No Reprieve for the Fed, but Lots for California

Before we go to rainy, snowy, frigid, globally warmed California, which is now one of the nation’s wettest and whitest and windiest states (with 150 MPH winds forecast for the mountains), let’s turn to the data dessert that is holding the Fed in an inflation-fired drought of good news.

More factory data came in today to say the Fed is tightening into recession. Orders, production and employment contracted, and consumer sentiment fell. This gave gold a bump up in hope that it means the Fed will cut rates sooner, but inflation data already showed yesterday the Fed doesn’t have that latitude. What it really means is that, because the Fed has to keep tightening harder to kill inflation, the Fed’s soft landing moved further off the table, not that rate cuts just moved closer.

In fact, the data caused bond yields to relax again, after having recently tightened a little. One might mistakenly think news today that the national debt is now rising by a trillion dollars every hundred days would have put a little funding pressure on Treasury yields, but the lazy bond vigilantes decided to nod back to sleep, despite that news. Clearly, the Fed is going to need to tap them on the head with another rate hike, as I wrote yesterday, in order to get them to tighten financial conditions back to what it takes to fight inflation.

Oliver Rust, who calculates his own index of inflation called Truflation, which has far less lag time than the BLS measures, is one who says the Fed is losing ground now. According to Rust, in a Thoughtful Money interview with Adam Taggart, linked to below, inflation is set to rise more, even though Rust sees it right now as lower than the BLS says it is. That move, he believes, is coming quickly and will place the Fed in a really hard spot because the economy is getting worse—the tough spot that the Fed has been driving itself into for years with its money printing and recycled bailout economic garbage that includes mountains of garbage debt stacked throughout the economy like New York City during a garbage strike.

Meanwhile, the continued successes of the Houthis in attacking ships on the Red Sea, finally blew West Texas Intermediate crude past the $80/barrel milestone today. Nothing says rising inflation like a price gusher from oil (if that rising crude pressure holds), especially when lower energy prices were the major contributor to falling headline inflation in the last half of last year. While the Fed doesn’t pay much attention to energy prices, all other prices pay a lot of attention to energy prices, including the prices the Fed pays a lot of attention to. Oil is a slippery slope for all prices.

The European Central Bank is also losing traction in its inflation fight. Inflation fell less today in Europe than was expected, keeping the ECB in the same tight spot the Fed is in—having to hold tight as the entire European economy is falling into recession. Inflation is getting harder to knock down there, too, forcing the ECB to hold high for longer on interest rates. Rate-cut odds, which had moved off to June, now took another small step further back. Eurozone-wide, both headline inflation and core inflation failed to fall as much as had been hoped.

The political pressure to cut rates is higher in Europe because the Eurozone’s various member states are suffering greater contraction than the US, which, again, is the best horse in the glue factory of modern money. Nevertheless …

“We watched inflation data coming in from the European and country level, and what we see is that they confirm my view that we have to wait, have to be attentive and can’t rush to a decision,” Austrian central bank Governor Robert Holzmann said Friday in Vienna.

President Christine Lagarde said Monday that “the current disinflationary process is expected to continue,” but that she and her colleagues need to see more evidence of a sustainable return to the target.

Same thing the Fed has been saying.

California snow job

In the good-news category, California is experiencing its second year of total reprieve from drought as Lake Death Valley continues to fill with water and as the Sierra Nevadas stack up another 10-12 feet of snow over the just next few days. At the rate global-warming is now banking moisture in the frigid mountains for summer withdrawal, perhaps CA will soon become a water-exporting state … if it ever stops choosing to be a people-importing state with its sanctuary-city pleas for illegal population growth.These are, of course, the people whom Trump said today do not speak any known language. Not sure what to make of that. Maybe he is understanding “alien invasion” along the lines of those in congress who are now scrutinizing UFOs/UAPs that are purportedly invading the earth. Biden also spoke today about the border invasion that he amplified tremendously when he removed Trump’s tougher border policies, and for once Biden sounded like he actually was speaking a known language. It was a rare day.