patrick.net

zzyzzx says

3 month Tbill rates over 5%

Yield curve is inverted, not normal :-(
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I saw today's CPI report.

12 month inflation or CPI is 5%. It was 6% last month.

CPI went up 0.4% from last month, mostly driven by housing costs. Egg prices and gas went down.

Economists were expect 5.2% and 0.2% (not 5% and 0.4%).

So now CPI is not greater than the Fed Funds rate, which is 5%.

When CPI gets below 1% of the Fed Funds rate, then there is enough margin to consider that real interest rates are positive.

Go back to Obama admin when 7 out of 8 years the Fed Funds rate was 0.25% and annual inflation was average around 1.5%.

A vast majority of Obama's terms were during negative interest rates.
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With CPI dropping to 5% and equal to the Fed Funds rate, seems like the Federal Reserve will cap the Fed Funds rate to 5.25% or 5.5%.

Granted the monthly change was +0.4% from February to March 2023, but inflation seems to be more under control.
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ad says

12 month inflation or CPI is 5%

That explicitly omits rents and fuel.

HeadSet says

ad says

12 month inflation or CPI is 5%

That explicitly omits rents and fuel.

Lol! They always ignore items that are outside certain ranges. Not so useful in general.

HeadSet says

That explicitly omits rents and fuel.

No, it is the overall CPI which obviously includes rent, energy, and food. Overall CPI (i.e., inflation for last 12 months) is 5%.

I believe you may be thinking of the core CPI which omits food and energy.

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ad says

I believe you may be thinking of the core CPI which omits food and energy.

True, but it is that core CPI that went up over 5%.
But core prices, which exclude volatile food and energy items and capture longer-lasting trends, increased 0.4% from February following a 0.5% bump in the previous month. That pushed up the annual increase from 5.5% to 5.6%.
https://www.usatoday.com/story/money/economy/2023/04/12/cpi-inflation-data-today-live-updates/11607115002/

HeadSet says

True, but it is that core CPI that went up over 5%.

Yes, but overall CPI is 5%. For me, overall CPI has more of an impact on my household finances.

Core CPI is just a large aggregate or component of overall CPI.

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https://finance.yahoo.com/news/feds-mester-says-rates-need-to-rise-above-5-reserves-judgement-for-next-policy-meeting-220555377.html

Fed’s Mester says rates need to rise above 5%

Interest rates need to be 12%, that would put an end to $35,000 starter cars with 72 month payment schedules. .

Tenpoundbass says

Interest rates need to be 12%, that would put an end to $35,000 starter cars with 72 month payment schedules. .

Problem is if they were able to sell them at that price, they'll keep trying.... and so will the buyers. We're in a tricky period that I don't claim to understand. I think most auto buyers without means/income are probably already paying close to 12%. Obviously shit credit buyers are paying way more. But someone with a 620-40 middle score is for sure at 12%.

WookieMan says

Problem is if they were able to sell them at that price, they'll keep trying.... and so will the buyers

Yet still another case where stupid people willing to overpay ruin it for everyone. The banks are supposedly wising up and not giving out loans at excessive LTV, meaning you can't borrow 160% of the price of the car any more.

up another .25%

zzyzzx says

up another .25%

The Fed Funds rate is now between 5% and 5.25% and at 1990's levels.

It will be interesting to see how GDP and unemployment fares over next 6 months considering that for 7 out of 8 years during the Obama Administration the rate was at 0.25%.

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Grab some 13 week and 6 month US Treasuries and sit back and collect 5%/year, risk free.

$1 million invested means $50,000 in passive annual income, not bad for sitting on your ass, downing Margaritas, and munching on carnitas tacos.

Al_Sharpton_for_President says

Grab some 13 week and 6 month US Treasuries and sit back and collect 5%/year, risk free.

$1 million invested means $50,000 in passive annual income, not bad for sitting on your ass, downing Margaritas, and munching on carnitas tacos.

Yeah, cause everyone's got a million dollars. I'm going to assume if someone has a million dollars, 50k ain't too exciting.

I'm not buying bonds but I probably should at my stage of life.
I'm probably going to start changing my growth stock funds to dividend style funds.
I just like capital appreciation funds.

GNL says

Yeah, cause everyone's got a million dollars.

I'm guessing that pretty much every here has at least that much.

zzyzzx says

GNL says

Yeah, cause everyone's got a million dollars.

I'm guessing that pretty much every here has at least that much.

Wow, that is pretty amazing. I'm running with a high brow crowd then.

GNL says

Wow, that is pretty amazing. I'm running with a high brow crowd then.

Ain't you one of those with that kind of bread?

No

clambo says

I'm not buying bonds but I probably should at my stage of life.

Check out Vanguard Bond ETF (ticker: BND). It dropped about 23% from peak set in 2020.

I think BND will return to 2020 levels once interest rates settle.

Federal Reserve has the Fed Funds rate around 5.25% which is where it was for most of the 1990s. I think they may increase it one more time to 5.5% but I don't expect anything more than that.

Prime rate for various loans like home equity loans are set usually at 2% above the Fed Funds rate; I don't think the Fed wants to completely tighten credit availability. Look at M2 money supply chart as it has fallen off the cliff recently.

Inflation is measured various ways, as Personal Consumer Expenditure and Consumer Price Index.

