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Governor white boots has the personality of a stone, the imagination of your worst junior high teacher and the ultra-religious standing of VP Pence. And his plan is to be the new Trump when Trump goes down. Harvard should be ashamed but of course they crank out these useless idiots by the hundreds every year.
I'm still in short term fixed income but my situation may not be right for everyone. As we're in the midst of moving 2,000 miles East, there's enough turbulence in our daily lives that I've little time to study the market so I have to rely on a 30,000 foot view and I don't see a bull market over the next several months so I'll keep clipping coupons for a while.
My thoughts exactly. Chat-GPT 4 has learned to avoid micro aggressions and unlearned basic mathematics. Excellent.
The Kovacs brothers are two of the better analysts on SA.
The moment of reckoning has been a long time coming. This reminds me of 2008 in the US. However, it's unlikely this one will bring down the world economy.
The talking heads appear to think this was part of the problem today. China, being China, will stop reporting bad news.
China Cuts Key Rates as Economy Sours. Its Other Move Was Concerning
China’s central bank lowered interest rates on Tuesday after fresh data showed consumer spending and factory output weakening.
It’s the latest effort to nudge the world’s second biggest economy toward growth amid a disappointing rebound from Covid-19-era lockdowns. Officials from the government and central bank are resorting to increasingly desperate measures to revive confidence as the bad news piles up.
In a move that is perhaps more worrying than the poor data itself, the National Bureau of Statistics also announced it would stop reporting youth unemployment figures after they rose every month this year to exceed 20%. It halted the release of a consumer confidence report earlier this year.
Besides the pandemic lockdowns that lasted until late 2022, China is coping with a property bubble that’s deflating. Real estate developer Country Garden Holdings 2007 +1.25% (2007.HK) suspended payments on some of its bonds. Authorities are reluctant to go big on new stimulus measures for fear of reigniting a speculative frenzy.
China’s central bank cut a key interest rate on one-year loans on Tuesday, as well as one for one-week borrowing, after a report last week showing the inflation rate turned negative in July.
Other data on Tuesday revealed retail sales and industrial production rose less than expected in July.
The latest measures to get China’s economy back on track are unlikely to be the last. The stakes for the government are high as it looks set to miss its 5% target for economic growth this year, which was already the lowest goal in years.
And this take on the move from the WSJ: Headline only:
China’s Well-Honed Playbook: Cut Rates, Hide Data
Good point. I was thinking the current administration would stop this deal but much less likely if the union backs the deal.
Back from a weekend trip to LA to visit with friends and family before we head east. The SPX is down below its 50 day MA for the first time since March. Since all of the irrational exuberance occurred in June and July and the 200 day MA is well below the 50 I don't see a signal that the market is headed for an immediate retrace. PPO, (the 2nd section of the chart), signaled a downturn in July well before the downturn began. For me this is the technical signal to watch as RSI, (at the top) and VIX, (at the bottom) are not showing any severe signs of trouble. I suspect the market will remain weak during the traditionally weak September and October months. If so I'll begin doing some buying again. As CD's mature I'm moving money into Treasuries as we may be entering a period where a very volatile week offers some serious bargains and as always Ms. Market is not showing her cards.
I rented a Tesla Model 3 while in LA. Decent car to rent but I would not buy one. Very mediocre mapping app and no support for Apple Carplay - That's a non-starter for me. That said, Tesla is the people's car of Los Angeles. You can't drive a block without seeing one.
Georgia charges Trump under RICO for heading a criminal organization. No surprise, he's a mob boss. Mark Meadows better sing loud now that he's charged on the state level. There are 18 named co-conspirators and other un-named but numbered co-conspirators.
Interesting timing for this post. I'm in LA for a few days and rented a Model 3. Yesterday the hotel in Pasadena topped up the batteries and we drove to Silver Lake and the Los Feliz area to visit family and have lunch, maybe 70 miles round trip. The car is rated for a 350 mile range. When we returned to the hotel we were at 48% battery level. The air was on of course and when LA traffic isn't moving at 2 mph it's more like 75-80. Still, that's ridiculous.
For me the deal killer was the fact that Tesla doesn't support Apple Carplay. Telsa maps are horrible in any complex turn situation of which there are several in the Silver Lake area of LA. Plus if you're used to making and receiving calls and texts with Carplay while driving you'll never want to drive a vehicle without it. There are several positives but, for me, the negatives outweigh these attributes.
