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2021 - Is inflation finally back in the conversation?

Reagan1k

By Reagan1k
in Business and Markets

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Bateshorn
Bateshorn

The only thing more predictable than the GOP running up huge deficits on tax cuts and military spending, is each one suddenly becoming horrified by deficit spending 5 mins after a Democrat is sworn in

PilotsError
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“The bottom line is the deficit went up every year under my predecessor before the pandemic and during the pandemic. It has gone down both years since I’ve been here,” Biden said. “Why is it important? Because bringing down the deficit is one way to ease inflationary pressures.”

Pepperidge farms remembers when people claimed govt spending had nothing to do with it. 

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gsoda3

gsoda3 3236

Posted
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18 hours ago, TxTower said:

Huge relief rally in equities as traders think the Fed just might have some balls after all.


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it was the opposite.  we were going lower during his prepared remarks and in his Q&A until he said they weren't considering 75 basis point hikes.  immediately rates sold off and the market went up.  the longer dated rates aren't justifiable without a couple 75 bp increases. 

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TxTower

TxTower 650

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it was the opposite.  we were going lower during his prepared remarks and in his Q&A until he said they weren't considering 75 basis point hikes.  immediately rates sold off and the market went up.  the longer dated rates aren't justifiable without a couple 75 bp increases. 

We needed 75 bps hike to combat increasingly entrenched inflation. Markets coming to terms with that today. There will be blood.


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Trey3216

Trey3216 15325

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2 minutes ago, TxTower said:


We needed 75 bps hike to combat increasingly entrenched inflation. Markets coming to terms with that today. There will be blood.


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They should have done 2 straight full point hikes and ripped the bandaid off.  I think the market would have reacted better to that than this limey ass shit we're trying to pull now.  

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Hefeweizen

Hefeweizen 5307

Posted
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2 minutes ago, Trey3216 said:

They should have done 2 straight full point hikes and ripped the bandaid off.  I think the market would have reacted better to that than this limey ass shit we're trying to pull now.  

Agree.  Everyone knows it’s going to take a lot  higher rate to slow things down and the fed is moving too slowly.  As usual.

 

 Quantitative easing has stopped, right?  Are those assets being sold too?

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gsoda3

gsoda3 3236

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4 minutes ago, Hefeweizen said:

 Quantitative easing has stopped, right?  Are those assets being sold too?

not sold.  they "refresh" their purchases every period, they're decreasing those purchase amounts going forward. 

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TxTower

TxTower 650

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not sold.  they "refresh" their purchases every period, they're decreasing those purchase amounts going forward. 

Starting in June.

Fed is 6-8 months behind in stopping Open Market purchases and shrinking the balance sheet. Now they’re behind in raising rates.

Consumer spending is still strong and near full employment so they could’ve stopped OM purchases and started to shrink the balance sheet long ago. They pussy footed around too long and now they’re going to have to pull a Volker to contain inflation. But they can’t do that either without ballooning the deficit with carry costs. Rock and a hard place. Inflation may be here to stay for awhile.


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BabaYaga

BabaYaga 15210

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24 minutes ago, Trey3216 said:

They should have done 2 straight full point hikes and ripped the bandaid off.  I think the market would have reacted better to that than this limey ass shit we're trying to pull now.  

They're trying to manage a "soft landing"....which of course will be an ass-over-teakettle disaster.  

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Trey3216

Trey3216 15325

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Just now, BabaYaga said:

They're trying to manage a "soft landing"....which of course will be an ass-over-teakettle disaster.  

No doubt.  I can understand the thought process, but it usually never works.  Wish I had sold my house about 6 weeks ago and collected that equity.  Gonna be a lot of $$ to be made in the market riding these waves up and down the next few weeks/months.  

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Johnny Chimpo

Johnny Chimpo 478

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13 minutes ago, TxTower said:


Starting in June.

Fed is 6-8 months behind in stopping Open Market purchases and shrinking the balance sheet. Now they’re behind in raising rates.

Consumer spending is still strong and near full employment so they could’ve stopped OM purchases and started to shrink the balance sheet long ago. They pussy footed around too long and now they’re going to have to pull a Volker to contain inflation. But they can’t do that either without ballooning the deficit with carry costs. Rock and a hard place. Inflation may be here to stay for awhile.


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The high inflation and low rates is by design, they are inflating the debt away. It’s financial repression. 

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gsoda3

gsoda3 3236

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16 minutes ago, TxTower said:


Starting in June.

Fed is 6-8 months behind in stopping Open Market purchases and shrinking the balance sheet. Now they’re behind in raising rates.

Consumer spending is still strong and near full employment so they could’ve stopped OM purchases and started to shrink the balance sheet long ago. They pussy footed around too long and now they’re going to have to pull a Volker to contain inflation.


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expanding til march was cowardly.  

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TxTower

TxTower 650

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I've read roughly 60,000 posts between here and shaggy that said our deficit doesn't matter. Oops. 

It matters when you need to raise rates to combat runaway inflation.

Financial repression indeed. Savers still getting bent over to benefit Borrowers and the Govt. Consumers to pay with higher prices on everyday goods and services.


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Immaculate Vibes

Immaculate Vibes 114

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44 minutes ago, TxTower said:

This is what it looks like when the markets lose confidence in the Fed.


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Confidence that they know what they’re doing?

