Tag: inflation

Looking Past Powell

Posted on by George Yacik

Jerome Powell's term as chair of the Federal Reserve doesn't end until next February, but the handicapping of his reappointment has already begun. A recent poll by the Wall Street Journal found that three-quarters of economists it surveyed believe Powell will be renominated by President Biden, but I would argue that the odds are at best 50-50, if not lower.

Powell has unquestionably been friendly to the financial markets, which counts in his favor on Wall Street, but that may be a detriment when it comes to the progressives who are likely to have the biggest voice in choosing the next Fed chair. Right off the bat, Powell checks off none of the boxes that progressives are looking for, and as he has shown since his inauguration, Biden almost never goes against what they want.

Let’s look at Powell’s negatives: He's a white male. He's a Republican. He comes from Wall Street. He's rich (although most people at this level are). Let's also not forget that Powell was nominated to his position by President Trump, which automatically disqualifies him in the eyes of many, never mind the constant barrage of criticism Trump leveled at him once he was seated.

Just the taint of being associated with the former president should be enough to make him unsuitable for another term.

More importantly, however, Powell has not publicly bought into the prized objectives of the left, namely using the Fed to further social policy (i.e., wealth redistribution) and climate change initiatives, asserting that those are political decisions better left to Congress. Continue reading "Looking Past Powell" →

Don't Fear The Taper

Posted on by George Yacik

Long, long ago, even before the 2008 global financial crisis, the world’s central bankers, including the Fed, shifted their focus from trying to fight inflation to trying to create it. As we know, however, that pursuit of the holy grail of 2% has taken more than a dozen years, and now that we appear to be there, and well beyond it, in fact, the Fed refuses to believe it.

Ever since the economy began reopening earlier this year, the U.S. year-on-year inflation rate has been rising steadily and strongly, well above the Fed’s 2% target. In May, the YOY rise in the consumer price index hit 5.0%, while the core index, which excludes food and energy prices, rose 3.8%. Looking ahead, it’s hard to see inflation easing anytime soon, given the trend in rising worker’s wages, which once on the books are going to be hard to pull back, especially given the dearth of workers relative to job openings. Prices are also rising due to strong pent-up demand that is far outpacing the supply of goods, due partly to the lack of workers.

Yet Fed Chair Jerome Powell continues to insist that this recent surge in inflation is “transitory,” a mere temporary reaction to the economic reopening.

Is he saying that because he really believes it, or because he’s worried what will happen if the Fed starts to turn down the juice, even a little bit, and with a fair warning? Continue reading "Don't Fear The Taper" →

Update: Gold Mining Fundamental Macrocosm

Posted on by Gary Tanashian

Gold miners require a unique macroeconomic backdrop.

When gold-stock bulls complain about a “smackdown,” a “hit,” or a “smash” against the poor gold-stock sector, what they should be thinking about is what a relatively small market the gold stock universe is compared to the multitude of galaxies populated by cyclical and risk on stocks and commodities and the massive bond market. The gold stock sector’s noise to trading volume ratio must be far and away the biggest bull market on the planet (I know because I am part of it :-)).

And once in a while, the sector actually warrants all that noise. Like in 2001 when markets were beginning a bear phase, and economies were faltering, like in Q4, 2008 when gold stocks were crashing to unwind previous inflationary excesses, leading stocks and commodities into a terrible crash and rebounding first. Like in March of 2020, when the miners crashed and ‘V’ bottomed to lead what is to this day an ongoing economic recovery born of inflation, gold and gold stocks first sniffed out.

And that is the rub. Personally, I have been favoring the prospect of a strong bull market (target: 500) after initially projecting an A-B-C upside correction target of 375 in 2019, which we put in the books at 373.85 last August. But in order to continue favoring an ongoing bull market scenario, the macro fundamentals must play ball, and play ball they have not since last summer. Hence, the A-B-C upward correction and ongoing bear market scenario gains strength with each passing month of positive economic activity, regardless of the inflation it was created with.

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Enter once again the Macrocosm because it is time for a reminder to myself, if not you, that the macro must rotate negative in order for the gold-stock sector to be anything special. Speaking of rotation, it has been rotating alright, but with yields and inflation signals fading that rotation is not into a deflationary situation that would produce a big gold-stock buying opportunity but is instead something of an interim Goldilocks scenario (easing inflation expectations, firming USD, Tech and Growth bid up, etc. while the economy remains okay). Continue reading "Update: Gold Mining Fundamental Macrocosm" →

Is The Market Overreacting?

Posted on by George Yacik

Like a junkie pleading for another fix, the financial markets tanked again last Friday after St. Louis Federal Reserve Bank President James Bullard told CNBC that he sees the Federal Reserve raising interest rates before the end of next year, a year or so before the Fed announced two days earlier that it plans to do so.

This is surely ironic since in the years following the 2008 financial crisis, Bullard was one of the most dovish members of the Fed, reliably arguing for monetary accommodation long after his fellow Fed members had moved on to raising interest rates. Now it appears that Bullard, based on his comments last week, has turned positively hawkish, at least compared to his Fed brethren.

"I put us starting in late 2022," Bullard said. "This is a bigger year than we were expecting, more inflation than we were expecting. I think it's natural that we've tilted a little bit more hawkish here to contain inflationary pressures."

By contrast, following the end of its June monetary policy meeting two days earlier, the Fed indicated that it doesn't expect to raise interest rates until the end of 2023. Yet that set off a selloff in the markets because it was more aggressive than its previous estimate in March when it said it didn't expect to raise rates until 2024 at the earliest.

The Fed's updated median outlook is now calling for up to two rate increases in 2023. According to the Fed's new "dot plot" projections, 13 of 18 Fed voting members expect to raise short-term rates by the end of 2023, up from seven in March. Back then, most members anticipated holding rates steady through 2023.

Bullard isn't currently a voting member of the Fed's monetary policy committee, but he will be next year. Continue reading "Is The Market Overreacting?" →

Is Taper Talk About to Begin?

Posted on by George Yacik

According to the minutes of the Fed's last meeting in April, "a number of participants suggested that if the economy continued to make rapid progress toward the committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases."

Is this week's meeting the start of that discussion? We'll find out Wednesday afternoon at 2:00 PM EST.

The announcement following the April meeting reiterated the Fed's stance that it "will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time and longer-term inflation expectations remain well-anchored at 2%." As we know, Fed officials have maintained that the recent surge in inflation well above that level is only "transitory," although they have eased off that insistence over the past month.

Last week's consumer price index report for May should give them a lot to think about this week. Continue reading "Is Taper Talk About to Begin?" →