I suppose the most obvious delusion, religion, is not an area Dr. Burns is willing to address..:)
And 12-year-old budding comedians.
Now post an article from MSNBC on while oil is the devil..:).
DIS results were again underwhelming. They're raising prices for DIS+ while it's not growing and seem to have no exit from the woke / no-woke argument. Even if they're on the right side of history it seldom pays for public companies to tread into religious and/or political stances. I'll look at DIS again next year.
Understood but I still find the numbers a bit hopeful. Solar panels work ideally at 70 degrees F and degrade in 110 degree temperatures. I've designed and supervised the installation of dozens of large array systems. Also, solar panel costs have, lately, not gone down, they've moved up in US$ terms. It's possible these calculations do not consider land cost or the cost to bring utility level sub-stations to the site.
In any event, all of my points don't negate your thesis, solar is quite inexpensive as long as it's piggybacking on an existing infrastructure and there's not so much mid-day output that storage is required.
I'd like to put some hard numbers to the idea that solar can be installed and brought on-line for 1.5 cents a kWh. In a modern solar installation, sited at an ideal location, tilt and azimuth, a solar panel will produce 1.5 kWh per year for every installed watt. That is, a megawatt install will produce 1.5 million kWh of energy per year.
The life of a solar panel is roughly 30 years. That is, each installed watt will produce 45 kWh over its lifetime. To meet the 1.5 cents per kWh the installation would have to cost, all in, 67.5 cents per installed watt. Even after all incentives and tax rebates I don't see how that's possible.
Then we must consider the time value of money. We pay for a system with present money value and expect a return over time at a lower future value. By the 30th year, it's exponentially lower. This is not a problem unique to solar, but it's a serious consideration when attempting to understand the real cost of a kWh over a 30 year time period.
I met Ted Lieu a few years ago when we were both speaking at a conference in Los Angeles. Smart guy.
Meme of the week. When Montgomery AL dock security moved a private boat because it was blocking the return of a tourist ferry, the four white men who had parked illegally, decided to gang up on the black security guard instead of moving their boat. Then, as you may know, all hell broke loose. After taking a beating of their own, these four were arrested. This is just one of the funny memes working it's way along the Internet.
When you're busy planning a crime it's usually best to:
A) Not do it on a phone.
B) Not write down the crime details.
Just in case prosecutors needed another smoking gun, co-conspirator #5 just gave it to them. From the NYT:
Previously Secret Memo Laid Out Strategy for Trump to Overturn Biden’s Win
The House Jan. 6 committee’s investigation did not uncover the memo, whose existence first came to light in last week’s indictment.
A lawyer allied with President Donald J. Trump first laid out a plot to use false slates of electors to subvert the 2020 election in a previously unknown internal campaign memo that prosecutors are portraying as a crucial link in how the Trump team’s efforts evolved into a criminal conspiracy.
The existence of the Dec. 6, 2020, memo came to light in last week’s indictment of Mr. Trump, though its details remained unclear. But a copy obtained by The New York Times shows for the first time that the lawyer, Kenneth Chesebro, acknowledged from the start that he was proposing “a bold, controversial strategy” that the Supreme Court “likely” would reject in the end.
But even if the plan did not ultimately pass legal muster at the highest level, Mr. Chesebro argued that it would achieve two goals. It would focus attention on claims of voter fraud and “buy the Trump campaign more time to win litigation that would deprive Biden of electoral votes and/or add to Trump’s column.”
The memo had been a missing piece in the public record of how Mr. Trump’s allies developed their strategy to overturn Mr. Biden’s victory. In mid-December, the false Trump electors could go through the motions of voting as if they had the authority to do so. Then, on Jan. 6, 2021, Vice President Mike Pence could unilaterally count those slates of votes, rather than the official and certified ones for Joseph R. Biden Jr.
While that basic plan itself was already known, the document, described by prosecutors as the “fraudulent elector memo,” provides new details about how it originated and was discussed behind the scenes. Among those details is Mr. Chesebro’s proposed “messaging” strategy to explain why pro-Trump electors were meeting in states where Mr. Biden was declared the winner. The campaign would present that step as “a routine measure that is necessary to ensure” that the correct electoral slate could be counted by Congress if courts or legislatures later concluded that Mr. Trump had actually won the states.
