-term inflation-driven bond market panic & hit to share markets will likely be short lived. Key to watch will be inflation expectations and wages growth.

But is it transitory? Many fear the "genie escaping from the bottle".

 

[wayneL]

But is it transitory? Many fear the "genie escaping from the bottle".

I've been watching Steve Van Metre who makes some interesting cases on all this,based on bond market action.

His view is compelling, but imo the poo is in a trajectory towards the propeller and.... Well, ****... Anything could happen from here!

 

[Dona Ferentes]

.... who makes some interesting cases on all this,based on bond market action.

my weekly fix, and he is very hard to summarise came in the inbox today, goes along these lines:

[Looking at] the yield differential between 5-year US Treasuries and 30-year US Treasuries.

That’s what you call a flattening of the yield curve.

As you well know the trade that was all the rage, particularly amongst the hedge funds, was the ‘curve steepener’ and one of the most popular expressions of this was to buy 5-year notes and sell 30-year bonds.

You will also recall that I was an advocate of the ‘curve steepener’ trade too, after the vaccine news in early November 2020.

The basic premise was that the Fed was wrong about inflation and that monetary policy was far too accommodative.

The hedge funds were right. Inflation has far exceeded the Fed and the market’s forecasts.

And now that the U.S central bank has revised up its inflation forecast and brought forward the ‘tapering’ process they are acknowledging that they need to change tack.

So far so good.

Think of it this way.

If the Fed had continued to ignore the fact that inflation was much higher than they had anticipated, they would run the risk of losing credibility.

Furthermore, if inflation had continued to stay stubbornly high then they may have to slam the monetary breaks on and risk a financial market crash.

Better to act now, rather than having to act very aggressively at a later date.

Yes, I know this somewhat contradicts their new policy of being reactive rather than pre-emptive.

The problem is when the smartest Wizards on Wall Street are all saying publicly that the Fed is making a colossal policy mistake it’s a bit hard for Powell to ignore them.

It appears that the majority of FOMC members agree with the Wizards and not Powell.

Let's agree it gets a bit uncomfortable listening to the ‘inflation, what inflation story’ when there is a BIG 5.0% CPI number sitting in front of you on your Bloomberg screen.

The interesting bit of this inflationary riddle is of course the transitory piece.

The great majority of economists, if you look at the Bloomberg consensus forecast for Core PCE inflation at the end of 2023, believe that inflation will return to 2.1%.

Remember, however, that none of them anticipated inflation getting anywhere near 5.0% by this May.

Perhaps, therefore, we can think of the Fed’s rather interesting recent change in approach as bringing back a more judicious risk management approach.

Remembering also that they are still buying an astonishing $120 billion of securities every month, notwithstanding the highest inflation and strongest economic growth many of us have seen.

The first significant change will be a reduction in the purchases of mortgage backed securities (MBS).

The Federal Reserve can no longer justify the purchase of $120 billion (80 billion USTs and 40 billion MBS) worth of securities every month.

You have all seen the U.S housing market and would surely agree that $40 billion of MBS every month is, to put it politely, simply ridiculous.”

 

[sptrawler]

Great post @Dona Ferentes, the only thing in Australia's favour is, we have only just got back to where we were, in 2007. So a crash from here, in the market, will just be situation normal for most of us.
Company earnings have been reasonable, materials are booming, the underpinnings of our market aren't over the top IMO.
The U.S on the other hand, the Dow was 14,000 pre GFC, now it is 33,000, I'm no economist but I personally can't see that the underpinnings are there in the U.S.

 

[noirua]

BREAKING! US core #inflation rose to 4.5% in June, higher than expected and the highest level since 1991. Headline #CPI also higher than expected at 5.4%!
https://twitter.com/jsblokland/status/1414925431476731905/photo/1

 

[qldfrog]

View attachment 127325
BREAKING! US core #inflation rose to 4.5% in June, higher than expected and the highest level since 1991. Headline #CPI also higher than expected at 5.4%!

And these are official figures...

 

[noirua]

CPI Inflation Rate Hits New 39-Year High But Stocks Rally

December inflation was hotter than expected, but investors were relieved it wasn't worse.

www.investors.com

The consumer price index came in slightly hotter than expected in December, as the CPI inflation rate hit a new 39-year high. The core inflation rate, excluding food and energy, rose to 5.5%, a new 30-year high. The Dow Jones industrial average rose following the CPI report in early Wednesday stock market action, as major indexes looked to continue their rebound that began Monday afternoon.

