More Lovely Economic News

The recent longer term Treasury debt auctions actually went off pretty well, good demand, and sold at a rate close to that at which they were offered.  Of course that rate remains quite elevated compared to recent years.  And the stock market keeps hitting new highs, driven by irrational beliefs about tech stocks and artificial intelligence.  But today’s inflation report brought that all crashing down, huge market selloff, sharp jump in longer-end bond yields, the ten-year went to 4.31% and the 30 year to 4.46%.  They won’t stop there.  And inflation jitters are only part of the problem.  Now no one thinks the Federal Reserve will cut rates in March, and May is unlikely as well.  I keep mentioning the demand problem.  No less a prominent financial figure than Jamie Dimon, CEO of JP Morgan, noted that it will be hard to find buyers for all that debt being issued this year.  When you can’t find buyers for debt, to lure them in, the interest rate paid goes up.

I keep saying that interest rates are themselves a price–the price of money, and that price has inflated incredibly quickly.  Consumers pay more on credit card rates, for car loan interest, for mortgages; businesses pay more for the credit they use to grow or manage cash flows.  The CPI core hilariously excludes food and energy, which account for a large portion of the average consumer’s budget.  Ask anyone what has happened with those prices. Biden has drained the strategic oil reserve so he can’t use that to keep gas prices low any more.  Even with those exclusions, the core CPI rose .4% in January alone, and 3.8% year-over-year; a long way from the Federal Reserve’s supposed 2% target.  Housing costs, car insurance and our old friend medical care all increased significantly.  As I recall, those are all also pretty much necessities.  I can assure you that medical prices will keep increasing all year–providers are playing catch-up with their labor and other cost rises.  Of course, wages did not rise as fast as prices, so consumers are once more falling behind.  (ZH Post)

Interest rates won’t be going down and federal interest payments will keep going up and the federal deficit will increase and so on and so on.  And at least one Federal Reserve Bank–the one in San Francisco–is expressing concern.  Unlike the Congressional Budget Office report I noted last week, this one actually adopts an appropriately alarmed tone.  If there aren’t serious spending cutbacks very soon, we will keep cycling the deficit and debt and interest payments higher and higher.  High rates of inflation are also inevitable in this scenario, along with lower growth.  This combination is known to us old folks as stagflation, and if we don’t get our act together now, we are in for decades of it.   (SFFRB Report)