The U.S. Bureau of Labor Statistics released its belated November report on December 18th. December 2025 inflation data reveals moderating inflation. But the FED is easing, which could result in inflationary pressures later in 2026. Calculated to two digits, inflation was 2.74% in November, down from 3.01% in September. There was no October number due to the government shutdown. The December 2025 inflation report shows that U.S. consumer prices continued to moderate at the end of the year, with the Consumer Price Index (CPI) rising modestly compared to the previous year. After months of mixed data and reporting gaps tied to the federal government shutdown, inflation trends appear … [Read more...]
Is the FED Getting Soft on Inflation?
At the conclusion of the Jackson Hole, Wyoming, FED meeting, Chairman Powell indicated that FED policy was changing. Recent FED History The Federal Reserve Act of 1977 modified the original act that established the Federal Reserve in 1913. The new policy gave the FED a “Dual Mandate” so they would no longer be tasked with just keeping inflation low but would simultaneously try to maintain “maximum employment”. Of course, these are sort of mutually exclusive. If the FED pumps a lot of liquidity into the market, unemployment goes down, but simultaneously inflation goes up, and vice versa if the FED gets too restrictive. So, the FED tried to walk a tightrope between the two extremes and set … [Read more...]
FED’s Semiannual Monetary Policy Report
Federal Reserve Chairman Jerome Powell delivered his semiannual Monetary Policy Report to Congress on June 24th and to the Senate Banking Committee on June 25th. Powell noted that U.S. real GDP expanded roughly 2.5% over the past year, supported by resilient consumer spending and a still-solid labor market. Payroll growth averaged about 124,000 jobs per month in the first five months of 2025—slower than the pace seen during the post-pandemic boom but still consistent with a gradually cooling economy. Inflation, however, remains somewhat above target. The Fed’s preferred gauge, core PCE inflation, is running near 2.6%, with overall personal consumption expenditures (PCE) around 2.3%, … [Read more...]
FED Holds Steady at May Meeting
On May 7, 2025, the Federal Open Market Committee held the FED funds target rate at 4.25% to 4.50%, a level unchanged since December 2024. In his statement, Chairman Jerome Powell said that, while economic growth remains solid, uncertainty has risen markedly amid evolving trade policies and global supply-chain strains saying, “If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment.” Chair Jerome Powell underscored at the post-meeting press conference that the current policy stance is “in a good place” but that the Fed will “await further clarity” before altering … [Read more...]
The Great Phony Disinflation
People are often confused about the difference between DEFLATION and DISINFLATION. Deflation is when prices are actually falling compared to last year, i.e., you will actually pay less for enough items to reduce your cost of living. It doesn't necessarily mean that everything costs less but enough items cost less to make the inflation rate negative. Disinflation on the other hand, simply means that the rate of inflation is slowing. This could be for as little as one month, i.e., annual inflation was 4% in May 2023 and then it was 3% in June 2023. That is a big disinflation. But it was 3.2% in July 2023. So there was no monthly disinflation but there was still disinflation over two months … [Read more...]
Can the FED Engineer a “Soft Landing”?
The ultimate dream of the Federal Reserve and those who believe in the FED's omniscience is for them to engineer a soft landing, i.e., curbing inflation without sending the economy into a deep recession. The idea is that if they raise rates just enough, but not too much, they can find the "Goldilocks" middle ground that will magically cool inflation just enough. In today's article, Mihai Macovei explains why that is more of a fairytale than Goldilocks herself. ~Tim McMahon, editor. There Is No Fed Magic Trick to Achieve a Soft Landing Economic growth in the United States accelerated to a 2.4 percent annualized rate in the second quarter of 2023, picking up from 2.0 percent in the first … [Read more...]
When Can We Expect Lower FED Rates?
Why Has The FED Been Raising Interest Rates? The Federal Reserve (Fed) started raising interest rates in March 2022 in an effort to combat inflation. As of the end of July 2023, the Fed's target rate limit is 5.5%, the highest level in 15 years. There are a few reasons why the Fed is raising interest rates so aggressively. First, inflation was at a 40-year high. In June 2022, the Consumer Price Index (CPI) rose 9.06% year-over-year, the fastest pace since December 1981. This means that the cost of goods and services was rising rapidly, which was eroding the purchasing power of consumers and businesses. Second, the economy is still strong. The unemployment rate posted a 50-year … [Read more...]
No Surprise… FED Raised Rate by 1/4%
The market was predicting a 1/4% raise in the FED Funds rate with 99% certainty and that is exactly what they got. We were wondering if because of last month's drop in annual inflation (due primarily to a mathematical anomaly) the FED would not raise rates this month. But apparently their previous pause was sufficient under the circumstances. By applying the slight rate increase at this point, it should present the impression to the general public that they are on top of things, when the 1/3% rebound in inflation that we expect for July shows up. FED Chairman, Jerome Powell has left the door open for further increases (or not) with his comment, “Looking ahead, we will continue to take … [Read more...]
Default by Inflation
As long as I can remember, the "boogeyman" of government debt has always been default. This is not an insignificant concern. Over the years, governments HAVE defaulted on their sovereign debt. In the 1700s, corporate debt was seen as more likely to be repaid than government debt. As recently as a year ago, Russia was facing the prospect of default on Eurobonds maturing in 2023 and 2043. According to the following chart by Reuters, 34 governments have defaulted on at least some of their sovereign debt since 1989. The largest defaults were Congo in 2012 and Ukraine in 2015, but there was also Ecuador, Nicaragua, Argentina, Venezuela, Russia, and Pakistan, along with many others. But … [Read more...]
Central Banks Respond Differently to the Banking Crisis
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...]