Hot Inflation Report Derails Case for Fed’s June Rate Cut

[Beet]

Stubborn inflation pressures persisted in March, derailing the case for the Federal Reserve to begin reducing interest rates in June and raising questions over whether it can deliver cuts this year without signs of an economic slowdown.

The consumer-price index, a measure of goods and services prices across the economy, rose 3.5% in March from a year earlier, the Labor Department said Wednesday. That was a touch higher than economists had forecast and a pickup from February’s 3.2%. So-called core prices, which exclude volatile food and energy categories, also rose more than expected on a monthly and annual basis.

https://www.wsj.com/economy/inflation-march-cpi-report-interest-rate-239b7e5e

[jaichind]

This means that the Fed is less likely to lower rates this year and blow up the Biden Treasury strategy of issuing short-term debt hoping to finance these debts later this year or early next year when borrowing rates might be lower due to Fed rate cuts.

The act of issuing short-term debt (bills) is highly unusual and usually only done during times of economic crisis.  This is likely partly a bet on rate cuts as well as fears that selling too much long-term debt might run into liquidity problems.  Now both legs of that bet might go against Biden 

[jaichind]

US CPI Urban Consumers Less Food & Energy which I know the Fed pays a lot of attention to continues at a rate of 3.8%.  This does not sound like a level anywhere close to the 2% inflation target to justify any talk of rate cuts anytime in 2024.

[lfromnj]

Yeah this isn't going down till we fix the deficit.

[Electric Circus]

And employment growth has remained strong, so the case for lowering rates immediately is looking weaker on both sides of the equation.

[jaichind]

https://www.bloomberg.com/news/articles/2024-04-10/biden-s-battle-against-inflation-gets-tougher-with-latest-data

"Biden Predicts Fed Will Cut Rates Despite High Inflation"

Biden says that Fed will cut rates anyway

[Open Source Intelligence]

https://www.bloomberg.com/news/articles/2024-04-10/biden-s-battle-against-inflation-gets-tougher-with-latest-data

"Biden Predicts Fed Will Cut Rates Despite High Inflation"

Biden says that Fed will cut rates anyway

If Trump said this 4 years ago, Democrats would've screamed bloody murder about presidential interference into the independent Fed's running of the economy.

Politicians are hypocrites in case you can't figure it out.

[RI]

There is zero reason to cut rates for the foreseeable future.

[Open Source Intelligence]

https://www.ft.com/content/944ea914-07df-47c1-a70f-c4a56fec6e46

Bank of America and Deutsche Bank analysts now don't expect rate cuts until December. BofA says 4 in 2025 (article points out how much economic cooling do they foresee to have that occur? BofA report silent on that), Deutsche are down to 2 for 2025.

2-year T-bills sold off/yields up this week and the auctions were judged to have been poor.

A lot of companies with debt restructuring due very soon especially for real estate holdings as has been pointed out by others are pulling hair out and probably attempting some arm twisting of public officials. Wouldn't surprise me if it wasn't in part behind Biden's jawboning of the Fed. (A December cut doesn't help him politically.)

Notably, both Deutsche and Bank of America say that the Fed will stop cutting rates earlier than it had previously estimated, implying that something structural changed in the US economy that makes it able to withstand higher interest rates.

[lfromnj]

There is zero reason to cut rates for the foreseeable future.

Debt servicing is the main reason I think powell might still do it.

[Open Source Intelligence]

There is zero reason to cut rates for the foreseeable future.

Debt servicing is the main reason I think powell might still do it.

That would be such a historic massive punt though. You'd send the dollar crashing, treasury yields skyrocketing, every commodity under the sun including oil, gold, silver, Bitcoin shoots up in price. Federal Reserve legitimacy would be destroyed for a very long time.

Stock price of Nvidia has long ago left common sense and when it comes down is going to be a 1929-level mother of wealth destruction. Maybe that's the excuse Powell needs though to justify all the people crying to him for rate cuts.

[Benjamin Frank 2.0]

Apparently the GDP price deflator inflation reading came in lower than expected today.

And, contrary to the comments here about the Fed rate, the private banks have their own ability to set rates, and apparently raised some of their mortgage rates today as well.

Both of these things apparently helped the stock markets.

