So all eyes are on the Fed today, which raised its target rate by 75 basis points as everyone expected, as they disclosed it to the Wall Street Journal on Monday. Here is the worst economic news today.
Retail sales fell unexpectedly and the Atlanta Fed’s GDP tracker for the second quarter is now at 0.0%. Remember that the actual Q1 was -0.5%.
Are we in a recession? Maybe…I don’t know yet, but here’s a jaw-dropping quote from the Fed’s press release: “Overall economic activity appears to have recovered after declining slightly in the first quarter.” So, someone is wrong here.
Either the Commerce Department’s retail sales decline is wrong, or Jay Powell is wrong. They can’t both be true. For the first time in my career, I’m betting on the Commerce Department.
HIGHER RATES COULD LEAD TO GREATER FORTUNES FOR SAVERS COMPARED TO SEVERAL PAST YEARS: BANKRATE ANALYST
High inflation always ends in tough recessions. This time will be no different.
I don’t know what the Fed is going to do in the coming months, partly because the Fed doesn’t know what it’s going to do in the coming months. Having completely missed the high inflation story, the Fed says inflation remains high, reflecting pandemic-related supply and demand imbalances, rising energy prices and broader price pressures. I keep searching through their notes for the “we were wrong” statement.
We have inflated the M2 money supply by 40%. We bought almost two-thirds of the bonds sold by Biden’s $2 trillion bailout and that was a huge mistake and that’s what caused the inflation. I keep looking for that. I do not see it. So I’m going to assume it was some kind of pristine miracle. We’ll call it “immaculate inflation”. He had no real cause. It was just a godsend, but it’s not our fault, which leads me to refer to Jay Powell as the Joe Biden of the Federal Reserve.
The only thing missing is that so far Powell hasn’t blamed MAGA Trump for inflation like Biden does when he blames Trump and Vladimir Putin for everything that ails the country.
I kinda like the New York Post editorial this morning: “Biden pumps more economic nonsense.
I think Jay Powell is pumping some nonsense himself. If it were up to me, I would raise the Fed’s target rate by a full percentage point every meeting, until the actual inflation rate starts to come down significantly. I would keep a close eye on the gold and commodity indices, to see if the true value of the dollar is up.
INFLATION REACHES NEW 40-YEAR HIGH IN MAY WITH CONSUMER PRICES UP 8.6%
Not just against other easy money currencies, but against real assets which are historically the best measure of monetary value. So far, we have not seen a sustained decline in commodities. The other side of the coin is how important it should be to not only reduce economic demand, but to increase economic supply like fossil energy, but also with Biden attacking businesses of all kinds and threatening to increase their tax burdens, why should companies produce? Higher taxes mean less production of everything.
Our mentor Art Laffer has always said, “Tax something more, you get less. That’s how dumb corporate tax hikes would be right now. This is a time when if anyone in Washington wanted to avoid or mitigate a Fed-induced recession, we would cut taxes and cut regulations. I’ll call it “Trump 101”, but no, it’s a moment that Joe Biden has now officially declared war on our oil and gas companies. It was just a rumor before. Now that’s a fact.
This morning, Biden said he was prepared to use “all reasonable and appropriate tools of the federal government and emergency authorities to increase refinery capacity and production in the near term”, and he wants a tax on excess profits, just like Senator Ron Wyden. These are not great ideas. Next thing you know, he’s going to call in 20,000 National Guard troops to attack Exxon Mobil in Texas and maybe go after Chevron while they’re there.
Biden wouldn’t use the troops to protect Supreme Court justices, but he might be ready to tackle the Permian Basin. Incidentally, there is no refining capacity as Biden’s own climate regulations prevent new refiners. He shut down the Keystone XL pipeline. He retired licenses in Alaska and the Gulf. He won’t license LNG terminals or refiners, but he’s keen to tax their profits.
Go figure! Without help from the supply side, the battle against inflation will undoubtedly lead to another Fed recession. I hate to say it, but that’s how it stacks up. I know the cavalry are coming, but they can’t come soon enough. Now remember Reagan’s old line… listen:
REAGAN: A recession is when your neighbor loses his job. Depression is when you lose yours and recovery is when Jimmy Carter loses his.
Allow me a minor poetic adjustment: update “Carter” and insert “Biden”, and that’s my riff.