How long can the Fed whistle past the "There is no inflation" graveyard before raising rates?

David Goldsmith

All Powerful Moderator
Staff member

Fed’s Bullard Ready to Taper to Mitigate Risks Around High Inflation​

The St. Louis Fed president says the central bank risks falling behind the curve on controlling inflation​

Federal Reserve Bank of St. Louis President James Bullard said that unexpectedly robust levels of inflation mean the central bank needs to pull back on its bond buying soon to make sure it has space to quash rising price pressures if needed.
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
Staff member

Fed’s Bullard Ready to Taper to Mitigate Risks Around High Inflation​

The St. Louis Fed president says the central bank risks falling behind the curve on controlling inflation​

Federal Reserve Bank of St. Louis President James Bullard said that unexpectedly robust levels of inflation mean the central bank needs to pull back on its bond buying soon to make sure it has space to quash rising price pressures if needed.
This is the number one risk, I guess lockdowns/covid resurgence close second, on hitting the markets. Fed policy mistakes/errors in unwinding their liquidity support for credit markets/repos/qe/etc will almost certainly not go smoothly
 

David Goldsmith

All Powerful Moderator
Staff member

Why Is Inflation Rising Right Now?​

Inflation is here. As in the Spring, the most recent CPI inflation report showed that prices rose across the board in July. By a lot.

Overall, prices in July climbed 5.4% year-over-year, according to the Bureau of Labor Statistics (BLS), and 0.9% over the past month. The indexes for homes, food, energy and new automobiles were key drivers of inflation growth last month. Of course, those items are key to the basic financial life of normal Americans, thereby stretching their bottom line.

Even when you strip out volatile food and energy prices—so-called core CPI inflation—prices rose by 4.3% year-over-year, or about 2 percentage points higher than before the pandemic.
 

David Goldsmith

All Powerful Moderator
Staff member

Real estate stocks, markets jittery over inflation​

Companies, indexes climbed Friday but could not surmount week’s losses​

Major real estate stocks took a beating this week on concern that rising costs for everything from raw materials to the price of a hotel room could lead to higher interest rates, cutting consumer demand.
A Standard & Poor’s index of homebuilder stocks dropped 4.4 percent for the week, while Lennar, the biggest U.S. homebuilder, dropped almost 8 percent.
Soaring demand for homes during the pandemic had builders working at a furious pace, with housing starts up 20 percent from a year ago and the homebuilder index up 110 percent.

“Double-digit inflation in home prices may freeze first-time buyers out of the market,” said Mike Fratantoni, chief economist of the Mortgage Bankers Association.
Rising inflation could also prompt the U.S. Federal Reserve to raise benchmark interest rates. That would increase the cost of home mortgages and dampen demand in many sectors of the economy.

Prices of consumer goods are 1.4 percent higher now than at the start of March, having risen 4.2 percent in the last 12 months — the largest one-year increase since 2008, according to the Bureau of Labor Statistics.
So far, the Fed has held off on raising rates as the Biden administration pushes multi-trillion dollar stimulus packages to pull the country out of the pandemic-driven downturn. Still, inflation concerns eased a bit on Friday, with some real estate stocks rebounding. The homebuilders’ index rose 1.4 percent on Friday, while the broader S&P 500 rose 1.5 percent.

“I agree with the Fed,” said Fratantoni. “Inflation is likely to be transitory” as the economy comes back to life, “although price spikes may last longer than the word ‘transitory’ suggests.”

The demand for new housing has sent lumber and steel prices on an upward trend, with homebuilders passing the cost on to buyers.
Wage inflation could also add to inflation concerns. As businesses reopen, they are hiring to prepare for pent-up demand, and in some cases raising wages. McDonalds, for example, announced today it would raise wages for its U.S. workers.

The cost of staying in a hotel room rose 8.8 percent during the last two months, according to government figures. Hilton Worldwide Holding eked out a positive week with a gain of 0.17 percent to close Friday at $123.61 per share.
“Consumer confidence in early May tumbled due to higher inflation,” according to Richard Curtain of the University of Michigan’s index of consumer sentiment. “Rising inflation also meant that real income expectations were the weakest in five years.”

That was unwelcome news for retail real estate. Shares in Simon Property Group, the nation’s largest shopping mall owner, fell 2 percent this week to $122.27.
The outlook also remains uncertain for office landlords after a year of working from home.
New York office REIT SL Green fell nearly 2.5 percent this week, with investors valuing the company 26 percent below its pre-pandemic high of $98.68.

Zillow Group fell 5.5 percent, Airbnb fell 6.6 percent after it announced quarterly losses of $1 billion, and CoStar Group closed Friday down nearly 3 percent at $821.90 per share.

Consumer sentiment suddenly crashes below early-pandemic levels​

Americans are extremely worried about the Delta variant and the spike in Covid-19 cases. A key survey of consumer confidence plunged in August below where it was in April 2020 when the first Covid-19 outbreak slammed the brakes on the US economy.
The University of Michigan said that its influential consumer sentiment index plunged 13.5% from July to August and hit a level of 70.2. That's the most bearish reading for this measure since December 2011.
The drop was so precipitous since last month that the University of Michigan has recorded only six bigger monthly drops in the index's nearly 50-year history, including a more than 19% plunge in April 2020 and 18% drop in October 2008 during the height of the Great Recession and Global Financial Crisis.

"There is little doubt that the pandemic's resurgence due to the Delta variant has been met with a mixture of reason and emotion," said Richard Curtin, the surveys chief economist.

"Consumers have correctly reasoned that the economy's performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end," he added.
 
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