Or confidence that they’re in control of the situation? 
 

Imo 2 different things. The first can be corrected. 2nd obviously not. 

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phdhorn

phdhorn 6224

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<THUD!>

Next shoe... worker output down 7.5%.  Worst since... wait for it... 1947.   1947?  Hol-ee shit!

https://www.cnbc.com/2022/05/05/labor-productivity-fell-7point5percent-in-the-first-quarter-the-fastest-rate-since-1947.html

Labor costs way up, which sometimes can be a good thing, but in this case it's not higher wages... more likely the enormous benefit costs of the covid surge in Q1.  Since general salary/wage costs only rose about 1.4% in the last measurement out (Q4 2021) and we know inflation is bouncing along at least 6%, most of the labor costs, like LDH cholesterol, are probably due to "bad" factors (the Great Resignation, increases in insurance and benefits to keep up with the pantomimic, etc.).  We can assume that Q2 didn't see spectacular wage increases, either.  Eventually this will cause companies to produce less... and workers will be culled. The jobs numbers for last week were worse than expected, tough they're still holding out.

Anyway, taken with the decline in worker output, the spiral has started.  The question is will it stop?

Not a good report to give confidence against a recession.

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Upgrayedd

Upgrayedd 5805

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49 minutes ago, phdhorn said:

<THUD!>

Next shoe... worker output down 7.5%.  Worst since... wait for it... 1947.   1947?  Hol-ee shit!

https://www.cnbc.com/2022/05/05/labor-productivity-fell-7point5percent-in-the-first-quarter-the-fastest-rate-since-1947.html

Labor costs way up, which sometimes can be a good thing, but in this case it's not higher wages... more likely the enormous benefit costs of the covid surge in Q1.  Since general salary/wage costs only rose about 1.4% in the last measurement out (Q4 2021) and we know inflation is bouncing along at least 6%, most of the labor costs, like LDH cholesterol, are probably due to "bad" factors (the Great Resignation, increases in insurance and benefits to keep up with the pantomimic, etc.).  We can assume that Q2 didn't see spectacular wage increases, either.  Eventually this will cause companies to produce less... and workers will be culled. The jobs numbers for last week were worse than expected, tough they're still holding out.

Anyway, taken with the decline in worker output, the spiral has started.  The question is will it stop?

Not a good report to give confidence against a recession.

Wait.  How does a one-off benefit cost in Q1 become a spiral?  Or am I missing something.

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phdhorn

phdhorn 6224

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7 hours ago, Upgrayedd said:

Wait.  How does a one-off benefit cost in Q1 become a spiral?  Or am I missing something.

It hasn't "become" one as you say.  The processes are aligning for it to happen... they've started (IMHO) but not to the point of no return.  This is exactly what Powell said the other day (I had to make a .jpg of this because it's behind a paywall):

image.png.cf8d1b19dc9ece46bba2e62db4bb1f14.png

https://www.marketplace.org/2022/05/04/is-a-wage-price-spiral-driving-inflation/

This is more circular than linear (i.e. the last thing here links back up to the first), but in a nutshell:

Labor costs go up in tight labor market→wages go up but not as much as inflation→worker output declines→prices have to go up as oversupply occurs→labor costs go up again→output diminishes→prices go up again... (yada yada yada).  Eventually economic growth shrinks (like Q1).

The bad output figure might be a factor in creating a recession driven by the spira; - if it continues.   So far consumer spending is holding it up, driven largely by travel and stuff people couldn't do for 2 years, but that might eventually go away if prices get to the point where people do what they always do - stuff like put off house improvements, decide not to take that vacation after all, etc.

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Immaculate Vibes

Immaculate Vibes 114

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1 hour ago, DefinitelyNotHollywoodColt said:

here you'll find a list of posts made by @StruggleBus @workswithseed @Incredulity @Immaculate Vibes @Cheeseweasel @BabaYaga  decrying the explosion in our national debt from 2016-2020:

 

 

 

 

 

 

Cmon man. 
 

13 minutes ago, StruggleBus said:

Embrace the fact that you were dead fucking wrong. 

I was told this time would be different. 
 

8 hours ago, phdhorn said:

<THUD!>

Next shoe... worker output down 7.5%.  Worst since... wait for it... 1947.   1947?  Hol-ee shit!

https://www.cnbc.com/2022/05/05/labor-productivity-fell-7point5percent-in-the-first-quarter-the-fastest-rate-since-1947.html

Labor costs way up, which sometimes can be a good thing, but in this case it's not higher wages... more likely the enormous benefit costs of the covid surge in Q1.  Since general salary/wage costs only rose about 1.4% in the last measurement out (Q4 2021) and we know inflation is bouncing along at least 6%, most of the labor costs, like LDH cholesterol, are probably due to "bad" factors (the Great Resignation, increases in insurance and benefits to keep up with the pantomimic, etc.).  We can assume that Q2 didn't see spectacular wage increases, either.  Eventually this will cause companies to produce less... and workers will be culled. The jobs numbers for last week were worse than expected, tough they're still holding out.

Anyway, taken with the decline in worker output, the spiral has started.  The question is will it stop?

Not a good report to give confidence against a recession.

Hiking right into a recession.  
 

So then the question becomes when do we actually start new QE? I’ll say Q1 2023. Likely with still elevated inflation, maybe not 8%. Brrrr

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