It was not the first time Mr. Chesebro had raised the notion of creating alternate electors. In November, he had suggested doing so in Wisconsin, although for a different reason: to safeguard Mr. Trump’s rights in case he later won a court battle and was declared that state’s certified winner by Jan. 6, as had happened with Hawaii in 1960.
But the indictment portrayed the Dec. 6 memo as a “sharp departure” from that proposal, becoming what prosecutors say was a criminal plot to engineer “a fake controversy that would derail the proper certification of Biden as president-elect.”
“I recognize that what I suggest is a bold, controversial strategy, and that there are many reasons why it might not end up being executed on Jan. 6,” Mr. Chesebro wrote. “But as long as it is one possible option, to preserve it as a possibility it is important that the Trump-Pence electors cast their electoral votes on Dec. 14.”
Three days later, Mr. Chesebro drew up specific instructions to create fraudulent electors in multiple states — in another memo whose existence, along with the one in November, was first reported by The Times last year. The House committee investigating the Jan. 6 riot also cited them in its December report, but it apparently did not learn of the Dec. 6 memo.
“I believe that what can be achieved on Jan. 6 is not simply to keep Biden below 270 electoral votes,” Mr. Chesebro wrote in the newly disclosed memo. “It seems feasible that the vote count can be conducted so that at no point will Trump be behind in the electoral vote count unless and until Biden can obtain a favorable decision from the Supreme Court upholding the Electoral Count Act as constitutional, or otherwise recognizing the power of Congress (and not the president of the Senate) to count the votes.”
Mr. Chesebro and his lawyer did not respond to requests for comment. A Trump spokesman did not respond to an email seeking comment.
The false electors scheme was perhaps the most sprawling of Mr. Trump’s various efforts to overturn the results of the 2020 election. It involved lawyers working on his campaign’s behalf across seven states, dozens of electors willing to claim that Mr. Trump — not Mr. Biden — had won their states, and open resistance from some of those potential electors that the plan could be illegal or even “appear treasonous.” In the end, it became the cornerstone of the indictment against Mr. Trump.
While another lawyer — John Eastman, described as Co-Conspirator 2 in the indictment — became a key figure who championed the plan and worked more directly with Mr. Trump on it, Mr. Chesebro was an architect of it. He was first enlisted by the Trump campaign in Wisconsin to help with a legal challenge to the results there.
Prosecutors are still hearing evidence related to the investigation, even after charges were leveled against Mr. Trump, according to people familiar with the matter. The House committee last year released emails its investigators obtained showing that Mr. Chesebro had sent copies of the two previously reported memos, one from Nov. 18 and another from Dec. 9, to allies in the states working on the fake electors plan.
But he did not attach his Dec. 6 memo to those messages, which laid out a more audacious idea: having Mr. Pence take “the position that it is his constitutional power and duty, alone, as president of the Senate, to both open and count the votes.” That is, he could resolve the dispute over which slate was valid by counting the alternate electors for Mr. Trump even if Mr. Biden remained the certified winner of their states.
Mr. Chesebro, who is described as Co-Conspirator 5 in the indictment but has not been charged by the special counsel, addressed the second memo to James R. Troupis, a lawyer who was assisting the Trump campaign’s efforts to challenge Mr. Biden’s victory in Wisconsin.
By the next day, the indictment said, Mr. Chesebro’s memo had reached Rudolph W. Giuliani, Mr. Trump’s personal lawyer.
According to the indictment, Mr. Giuliani, who is referred to as Co-Conspirator 1, spoke with someone identified only as Co-Conspirator 6 about finding lawyers to help with the effort in seven states. An email reviewed by The Times suggests that particular conspirator could be Boris Epshteyn, a campaign strategic adviser for the Trump campaign who was paid for political consulting. That day, Mr. Epshteyn sent Mr. Giuliani an email recommending lawyers in those seven states.
As he had done in the earlier memo, Mr. Chesebro cited writings by a Harvard Law School professor, Laurence H. Tribe, to bolster his argument that the deadlines and procedures in the Electoral Count Act are unconstitutional and that state electoral votes need not be finalized until Congress’s certification on Jan. 6. Mr. Chesebro had worked as Mr. Tribe’s research assistant as a law student and later helped him in his representation of Vice President Al Gore during the 2000 election.
