Posted on 03/17/2022 7:13:11 AM PDT by Browns Ultra Fan
Well, Powell and The Fed Gang failed to tackle inflation with its 25 basis point increase in their target rate. The result? Inflation is still roaring and REAL Treasury yields remain NEGATIVE (nominal Treasury yields – inflation).
In fact, the US Treasury 10-year yield hovering around 0% when Biden first became President, then the inflation kraken was unleashed leading to progressively declining 10-year Treasury yields. As on late night, the REAL 10-year Treasury yield is -5.71%.
REAL mortgage rates (Bankrate 30Y rate – inflation) were positive at the beginning of the Biden Administration, but have sunk to -3.40%.
With negative REAL mortgage rates (and continued Fed Stimulypto), we saw February housing starts rise 6.8% in February.
The Fed is apparently jittery about Russia invading Ukraine (mentioned in The Fed minutes) as well as the possibility of China invading Taiwan (NOT mentioned in The Fed minutes).
But if we look at the Fed DOTS plot, we see a rise in The Fed Funds Target rate in 2022 (7 rate hikes), more rate hikes in 2023 and 2024 and then a slowing in the longer term (as if voting members have a clue about the long-run economy).
The WIRP (Fed Funds Futures) is signalling 7 MORE rate increases over the coming year.
Biden is relying on Powell And The Fed Gang to provide ample liquidity in the markets, particularly before the midterm elections in November (hint: Biden doesn’t Powell to rock the boat).
(Excerpt) Read more at confoundedinterest.net ...
I heard on the radio last night that Joe Biden is responsible for the greatest economic recovery since 1985.
I think the FED will do just what it has been saying it will do.
Good to see the housing starts, we have a housing shortage.
ZeroHedge: US Housing Starts Surged To 16 Year High In Feb
Increases in inflation are always caused by a supply/demand imbalance. If demand goes up without a commensurate increase in supply, prices rise. But if supply drops without a corresponding decrease in demand, prices also will rise.
I think the Democrats & the Fed are shooting at the wrong target . They’re acting as if the issue is increased demand. This is likely to support their narrative that the economy is good & strong - it’s not. Global supply is down. A natural curtailing of demand would normally follow. BUT, the Fed has been pumping the money supply, and the Dems are passing massive spending bills, keeping the supply of “helicopter” money falling into the economy. THIS is what is artificially stimulating demand and causing inflation.
The alternative is to crash the economy into a recession or depression. The Dems won’t stand for this mere months before the mid-term elections.
The increase in interest rates is exactly the wrong thing to do. Just when you need corporations to EXPAND production and INCREASE supplies, they raise interest rates - reducing motivation and incentive to do so. Raising rates won’t do anything but make the inevitable crash larger and more impactful.
The lesson? Government interference in free markets never ends well. At least for those outside of government.
Right now you can get 7.12% interest on I-Bonds - at zero risk to your principal. As close to a no-brainer as it gets.
Death by a thousand cuts.
If I understand them correctly, there's some fine-print to pay attention to.
Further to the last point, the rate of return is actually a formula combining a "fixed-rate", plus an "inflation rate". The fixed-rate is fixed for the length of time you hold the bond. The inflation rate changes every 6-months - even on bonds you've already purchased. The current 7.12% "composite" rate is calculated by taking (fixed_rate + inflation_rate) * 2. The current fixed rate is 0.00%, and the inflation rate is 3.56%. The formula results in the 7.12% composite rate quoted.
What this means is you're NOT locking in a 7.12% rate of return. You're only sure to earn the 7.12% annualized rate of return until the next inflation rate adjustment.
You can see this explained in even greater detail at the US Treasury Direct website page explaining rate calculations, HERE.
Yes I’m aware of all that.
You don’t think that it’s a much better deal than a 1 year or 5 year CD? How much are you getting on them.
And do you think inflation is going to come down much over the next few years?
Another benefit of I-Bonds is that you don’t pay state taxes on the earnings, and you can defer the federal taxes until you sell them
Of course better than a 1- or 5-year CD currently. But a lot of folks, and a lot of financial writings in press & magazines are leading people to believe they’re locking in a 7.12% rate-of-return with new I-Bond purchase, and they’re not.
I’m not saying don’t buy them. I AM saying make sure you understand what you’re buying.
Yep... when you shutdown a country, hard not to get a huge employment/economic turnaround when back open.
Supply chain issues are not the Feds fault—but it is not a problem they can fix either.
These days nobody wants to stand up and tell the truth, the whole truth, and nothing but the truth.
Excellent informative comment.
Good job and thank you.
Of course you must understand what you’re buying - true of anything you buy.
I bought $10,000 of those bonds. It’s the max you can buy per person, per year.
Are you going to get some?
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