PCE is more comprehensive than CPI, such as it also accounts for non urban consumers.

Core PCE (excludes food and energy) = 4.6% for last 12 months

PCE (includes food and energy) = 4.2%

CPI = 5%.

The Fed Funds rate now is 5.25% and greater than inflation (CPI and PCE). This will help to keep prices in check. I noticed egg prices have dropped a little.

Below is provided by Wolfman at Wolf Street website. It shows when core PCE is above the Fed Funds rate such as during Obama's 8 years in office.



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Will they continue to raise rates?

GNL says

Will they continue to raise rates?

I hope so.

HeadSet says

GNL says

Will they continue to raise rates?

I hope so.

It seems perfectly sensible to wish for higher rates. Everyone is effected by inflation.

GNL says

Will they continue to raise rates?

Expecting the federal reserve to do what's right is just plain silly. If they were doing the right things overnight rates would be much higher than they currently are.

It's not so much Americans and American companies that are getting slammed by higher rates (don't worry plenty will go BK).

It's really funny to watch the foreigners squirm. You see there's about 15 trillion in dollar denominated debt owed by foreign entities. Most of this is short term debt. The Fed raised rates about 5% over the last year. There's just no way to come up with an extra $750 billion per year. Everyone is trying to extend and pretend, but sooner or later, lenders just ain't gonna lend billions of extra dollars to people, companies, governments, etc.

The defaults will be spectacular.

Misc says

The defaults will be spectacular.

See ya in the breadlines!

https://finance.yahoo.com/news/harvard-rogoff-sees-10-yield-195335688.html

Harvard’s Rogoff Sees 10-Year Yield North of 4% in Coming Years

I'm thinking that it's going higher than that.

Personal Consumer Expenditure (PCE) index has been trending down, so I do not know if the Fed will raise it from currently 5.25% to 5.5% this month or next month.

I did see a Wall St Journal article about $1 trillion US federal debt likely to be financed at 6%. Wow, as not long ago the rate was around 0.5%.

These interest payments or debt service are going to become a considerable larger percentage of total US federal budget. I hope tax receipts continue to increase.

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Misc says

It's really funny to watch the foreigners squirm. You see there's about 15 trillion in dollar denominated debt owed by foreign entities.

Add to that the massive amount of American Real estate from Brickell, Miami to Coastal California Mondocondos and who knows how much commercial real estate, owned by foreigners as their hedge against their native land's political discord.

Commercial and Residential Real Estate is really trying to maintain 3% interest rate pricing in a 7% interest rate environment.

S&P 500 is at 4300 and is in a bull market since it is 20% below the recent low set in October 2022.

It was at
3400 in February 2020
4300 in July 2021
4818 in December 2021
3550 in October 2022

There has been about 20% inflation from February 2020 to present day

The S&P 500 increased by 26% since February 2020

So the S&P 500's real gain was only 26% minus 20%, or 6% since February 2020

I think the market may move sideways for second half of 2022 and the current gains Year to Date (YTD) may not cause an increase to CPI or PCE.

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https://finance.yahoo.com/news/fed-keep-rates-high-thanks-000020956.html

Fed Will Keep Rates High Thanks to Inflation

zzyzzx says

https://finance.yahoo.com/news/fed-keep-rates-high-thanks-000020956.html

Fed Will Keep Rates High Thanks to Inflation

Fed Will Keep Rates High Thanks to Inflation Fueled by Corporate Greed, Investors Say

No competent person in economics or finance thinks inflation is caused by corporate greed. Inflation, the general rise in prices across the board, has one and only one cause - the overprinting of fiat currency.

HeadSet says

No competent person in economics or finance thinks inflation is caused by corporate greed. Inflation, the general rise in prices across the board, has one and only one cause - the overprinting of fiat currency.

If there is collusion within certain industries such as serious AntiTrust effort, then in some segments of economy there may be "artificial" inflation. Prices stay elevated because companies colluded with each other.

Also, if a country slowly becomes a 3rd world shit hole, then supply starts to lack compared to demand. Hence, inflation results.

This could be where each new generation of labor force is dumber and more lazy than the previous one.

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ad says

If there is collusion within certain industries such as serious AntiTrust effort, then in some segments of economy there may be "artificial" inflation.

Remember, inflation is the rise in prices across the board, it has nothing to do with high prices in one sector due to shortages. With inflation, it is the money itself that is devalued, not when a specific product increased in value due to demand exceeding supply.

HeadSet says

Remember, inflation is the rise in prices across the board, it has nothing to do with high prices in one sector due to shortages. With inflation, it is the money itself that is devalued, not when a specific product increased in value due to demand exceeding supply.

Yes, I know. But if you live in a decaying society, then prices "across the board" will rise in order to maintain the same quality of life or standard of living.

You have shortages that are "across the board" as far as producing the same quality services and goods.

That is what the chumps and sheep don't realize as far as a country decaying toward a third world shithole. They see symptoms around them like banning the SAT or ACT because they are racist.

Pushing race-based admissions in producing medical students, and eventually putting political pressure on the American Medical Association to "rebaseline" the medical license exam to make it more socially equitable or race egalitarian.

So if you want nearly 100% reliable electrical grid or a competent medical doctor (2004 quality of life standards) then you are going to pay a lot more in 2004 dollars (i.e., inflation adjusted dollars ) for that in the future.

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