Calling his former mentor “a key Biden supporter and fervent Trump critic,” Mr. Chesebro cited what he described as Mr. Tribe’s legal views, along with writings by several other liberals as potential fodder for a messaging strategy. It would be “the height of hypocrisy for Democrats to resist Jan. 6 as the real deadline, or to suggest that Trump and Pence would be doing anything particularly controversial,” he wrote.
But in an essay published on Tuesday on the legal website Just Security, Mr. Tribe said Mr. Chesebro’s Nov. 18 memo “relied on a gross misrepresentation of my scholarship.”
For one, Mr. Chesebro quoted a clause from a law review article by Mr. Tribe about Bush v. Gore as support for the idea that the only real legal deadline is Jan. 6. That was taken out of context, Mr. Tribe wrote, saying he was only narrowly “discussing the specifics of Florida state law.” Mr. Chesebro, by contrast, made it sound as if he was putting forward “a general proposition about the power of states to do what they wish regardless of the Electoral Count Act and independent of the deadlines set by Congress,” he added.
For another, Mr. Chesebro cited a constitutional treatise in which Mr. Tribe wrote that a past Congress cannot bind the actions of a later Congress, which Mr. Chesebro used to buttress his proposal that parts of the Electoral Count Act are unconstitutional. But Mr. Tribe wrote that what he meant was Congress can pass new legislation changing such a law.
The indictment also accuses Mr. Trump and his unindicted co-conspirators of acting with deception in recruiting some of the fraudulent electors. That included telling some of them that their votes for Mr. Trump would be used only if a court ruling handed victory in their state to Mr. Trump.
The Dec. 6 memo dovetails with that approach. Mr. Chesebro wrote that Mr. Pence could count purported Trump electors from a state as long as there was a lawsuit pending challenging Mr. Biden’s declared victory there. But he also proposed telling the public that the Trump electors were meeting on Dec. 14 merely as a precaution in case “the courts (or state legislatures) were to later conclude that Trump actually won the state.”
Mr. Chesebro also suggested he knew that even that part of the strategy would draw blowback.
“There is no requirement that they meet in public. It might be preferable for them to meet in private, to thwart the ability of protesters to disrupt the event,” he wrote, adding: “Even if held in private, perhaps print and even TV journalists would be invited to attend to cover the event.”
The SPX moved up just over 5% from the July 6 bottom to the peak on July 27. Since then we've given up almost 2/3 of that gain. It's been a good market for traders this summer. I remain mostly on the sideline in fixed assets.
The market is taking back some gains this morning. From CNBC:
Moody’s cuts ratings of 10 U.S. banks and puts some big names on downgrade watch
Moody’s cut the credit ratings of a host of small and mid-sized U.S. banks late Monday and placed several big Wall Street names on negative review.
The firm lowered the ratings of 10 banks by one rung, while major lenders Bank of New York Mellon, U.S. Bancorp, State Street, Truist Financial, Cullen/Frost Bankers and Northern Trust are now under review for a potential downgrade.
Moody’s also changed its outlook to negative for 11 banks, including Capital One, Citizens Financial and Fifth Third Bancorp
Among the smaller lenders receiving an official ratings downgrade were M&T Bank, Pinnacle Financial, BOK Financial and Webster Financial
“U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s analysts Jill Cetina and Ana Arsov said in the accompanying research note.
“Meanwhile, many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital. This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels, with particular risks in some banks’ commercial real estate (CRE) portfolios.”
Regional U.S. banks were thrust into the spotlight earlier this year after the collapse of Silicon Valley Bank and Signature Bank triggered a run on deposits across the sector. The panic eventually spread to Europe and resulted in the emergency rescue of Swiss giant Credit Suisse by domestic rival UBS.
Though authorities went to great lengths to restore confidence, Moody’s warned that banks with substantial unrealized losses that are not captured by their regulatory capital ratios may still be susceptible to sudden losses of market or consumer confidence in a high interest rate environment.
The Federal Reserve in July lifted its benchmark borrowing rate to a 5.25%-5.5% range, having tightened monetary policy aggressively over the past year and a half in a bid to rein in sky-high inflation.
“We expect banks’ ALM risks to be exacerbated by the significant increase in the Federal Reserve’s policy rate as well as the ongoing reduction in banking system reserves at the Fed and, relatedly, deposits because of ongoing QT,” Moody’s said in the report.
“Interest rates are likely to remain higher for longer until inflation returns to within the Fed’s target range and, as noted earlier, longer-term U.S. interest rates also are moving higher because of multiple factors, which will put further pressure on banks’ fixed-rate assets.”
