Data Suggests a Hawkish Fed Would Hike Rates by 7.5% At Next Week's FOMC Meeting
Of course, the actual uberdove Powell FED is worrying about a 0.75% hike that's one-tenth the size currently required simply to move real rates to neutral
Imagine if Wall Street Journal “reporter” and FED mouthpiece Nick Timiraos - whom the FED is apparently now using to leak policy moves and jawbone markets during FOMC communications blackouts - wrote a headline like this. Stonks would no doubt limit down. Hedgies would probably be jumping out of their office windows on Wall Street. The FED would have you believe ATMs might even stop working…
But in all seriousness, what in the actual fuck is the FED doing? Despite the oft-stated price stability goal of 2% inflation, the Consumer Price Index literally just printed 9.1%. Yes, 9.1 percent @#!#%!#@#! For all its hedonic adjustments and bogus inflation stats (the frauds at BLS claim housing inflation is just 5.5% versus ~20% in reality), CPI is less than a percentage point from a double digit print. And real headline consumer inflation is roughly double the reported #CPLie.
So, basically, the FED took a giant crap on its price stability mandate and flirts dangerously close to hyperinflation. Yes, we understand the FED enjoys using an even more manipulated, narrow and hence lower inflation metric than the #CPLie — the Personal Consumption Expenditures Price Index (PCE). Maybe they think a “mere” 6.3% isn’t so bad since it’s only 300+% over target. Maybe that bullshit flies in the magical “Fedaverse” where money grows on computer keys (CTRL + PPP to infinity) and where low, stable inflation was supposedly the greatest challenge in American history. But people who exist in the real world are watching the #CPLie and experiencing something far worse - a raging cost of living CRISIS.
So what is the FED supposed to do when inflation runs far too hot because of the FED’s own stimulating monetary policy of zero percent interest rates (for banksters) and “quantitative easing” asset purchases (QE)? It’s supposed cool things off by increasing rates and selling assets through “quantitative tightening” (QT). But what does that mean in practice?
Well, here’s what Richard Bernstein, CEO of Bernstein Investment Advisors and a well-respected macro-focused trader on Wall Street for 40 years, had to say recently in an op-ed for the Financial Times. In terms of the Fed Funds Rates, you can’t just look at the Fed’s official rate (currently 1.58%), you must also discount it for inflation (we can use the 9.1% #CPLie for sake of argument):
“The real fed funds rate (ie the difference between the target rate for the central bank and inflation) has historically been a reliable gauge of the monetary policy. When the real fed funds rate is positive, interest rates are high enough to slow nominal growth. But when the real fed funds rate is negative, it suggests the Fed is trying to stoke the economy.”
His general conclusion is that the “timid [U.S. Federal Reserve] is still very far from hawkish with [its] policy benchmark deep in negative territory after taking into account inflation.” In other words, with a real Fed Funds Rate of NEGATIVE 7.5%, the FED, the White House, mainstream media and all the rest of the FED apologists are gaslighting you when they claim the FED is really fighting inflation. (If you want to read the article, you should be able to able to avoid the paywall).
Of course, we’d never have been in this mess if the FED had responded sooner to skyrocketing inflation. And sure, now that they’re the furthest behind the curve in history, perhaps jacking the fed funds rate by 7.5% all at once isn’t the best idea. Because you know, we might actually get too much dreaded “deflation” and rapid relief for working class Americans…
But if FED officials were serious about fighting inflation, they would have been hiking more aggressively. They absolutely wouldn’t be waffling between a 0.75% and 1.00% rate hike. And they sure as hell wouldn’t already be jawboning about a potential pivot/pause in hikes in September.
Ok, so the FED is full of shit on rate hikes.
But what about their other main tool to fight inflation - reducing their balance sheet, i.e. QT? Surely, after distorting markets and driving inflation higher for so long with trillions in asset purchases, they realize it is time to clean up their act.
Sadly, the FED is a QE junkie that can never seem to break the habit.
