Today’s HOT ‘Consumer Price Index’ (CPI) reading caught many by surprise, off guard and flat-footed. Not I. I expected it to be high. I know we still have inflation out there. I see it everyday.
I never bought into the rate cuts in March 2024 fallacy.
I have always been in the ‘higher for longer’ camp when it comes to interest rates.
But, the whole point of this post is that I predicted this HIGHER INFLATION scenario 2-years ago. SMILE. No wonder I do OK when it comes to investing. SMILE.
Click image to access excellent ‘forexlive.com‘ post that explains it all.
Yes, I thought the ‘jobs report’, i.e., the ‘non-farm payrolls’ to be precise, came out on the first Friday of each new month. I was WRONG.
I am not shocked, upset or embarrassed because until a year ago, when the Feds started hiking up interests in anger to fight the brutal inflation, I didn’t pay much attention to ‘CPI’ or the ‘jobs number’. We hadn’t had any interest rates hikes in years. I was not concerned. But, these days I am hugely interested — & of course, one way or another INVESTED — in Fed interest rates & what will happen to them. So, I eagerly await, each month CPI, jobs numbers, Fed Minutes, Fed statement etc. etc.
So, I was waiting to see the jobs number tomorrow.
Then, to my amazement, I heard on ‘CNBC‘ this morning that it will be NEXT Friday, March 10. I thought it was mistake. Then I heard it again. Then I Googled to make sure. Wow. It is next Friday, March 10, rather than tomorrow, March 3.
I, of course, had to know WHY? Come on. Cats have nothing on me when it comes to curiosity. That is how I found the above article. Glad I did. Check it out.
According to it: ” … Bureau of Labor Statistics releases non-farm payrolls on the fourth Friday following the week containing the 12th of a given month …“. Wow. Who knew.
While I was at it, I checked when we get the March CPI — Tuesday, March 14, 2023, at 8.30 am (Eastern).
Click to ENLARGE. Base chart (as ever) is from ‘MarketWatch.com‘ (with thanks).
The last few months have been painful but some of us old folks have lived through similar (if not worse). So, I no longer panic. Most of all I no longer sell in a panic. I will ride it out, just like I did 2008 to 2012.
These are extraordinary times. Inflation is brutal. The Fed left it way too long to stop buying treasuries (to boost bond rates) & raise rates. Now they don’t have any choice but to raise rates — though I am sure that raising rates alone will not curb inflation, in a hurry, this time around. A unique set of criteria — supply chain disruption key among them. Inflation will continue to rise as long as we have supply issues. Moreover, we are also faced by a labor shortage. That means wages will go up. That always drives up inflation. So, I do NOT see a short-term fix. I am ready & prepared for prolonged pain for the remainder of this year.
That said there are quite a few, as of today, THINKING that the Fed will hike rates on Wednesday by 0.75% or even a 1%. That would be quite the thing. If they do we will see another HUGE drop in the market. Investors will FLEE. We will see even further tightening of ‘margin debt’ forcing folks to sell more shares to cover their debt.
BUT, if the Fed only hikes rates 0.50% many will feel a sense of relief. A mistaken belief that inflation may have peaked. (It hasn’t.) But, we will see a HUGE relief rally. But, it won’t, alas, last. [SORRY]
Soon to be 69 I am old enough to have lived through multiple cycles of rising inflation & rising interest rates. Yes, of course, I know that raising interest rates is said to be the ‘silver bullet’ when it comes to reining in inflation. I, however, think the so called ‘experts’ (most of them economists) missed out a key phrase: “all other things being equal”.
That is why we have a UNIQUE situation — & hence a problem — in 2022. All other things are NOT equal. We have supply-chain issues that we have NOT seen since probably WW II (i.e., over 70-years ago) & unprecedented shortages in labor. If something, e.g., dog biscuits, are hard to come by folks will end up paying more to get some WHEN they can find them on a shelf. If they pay for the dog biscuits with a credit card, most will end up paying more for their interest. It becomes a vicious cycle.
Yes, we have runaway inflation & it needs to be checked. No debate on that.
But, aggressively raising interest rates, in 2022, is not going to help. It is just going to cause additional pain to many. Inflation will continue to rise.
Not good. The remainder of 2022 looks GRIM economically.