Regional banks are at a greater risk since they have comparatively low regulatory capital, Moody’s noted, adding that institutions with a higher share of fixed-rate assets on the balance sheet are more constrained in terms of profitability and ability to grow capital and continue lending.
“Risks may be more pronounced if the U.S. enters a recession – which we expect will happen in early 2024 – because asset quality will worsen and increase the potential for capital erosion,” the analysts added.
Though the stress on U.S. banks has mostly been concentrated in funding and interest rate risk resulting from monetary policy tightening, Moody’s warned that a worsening in asset quality is on the horizon.
“We continue to expect a mild recession in early 2024, and given the funding strains on the U.S. banking sector, there will likely be a tightening of credit conditions and rising loan losses for U.S. banks,” the agency said.
To be clear, China adopts EVs in greater number than any other country only because they have a huge population. Per capita they're not even in the top 10. Norway is adopting EVs at more than 5X the rate of China. If we want to talk about EV adaptation, only Europe is an example with the top 10 countries averaging over 38% EV sales. China is at 16% which means they're massive polluters. Not that we're any shining example, but let's not pretend China is leading anything.
I've no expertise in this area and it's both a complex scientific and political calculation. That isn't an area where I'd invest.
My wife and I are admittedly mass transit rubes. We grew up in Los Angeles where mass transit went to die and then moved to a small town in New Mexico where it's not really required because the town is 7 miles from stem to stern.
We are, after 40 years, real estate and neighborhood experts but we got a real modern city lesson from one of our daughters and her husband when we were advising them on a home purchase last year. The number one deal breaker for them was distance to a DC metro station. After several attempts at recommending based on neighborhood, good bones, etc, I finally added the Google metro map to my list of criteria.
What we found was a great little neighborhood just outside DC that met all of our criteria for value and a reasonable walk to the nearest stop. What sealed the deal was a new metro line with a stop that will be less than a 1/4 mile from the house they chose. No condos yet but we'll have to see what happens in the future.
I've always thought nuclear energy will be a huge part of the move to green energy. Overview from DOE.
https://www.energy.gov/ne/advanced-small-modular-reactors-smrs
Pasadena went through this in the 1970s. If a house is that culturally relevant, it can be moved to another site where density is not as useful.
Tomorrow's trading day could be interesting as we wait until after the close for AAPL and AMZN earnings.
From Seinfeld: Who are these people?
While 'recent times' is not measurable, for the sake of creating a platform for discussion I'll make an assumption we're talking about the last 20 years. If so, I think the FRED chart below shows a real difference. The question of course is how much debt is too much debt? As I'm quite fiscally conservative I'd argue that we've surpassed that point unless we can again create a near zero inflation environment which is why Powell is willing to continue to raise rates until the US population stops buying 'stuff'. Have we already forgotten that Japan and Western governments were demanding to be paid to secure cash investments a decade ago? This is not that era. Non-risk interest is again competing against risk investments. I've chosen to sit back, relax and collect interest while it all gets sorted out. I believe the chart shows we've doubled down on debt as have almost all other nation states. I'm concerned that excessive debt will continue to drive government policy as much or more than science or logic. One can make the contrary argument that debt doesn't matter but I don't think one can argue that debt has not become more problematic when it has doubled since 2008.
Were I pulled over for speeding, I would not want that cop to be Jack Smith. Bragg has already offered up his March trail date to Smith if he'd like to take it. Hopefully this is a redo of Custer's Last Stand and all of the traitors are, over the rest of this decade, found guilty for attempting to overthrow the peaceful transition of government. The indictment should be read by every American. Here are the first two statements in case you may think Jack Smith will be pulling any punches.
1. The Defendant, Donald J. Trump was the forty-fifth President of the United States and a candidate for re-election in 2020. The Defendant lost the 2020 presidential election.
2. Despite having lost, the Defendant was determined to remain in power. So for more than two months following election day on November 3, 2020, the Defendant spread lies that there had been outcome-determinative fraud in the election and that he had actually won. These claims were false, and the Defendant knew that they were false. But the Defendant repeated and widely disseminated them anyway - to make his knowingly false claims appear legitimate, create an intense national atmosphere of mistrust and anger, and erode public faith in the administration of the election.
Not a great argument for investing in the market today.