 

[mullokintyre]

So, the US fed finally raises rates, and says that there will be at least six more to get rates to 2% by the end of the year, so that they can curb the rampant inflation in the US.
So what is the markets response.
The DOW up 500+ points and the NASDAQ just shuy of the same figure - definitely not expected.
Gold jumps up - expected.
The US dollar falls, not expected.
The AUD v USD pair drops nearly 2% definitely not expected.
The fed belatedly admits there is a problem with inflation, and all the markets think its great.
It is a weird world.
Mick

 

[waterbottle]

So, the US fed finally raises rates, and says that there will be at least six more to get rates to 2% by the end of the year, so that they can curb the rampant inflation in the US.
So what is the markets response.
The DOW up 500+ points and the NASDAQ just shuy of the same figure - definitely not expected.
Gold jumps up - expected.
The US dollar falls, not expected.
The AUD v USD pair drops nearly 2% definitely not expected.
The fed belatedly admits there is a problem with inflation, and all the markets think its great.
It is a weird world.
Mick

I think the concern was a 0.5% hike, hence the rally. Even at rates of 2% pa money would still be better off in equities

 

[qldfrog]

I think the concern was a 0.5% hike, hence the rally. Even at rates of 2% pa money would still be better off in equities

But the trouble is that with rate at 2% or 4 % or 6%..does not matter
Inflation will remain loose and we are going into hyper inflation..not good for stocks or currencies

 

[waterbottle]

But the trouble is that with rate at 2% or 4 % or 6%..does not matter
Inflation will remain loose and we are going into hyper inflation..not good for stocks or currencies

Inflation will always exist, but I'm not so sure on hyperinflation. The price of oil has been more volatile than I expected it to be... We are staring at POO being cheaper than pre-Ukraine invasion!!!! The same applies to wheat (which also doubled post invasion).

Nasdaq is down 20% from all time highs. Not sure how much lower it can get if this has been the market response following war and interest rate hikes.

Realistically, Fiat is useless unless used for something. No point storing it under a mattress. Minimal gain storing it in a savings account (particularly if the predicted interest rate in 2 years is 3% ala Fed reserve, with yearly inflation at 2-5%).
At these levels, probably wisest to continuing taking on risk for dividends/capital gains IMO

 

[CityIndex]

So, the US fed finally raises rates, and says that there will be at least six more to get rates to 2% by the end of the year, so that they can curb the rampant inflation in the US.
So what is the markets response.
The DOW up 500+ points and the NASDAQ just shuy of the same figure - definitely not expected.
Gold jumps up - expected.
The US dollar falls, not expected.
The AUD v USD pair drops nearly 2% definitely not expected.
The fed belatedly admits there is a problem with inflation, and all the markets think its great.
It is a weird world.
Mick

US equities initially pared gains once the rate hike decision was announced, but resumed their rally during/after Jerome Powell's speech. So perhaps the reason for the strong rise came on the back of the confidence Powell showed in regards US economy, especially as recession fears have been on the rise.

All trading carries risk, but it should be interesting to see if this rally can be sustained, or if volatility returns to the market with the Fed meeting out of the way.

 

[ducati916]

US is entering stagflation.



The 5s/10s leads the 2s/10s usually by a few weeks. Both signal recession. Recessions see an increase in unemployment and slow to zero growth.



The PPI entered double digits (10%). Not too much news on this. PPI numbers lead and drive CPI numbers. Inflation will continue to rise.

A 25bps raise is comedic. The dot-plot confirms a further 7 raises. LOL. I doubt they make it to 3.

As the economy craters, with elections round the corner, what do you think the Dems. will be asking of Mr Powell? More hikes?

QE until DXY blows up.

jog on
duc

 

[noirua]

Consumers expect inflation to slow down, a big win for the Fed

The consumer outlook for inflation tumbled in July amid a sharp drop in gas prices and a belief that the surges in food and housing also would ebb.

www.cnbc.com

 

[divs4ever]

Consumers expect inflation to slow down, a big win for the Fed

The consumer outlook for inflation tumbled in July amid a sharp drop in gas prices and a belief that the surges in food and housing also would ebb.

www.cnbc.com

but hold on .. weren't they stripping out 'volatile ' factors like food , fuel/energy and rent prices when the CPI was rising

so they take out the NASTY parts when it rises , so what has removed to make it look like it is falling .. maybe it is the phony 'rent' factor

sheer data manipulation , only ( some ) Americans would believe the official narrative , now

( maybe rents have gone down because you don't pay any living in your car , reduces your power bills too )

after all only 400,000 US mortgages are still in forbearance so the economy must be great

 

[Dona Ferentes]

..stubborn.

In the USA, the monthly headline Consumer Price Index (CPI) rose 0.4 per cent, up from the 0.1 per cent increase in March; the annual rate dropped to 4.9 per cent - the first time in two years it’s been under 5 per cent - as last year’s larger rises drop out of the calculations.

Excluding the volatile food and energy components, the Core CPI also increased 0.4 per cent driven by higher rents, but, again, the annual rate ended up down slightly at 5.5 per cent. It was the fifth straight month that core prices have risen by 0.4 per cent or more.

The Fed has been at pains to say that its 2 per cent inflation target is still some way off and that it is prepared to increase interest rates further.