Central bankers don't like surprises, so they tend to communicate among themselves in order to coordinate their response to every new crisis. And this week there was a wave of responses to the combination banking crisis and still high inflation. The Cause Raising interest rates from near zero to over 4.5% in a short period of time puts stress on banks' liquidity as it causes an "inverted yield curve", i.e., short-term interest rates are higher than the locked-in long-term rates. Thus banks are paying out more (on short-term deposits) than they are receiving (on long-term mortgages). The Effect So you would think the Central Bankers would be prepared to deal with the … [Read more...]
Is The Fed Flashing Signs It’s Done Raising Rates?
The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday raised the target policy interest rate (the federal funds rate) to 4.75 percent, an increase of 25 basis points. With this latest increase, the target has increased by 4.5 percent since February 2022, although this latest increase of 25 basis points is the smallest increase since March of last year. Indeed, the FOMC has slowed its rate of increase over the past three months. After four 75 basis point increases in 2022, the committee approved a 50-point increase in December, followed by the 25-point increase this week. In other words, the FOMC has been slowed down in its monetary tightening. The committee was … [Read more...]
Why the Fed Is Bankrupt and Why That Means More Inflation
In 2011, the Federal Reserve invented new accounting methods for itself so that it could never legally go bankrupt. As explained by Robert Murphy, the Federal Reserve redefined its losses so as to ensure its balance sheet never shows insolvency. As Bank of America’s Priya Misra put it at the time: As a result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible. That was twelve years ago, and it was all academic at the time. But in 2023, the Fed really is insolvent, although its fake post-2011 account doesn’t show this. … [Read more...]
November FED Announcement Rocks Stock Market
The FED Giveth and the FED Taketh Away On Wednesday, November 2nd, the FED held its "Federal Open Market Committee meeting" and made the announcement the market has been breathlessly awaiting. As expected, Chairman Jerome Powell announced a hike of 75 basis points in the fed funds rate. Along with the announcement, the market was hoping for some indication of a "pivot", i.e., that the FED would give some indication that it was going to be slackening off on its rapid rate increases. And in this respect, the November FED Announcement did throw the market a bone. It added the new phrase “Cumulative Tightening” to the standard announcement. So, going forward, the FED will take the fact … [Read more...]
September 2022 Inflation Virtually Unchanged
The Bureau of Labor Statistics reported that for September 2022, Annual Inflation fell from 8.26% to 8.20% Inflation Summary: Annual Inflation fell from 8.26% to 8.20% CPI Index rose from 296.171 to 296.808 Monthly Inflation for September was 0.22% Seasonally Adjusted Monthly Inflation was 0.4% Next release November 10th September Annual Inflation was 8.20%. Jan. 2021 -- 1.40% | Jan. 2022 -- 7.48% | Feb. 2022 -- 7.87% | March 8.54% | Apr. 2022 --8.26% May 2022 -- 8.58% | June 2022 -- 9.06% | July 2022 -- 8.56%% | August 2022 -- 8.26% | September -- 8.20% BLS Inflation Report: The BLS Commissioner reported, "The Consumer Price Index for All Urban Consumers (CPI-U) … [Read more...]
Jerome Powell “Channels” His Inner Paul Volcker
Federal Reserve Chairman Jerome Powell is sounding more and more like former FED Chairman Paul Volcker, who served as the chairman of the Federal Reserve from August 1979 to August 1987. Volcker is best known for his historic fight to vanquish inflation in the early 1980s. Before Volcker took over as the head of the FED, Inflation had risen from a low of 4.65% in December 1976 to 11.26% in July 1979. During that time, FED chairman William Miller raised the FED funds rate from 4.61% to 10.47% in July of 1979. During Miller's time, the FED funds rate pretty much tracked the inflation rate, with a couple of month lag. Prior to Volcker, the prevailing monetary theory was that the FED … [Read more...]
Surprise, Surprise, The FED Raises Rates by .75%
At its June 15th meeting, the FED announced that it will be raising rates by ¾%. Up until last week, this would have been a big shock to the market. But despite the imposed FED silent period leading up to their Wednesday meeting "somehow" journalists from all the major financial publications published remarkably similar articles predicting a 0.75% increase in the FED funds rate. Prior to this leaked guidance, the consensus was that the FED would increase rates by ½% but last week's higher-than-expected inflation report threw a wrench into the works. Everyone is making a big deal out of the fact that this is the first raise of that magnitude since 1994. And that it will double the FED … [Read more...]
April Inflation Down, But…
The Bureau of Labor Statistics reported that in April 2022, Inflation fell to 8.3% Inflation Summary: Annual Inflation Declined from 8.54% in March to 8.26% in April CPI Index rose from 287.504 to 289.109 Monthly Inflation for April was 0.56%, down from 1.34% in March The next release is on June 10th April 2022 Annual Inflation was 8.26%. Jan. 2021 -- 1.40% ** Jan. 2022 -- 7.48% ** Feb. 2022 -- 7.87% ** March 8.54% Gasoline prices were artificially lower due to a massive release from the Strategic Petroleum Reserves (SPR), which temporarily pushed inflation down in April. The International Energy Agency was not happy that the Biden administration didn't warn them that it … [Read more...]
Spoiler: The FED Guaranteed To Fight Inflation… Sooner Or Later
News from the FED’s December 2021 FOMC Meeting For nine months now, here at InflationData, we’ve been saying that inflation was becoming a problem. We’ve said this even though the FED denied it and initially said the problem was only “transitory”. The FED continued to massively increase the money supply via “Quantitative Easing” (QE) during that period. In our article Why Quantitative Easing is Inflationary… Sometimes, we showed that QE is inflationary when there aren’t counteractive deflationary forces. We also noted that QE had resulted in a massive increase in the money supply this time around. In his strangely named book Picnics on Vesuvius, former Financial Times Editor William … [Read more...]
Why Quantitative Easing is Inflationary… Sometimes
Quantitative Easing was initially considered inflationary but after its first usage, it didn't appear to be. Is this always the case? Is Quantitative Easing really inflationary? Will the Quantitative Easing of 2020-2021 result in more inflation? That is what we are going to look at here. ~Tim McMahon, editor At the height of the 2008 mortgage crisis the FED came up with a revolutionary idea to handle the crisis and that was called "Quantitative Easing (QE)". But before we delve into that let's look at what brought us to that point. Before Quantitative Easing Prior to the 2008 crisis, the housing market was on a tear (much like it is today). The banks were lending at a furious pace and … [Read more...]