Big pharma was down today after Pfizer and Merck under performed.
Pfizer
Pfizer (PFE) shares fell 1.3% after reporting weaker-than-expected revenue for the second quarter, due to a slump in demand for its COVID products.
Merck
Merck (MRK) shares lost 1.3% after the company released its second quarter earnings. While revenue beat expectations due to strong sales of its cancer drug Keytruda and HPV vaccine Gardasil, the acquisition of biotech company Prometheus Biosciences drove the company to a loss.
That was a quick move up in the last few minutes.
Hopefully it's not as bad as the radioactive water fad 100 years ago.
At the beginning of the 20th century, springs that produced naturally hot "mineral water" were (and still are) quite popular. In 1903, it was discovered that many of these springs had radioactive water, so the natural conclusion was that radioactivity was good for you.
Soon these hot springs were being advertised as radium spas, and an entire industry was built on the supposedly curative powers of radiation. Reputable medical journals stated that radium slowed aging and cured insanity. Once the U.S. surgeon general announced that radium could cure everything from malaria to diarrhea, the hucksters were off to the races.
So how did it work? Drinking radiated water carried the powerful life force of radioactive energy throughout your body, where it charged cells and rid the body of its waste.
There was no fancier way to be healthy in the 1920s than to take a long soak in a radioactive bath at a radium spa. Some enterprising souls began marketing radiating water crocks that allowed consumers to radiate their own water. Items like the Revigator and the Radium Emanator were embraced by Americans -- the Revigator sold several hundred thousand units in 1929 alone. These handy and chic household devices could quickly make your water radioactive, enabling you to drink the six or so daily glasses of it as recommended by the manufacturers.
Before long, you could purchase radioactive beauty cream, toothpaste and ear plugs. When well-known proponents of the water began falling ill and dropping dead, the radium craze began its decline.
I needed to rent a car for a trip to Los Angeles next month. At Hertz LAX they've loaded up on Tesla Model 3 vehicles and are renting them at a 25% discount to ICE vehicles. This will be my first time renting a BEV and I'm wondering if I have to charge it before returning as one would do with an ICE vehicle. 350 mile range and no looking around for a gas station in LA sounds like a winner to me. I doubt I'll drive more than 200 miles that week as I really dislike driving in that city.
The Fed raised overnight rates 25bp this afternoon. My preferred account was up .41%. That doesn't make complete sense to me but I suppose as we near the end of rising Fed rates more people are jumping in before preferred stocks begin to move up closer to par. From the WSJ:
Federal Reserve Raises Interest Rates to 22-Year High
Officials have slowed the pace of increases this year but aren’t sure they have fully tackled inflation
The Federal Reserve resumed lifting interest rates Wednesday with a quarter-percentage-point increase that will bring them to a 22-year high.
Fed Chair Jerome Powell said it was too soon to tell whether the hike would conclude a series of increases aimed at cooling the economy and bringing down inflation. The central bank would decide whether to keep lifting rates based on how the economy fares in the months ahead, “with a particular focus on making progress on inflation,” he said at a news conference.
The unanimous decision to raise the benchmark federal-funds rate to a range between 5.25% and 5.5% follows a brief pause in increases last month. It marks the 11th rate rise since March 2022, when they lifted rates from near zero.
Markets were mixed after the Fed decision. The S&P 500 finished about flat Wednesday, while the tech-heavy Nasdaq moved slightly lower. The benchmark 10-year Treasury yield fell to 3.850% after climbing Tuesday to 3.911%.
At their previous meeting in June, officials held rates steady but penciled in two more increases this year. Fed officials are scheduled to meet three more times this year, with the next meeting in September.
Powell’s mission going into the meeting was likely to keep market expectations of another rate rise later this year “priced as a coin flip,” said Daleep Singh, a former executive at the New York Fed who is now chief global economist at PGIM Fixed Income. “Pricing the next set of decisions as a coin flip maximizes flexibility for the Fed to react to incoming data.”
Whether the Fed has finished raising rates isn’t particularly important to investors so long as the debate centers on whether one or two more increases of a quarter-percentage point, or 25 basis points, might be warranted, said Subadra Rajappa, head of U.S. rates strategy at Société Générale.
“If you tell me they’re going to have another 100 basis points of hikes, that would be a meaningful change,” Rajappa said.
