The Federal Reserve is Going to Go Postal

The August inflation numbers are in, and it means that the Federal Reserve is almost certain to ramp up its war on the American worker.

Prices were up 0.6% month to month, about double the number for July.

We are in for a world of hurt:

U.S. consumer prices overall rose more slowly in August from a year earlier, but increased sharply from the prior month after excluding volatile food and energy prices, showing that inflation pressures remained strong and stubborn.

The Labor Department on Tuesday reported its consumer-price index rose 8.3% in August from the same month a year ago, down from 8.5% in July and from 9.1% in June, which was the highest inflation rate in four decades. The CPI measures what consumers pay for goods and services.

So-called core CPI, which excludes energy and food prices, increased 6.3% in August from a year earlier, up markedly from the 5.9% rate in both June and July — a signal that broad price pressures strengthened.

On a monthly basis, the core CPI rose 0.6% in August — double July’s pace. Investors and policy makers follow core inflation closely as a reflection of broad, underlying inflation and as a predictor of future inflation.

………

One key channel of inflation is rising housing costs, which rose 0.7% in August from July. These costs account for nearly one-third of the overall CPI. Once housing costs start to rise, that momentum tends to persist.

And here we have one of the statistical artifacts of the inflation numbers. Housing prices are up because we are experiencing something near a crash in the real estate markets.

It works like this: The Fed raising rates makes it difficult for people to buy their first houses, so the bottom of the market falls off a cliff, so both the mean and the median house price goes up, because high end houses continue to sell.

It’s a Wile E. Coyote moment, which is closelly related to, but far better drawn than, the Minsky moment that we are approaching again less than 15 years after the last time.

I expect to see another 75 basis point ( ¾%) increase in rates by the Federal Reserve’s next meeting, if not a bigger bump.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store