Saturday, November 23, 2024
Over the course of the last six months or so, we have openly worried about the future course of inflation. In an episode in November, we pointed out that historically, inflation outbreaks typically have double peaks.
In January, in the face of continued strength of the housing market—a sector that is typically very sensitive to interest rates, we suggested not only did they not need to be cut but that interest rates were too low and that if increase were indeed called for, sooner was probably better than later.
Since then, we have seen the various inflation numbers, more likely than not, come in both higher, month over month, and above expectations.
To our mind, those fears came to fruition yesterday at 8:30 am ET, as the Producer Price Index came in way, way above expectations and, with one exception, the highest month-over-month increase in almost two years.
On Monday, we speculated that if the inflation numbers came in above expectations—and we didn’t even consider the astonishing degree to which they would—stocks would reverse and sell off.
We were wrong. Everyone here at the Ministry of Truth gasped when the numbers were announced. Traders and investors yawned as stocks rallied and as the NASDAQ Composite soared to a new all-time high.
Stocks ignored the much hotter than expected inflation data and its implications for interest rates and roared ahead on the strongest volume we’ve seen in nearly two months.
Stocks ignored the inflation numbers, and so did bonds. Rates were down across the board on Tuesday.
The month-over-month Producer Price Index, that’s inflation at the wholesale level, came in way above expectations, and those expectations were, themselves, way too high.
0.50%, one half of one percent, a six percent annual rate, was how fast core wholesale prices increased in April. Economists had predicted 0.20%.
We don’t issue predictions here at the Buzz on Business, but we’d lay odds that, in six months’ time, we could very well look back fondly, longingly, at a 6% annual inflation rate.
We will get another look at inflation later this morning when the Consumer Price Index for April is released.
Federal Reserve Chaiman Jerome Powell also gave a speech in Amsterdam on Tuesday and based upon his remarks we’ve concluded that the he lives in a completely different universe than we do. We watched, listened, read and yet we have no idea what the hell he is talking about.
Powell made a series of statements about the state of the economy that, in light of recent data, border, in our view, on delusional if not deliberate falsehood.
Among other things, Powell gushed about the strength of the US labor market. And this in the face of the April Jobs Report, issued just ten days ago, showing that the labor market underperformed expectations along every dimension. We might be persuaded to concede that the labor market isn’t in horrible shape if Powell might concede that it is, and has been, headed, in recent months, in the wrong direction.
Powell also took a bow on the efficacy of Fed policy regarding inflation. Huh? We’ve had five straight months of disappointing numbers. In November, the Producer Price Index came in at MINUS 0.4%. It was POSITIVE 0.5% in April and these numbers were released BEFORE he began speaking.
We get it. Powell is a politician. Politicians are often candid at their peril. And that is precisely why we believe they should not ever be in charge of the currency, or much of anything else.