Inflation has retreated from a 40-year high hit last summer, with the consumer-price index climbing 3% in June from a year earlier. That is well below the June 2022 peak of 9.1%, when gasoline prices reached a U.S. record average of $5 a gallon.
Fed officials have been concerned that underlying price pressures may prove more persistent as a solid labor market allows workers to bargain for higher pay, making it harder to get inflation down further.
Core consumer prices, which exclude volatile food and energy categories, in June posted the smallest monthly gain in more than two years, according to the Labor Department’s consumer-price index. But core prices rose 4.8% in June from a year earlier, a still-elevated level. Fed officials are focused on core inflation because they see it as a better predictor of future inflation.
Powell didn’t rule out another rate rise at the central bank’s September meeting, but he emphasized how much the central bank had already done along with the amount of time it can take for monetary policy to cool inflation.
“We’ve come a long way. Inflation repeatedly has proved stronger than we and other forecasters have expected, and at some point that may change,” Powell said. “We have to be ready to follow the data, and given how far we’ve come, we can afford to be a little patient, as well as resolute, as we let this unfold.”
Powell also said the Fed’s influential staff no longer was forecasting a recession to begin this year, as they had in March, May and June, and instead was projecting a “noticeable slowdown” in growth.
The Fed seeks to keep inflation at 2% over time, as measured by its preferred gauge, the personal-consumption expenditures price index. The Commerce Department will release the June update for that index on Friday.
The Fed fights inflation by slowing the economy through raising rates, which causes tighter financial conditions such as higher borrowing costs, lower stock prices and a stronger dollar. The fed-funds rate influences other borrowing costs throughout the economy, including rates on mortgages, credit cards and auto loans.
The Fed boosted interest rates aggressively in 2022 and then slowed the pace at the end of the year. Holding rates steady in June offered a way to further dial down the pace of increases and study the effects of those rapid moves, particularly after fears that banking stress this spring might further constrain credit.
“For this last part of the tightening cycle, it makes sense to stretch it out over time. They are fine-tuning. They don’t know the exact destination. It makes sense to do that slowly,” said Angel Ubide, head of economic research for global fixed income at Citadel, a hedge-fund firm.
Officials had signaled disagreement in recent months over how to sequence their recent moves. While all 11 voting members of the policy-setting Federal Open Market Committee agreed to last month’s decision to hold rates steady, some of the 18 voting and nonvoting officials would have supported a rate rise at the June meeting, according to a written account released earlier this month.
A few Fed officials have suggested they might prefer to raise rates again at the central bank’s September meeting, while one had endorsed a longer pause. Others who think the impact of the Fed’s rate increases has yet to take full effect are more likely to favor waiting until November or December to decide whether another increase will be appropriate.
“We think this will be the last hike” because inflation will continue to slow and the labor market will soften, said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. But the economy has continued to defy expectations of such slowing for a year, creating a risk that the Fed lifts rates again, he said.
Even if Wednesday’s increase marked the finish line, there was little incentive for Powell to validate those expectations until officials see more evidence that inflation and economic activity has slowed.
“Financial conditions by many metrics have eased,” said Luzzetti. “They don’t want to do anything that pulls forward market expectations of rate cuts.”
A slowdown in core inflation over the coming months could create a new conundrum for the Fed if officials see reasons to think the improvement will be short lived—for example, because wage growth stays firm.
“This is the old, ‘be careful what you wish for,’” said Richard Clarida, who served as Powell’s second-in-command from 2018 until January 2022.
Economists have debated over the past year to what extent slowing labor demand will require joblessness to rise or whether most of the adjustment can occur as companies reduce job openings but not head count.
“A lot of the debate on the labor market is beside the point,” Clarida said. “If I was still over there, what I would worry about is the following: If we don’t get a deceleration in wages and we don’t get a pickup in productivity, then we’re not going to hit our inflation target.”
Thanks Elroy.
The 'one child' edict created an imbalance in China that will take over a generation to unwind. It's likely unfortunate for all of us as that over populated cohort tries to find meaning with their lives.
The only area I know of that's falling back are businesses subordinate to real estate. Among others, these are mortgage brokers and movers. Price hasn't been deeply changed as there are too few homes on the market to support new buyers. So far total US real estate sales are down 20% from last year. As the board likely knows, we're moving to the mid-Atlantic from Santa Fe this summer and movers are bidding against each other to provide the service. As painful as it is to move across the country, this is a good summer to do it.