If you’ve been following us since the FED supposedly halted QE purchases in March, we’ve exposed that the FED is still buying $10s of billions in US Treasury Securities (USTs) and Mortgage Backed Securities (MBS) every month. The FED claims these purchases are simply “reinvestments” of maturing principal. And yet, the amounts they are buying far exceed the FED’s own estimates of principal payments publicly disclosed by the head of the FED’s open market operations (NY FED’s Lorie Logan - now rewarded with a promotion to head of the Dallas Fed - when she has literally zero connection to Texas). The discrepancies are even more egregious when applying the FED’s supposed monthly QT caps ($47.5BN/mo through August, rising to $90BN/mo in September).
For simply reporting these figures, we’ve been mocked and/or blocked by a number of folks on Twitter, most recently former FED staff Danielle DiMartino Booth and FED trader Joseph Wang. They have consistently defended the FED’s action out-of-hand, suggesting this is merely the result of MBS taking 1-3 months to settle (even though the FED supposedly ended QE more than 3 months ago) or that the FED might not be hitting its caps (even though that makes little sense if the FED is still making outright purchases that are only supposed to happen in excess of the caps).
Well, we’re not the only ones who have noticed:
Notable German financial journalist Holger Zschapetiz tweeted:
Respected investment manager Lawrence Lepard tweeted:
WTF? June was supposed to shrink $47.5B, actual $1.5B. Now this. @federalreserve can you folks explain this? You have 400 Economists on staff.The #Fed has already stopped the shrinking of the balance sheet. Total assets grew by $4bn the past week to $8.896tn. Fed balance sheet now equal to 36.5% of US's GDP vs #ECB's 81.9% and BoJ's 135%. https://t.co/XOQtydBZNF
Holger Zschaepitz @SchuldensuehnerAnd many thanks to Wall Street Silver for helping bring attention to the FED’s illicit purchases:
The Fed is lying. There is no QT happening. You can't taper a Ponzi and the Fed is not even trying. They talk a good game, the financial media goes along with it. The Fed balance sheet is going WAY higher when they realize they need to deal with recession. $20 trillion.🚨FED adds $16.9BN MBS over past week! Despite UST offset, $4.4BN net add'l securities. Why won't inflation go down, especially for housing? How did the stonk market rally despite a 9.1% #CPLie print? Because the FED seems to have brazenly LIED to the American people about QT. https://t.co/cQzUMLIoRj
Occupy The Fed Movement @OccupytheFeds
Of course, the FED could settle this debate rather easily with a detailed analysis and explanation of what the fuck it’s doing with QT. But we can assure you it won’t do that. They don’t want to be transparent about their balance sheet. That much is clear.
Instead, next week, the FOMC will meet behind closed doors and brainstorm some new and different ways to try to gaslight the American public into thinking the FED actually cares about the inflation crisis that the FED caused. Then Jay Powell will stage a choreographed press conference with carefully selected “journalists” from newspapers now owned and controlled by Wall Street. As @RudyHavenstein said recently, it’s a national disgrace.
And until enough people with power stand up and hold the FED accountable, the FED will callously lead our great country ever closer to ruin.
-#OccupyTheFed
*Everything Occupy The Fed writes is for informational purposes only and represents the writers’ opinions based on publicly available information. Nothing we write is ever intended as, nor should it be relied upon as, investment advice. The best investment advice in this Golden Age of Fraud seems to be based on inside information from government officials, and we would never try to compete with that.
excellent article - the fed has one mandate now - inflate the price of crude oil, gasoline and natural gas to help accelerate the great reset - they let the greenspan put expire
Excellent as usual. If inflation exceeds the Fed rate, money is free (or borrowing produces a guaranteed real return). Massively inflationary to have a negative 7.5% real Fed rate. The stock market understands this full well, which is why it went up after the 9.1% CPI print. Also, it is absolutely scandalous that the Fed is blatantly leaking to the media what it plans to do. First 0.5%, then 0.75%, then 1%, then back to 0.75%. With the media reporting the “expected” rate changing day by day as the Fed honchos keep changing their minds. With the changes suspiciously timed to boost the stock market when it falls. Forget about the Plunge Protection Team. The Fed has single handedly arrogated to itself the power to protect the stock market at all costs, at the expense of the 99% suffering from inflation.