[Open Source Intelligence]

Apparently the GDP price deflator inflation reading came in lower than expected today.

And, contrary to the comments here about the Fed rate, the private banks have their own ability to set rates, and apparently raised some of their mortgage rates today as well.

Both of these things apparently helped the stock markets.

Helped gold. Made a massive move higher to $2400.

"Higher for longer" island getting crowded. Meanwhile here was the investor take going back all of 4 months ago.

https://www.cnn.com/2023/12/10/economy/stocks-week-ahead-fed-higher-for-longer-crumbling/index.html

[oldtimer]

There is zero reason to cut rates for the foreseeable future.

Debt servicing is the main reason I think powell might still do it.

That would be such a historic massive punt though. You'd send the dollar crashing, treasury yields skyrocketing, every commodity under the sun including oil, gold, silver, Bitcoin shoots up in price. Federal Reserve legitimacy would be destroyed for a very long time.

Stock price of Nvidia has long ago left common sense and when it comes down is going to be a 1929-level mother of wealth destruction. Maybe that's the excuse Powell needs though to justify all the people crying to him for rate cuts.

I don't think the FED will do anything before November, the economy is overheating but any decision will be open to political attack.

If an economic emergency happens that they absolutely need to do something on rates, then the outcome of the election will already have been determined for Trump.

[○∙◄☻¥tπ[╪AV┼cVê└]

There is zero reason to cut rates for the foreseeable future.

Debt servicing is the main reason I think powell might still do it.

It's crazy that interest will be over a trillion a year, but that's not enough of a reason by itself.

[jaichind]

There is zero reason to cut rates for the foreseeable future.

Debt servicing is the main reason I think powell might still do it.

It's crazy that interest will be over a trillion a year, but that's not enough of a reason by itself.

Interest rates will make a big difference in US public debt interest payments as a % of GDP.  The USA will head toward an unprecedented but still manageable level of interest payments as a % of GDP.  To make it management will require some fiscal adjustments in the coming years though.

[Hollywood]

The next several months looks extremely rough for the US economy.  We are beginning to see the worrying results of inflation and high interest rates on Consumer spending, debt and delinquency.   

Delinquencies on credit card loans have risen to 3.1% at the end of 2023, and it has made a sharp pivot upwards in 2024.  https://fred.stlouisfed.org/series/DRCCLACBS

Even more concerning – and it’s a risk that not many are paying attention to – is that delinquencies at smaller banks (blue) have catapulted to nearly 8%, hitting levels that’ve never been seen before. https://finimize.com/content/more-americans-are-defaulting-and-no-ones-paying-attention

“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed. “This signals increased financial stress, especially among younger and lower-income households.”  Serious credit card delinquencies increased across all age groups, notably with younger borrowers surpassing pre-pandemic levels. https://www.newyorkfed.org/newsevents/news/research/2024/20240206

There's no way costs and debt are manageable for people.  I earned $110k last year minus investment income, and my net on that was $80k.  The bite from car payments, rent, food, gas, household items, entertainment, etc. is outrageous.  I've got a payment on 2024 VW Atlas Cross-Sport of $1,300 a month, and that's just one of my automobiles.  Rent is $2,000, gas is $250, food is $350-400, Home Entertainment/Internet is $150, and Medical is $300.  Let's also add $5,000 for Miscellaneous.  That's $60,000 for the year plus other expenses.  I've also got other expenses that I didn't include like a mortgage on residential properties.  There's no way Americans are seeing good economic conditions.  Unemployment could drop to 1% and it'd mean nothing.  We are seeing unmanageable debt cause jobs don't cover the costs for people unless they're living with their parents.  Household expenses increased by 5k between 2022 and 2023. 

The FED knows there's a crisis looming among personal and commercial debt holders.  There's going to be pain as defaults and foreclosures increase around the country.  There won't be a soft-landing for most Americans.  The Fed merely wants to maintain altitude until Election Day. 

[Open Source Intelligence]

There's now a 20% chance according to markets the next Fed action will be a rate hike.

...all the companies that pushed off maturing debt to 2025. FT Alphaville with a good piece on private equity. https://www.ft.com/content/806034f0-9914-44c7-9065-9e5fd32e8eca

[Open Source Intelligence]

Japanese yen now 156 to the dollar.