The financial media and some elites in the US economic planning committee, aka, the Federal Reserve, are beginning to freak out about inflation. It’s a tad late to do that as I highlighted in an article on November 4, 2021 titled The Federal Reserve’s Blunder Has Arrived , and to say the horses are out of the barn is an understatement.
The Federal Reserve Bank of Atlanta offers up an economic data series which measures Sticky CPI and Flexible CPI. The former more reflective of PCE Deflator and the “core” CPI-U rate and the latter a measure much more accurate measuring price actions at an annualized rates of all goods and services consumers use on a monthly basis. Needless to say, it is now at historic highs, much higher than the Arthur Burns Fed era and the political nightmare of President Jimmy Carter:
The problem for the Fed, outside of Jay Powell’s inability to read and react to crises with decisive action, is that the inflation animal is now running out of control. If 20% has become the accepted norm, then what is to say 30, 40, or even 50% month over month inflation at an annualized rate will be tolerated until the Federal Reserve interest rate moves tops 3%?
The markets are already raising interest rates and will create the recession for the Fed long before the increase in the overnight rates has any impact. The US 10 year Treasury yield is finally above the long term resistance of 2.81% and holding at levels implying a 3% yield is just days away:
The 3% level as I state in the chart is just an interim pause, but with the Fed meeting this week and the realization that a commodity super-cycle may well be starting to accelerate, 3.50% yields are achievable sooner than most think; quite possibly within the first three weeks of May.
That is when things will start to break. The economy will not have a “soft landing” as the Bubblevisions proclaim, it will be a small Fiat car slamming into a concrete embankment at 100 mph. Housing activity will decline at double digit rates, bankruptcies will increase (already happening), and credit defaults by consumers will start to increase rapidly.
President Biden and his amateur hour MMT economic team will get no more spending splurges from the Congress during this election year which leaves them the tried and true, yet ineffective, tools that Richard Nixon and Jimmy Carter imposed to slow inflation:
The Washington Post on October 30, 1978 highlighted the plan used during that era:
President Carter yesterday gave the go-ahead to his widely touted wage-price guidelines program, designed to establish voluntary limits of 7 percent for wage increases and 5.75 percent for price boosts, to be enforced by a variety of government sanctions.
In a 2 1/2-hour meeting with his economic advisers, Carter agreed tentatively to make the plan public in a nationally televised speech Tuesday evening, and to increase the staff of the Council on Wage and Price Stability to monitor compliance.
While the uneducated masses might well indeed cheer because it will stop the spiraling upward prices of food and gasoline but it did not work so well in the 1970’s nor as intended.
To just imagine President Biden imposing such wage and price controls with the propaganda organs under his junta’s controls is terrifying. Companies will cut hiring almost immediately, gasoline will end up being rationed due to production shortages, food shortages across the board which are already happening in the US will be exacerbated as cost increases can not be passed on to consumers, and new home construction will come to a complete stop.
Look for the “evil oil companies” theme from the 1970’s to return once regular unleaded gasoline prices top the $4.50 level on a national average and the poll numbers worsening for the Democrats this summer. Biden’s regime will have no choice but to follow up this theme by blaming the food industry executive’s greed, corporate farming, the oil industry, and of course, Vladimir Putin for this rampant inflation but in the end they will impose price controls along with an “independent” board to monitor prices nationally.
Prepare for impact folks, the next six months will be a beauty.