100 Basis Points Please, Chairman Powell

The democrats are clearly coming for the Fed Chairman next. They’ve blamed this economy on everyone and everything but this feeble administration but an attack on Jerome Powell and his tightening campaign could actually catch some support from notable pundits, unlike blaming gas stations the “Putin Price Hike,” etc.

They would be wrong to blame Powell but it doesn’t mean they won’t try — and that it won’t work to some extent.

Further, a rush of falling prices across major economic sectors later this year will give the false impression of falling impression and plenty of ammunition not only to those blaming the Fed, but to those who will beg for a policy reversal and interest rate cuts in early 2023.

Retailers are stating very clearly that a massive inventory liquidation is coming, which will temporarily drive down prices across a range of consumer goods. More on the consumer in a minute.

Used auto inventories are starting to build, in part based on a notable uptick in repos; prices are going to come down meaningful here, as well.

And the housing market is where people are most carelessly whistling past the graveyard. Unsold inventories are already at levels not seen since 2010 and thanks to the spike in interest rates — the necessary spike in interest rates — mortgage originations are grinding to a halt. Red states will fare better than blue ones from which buyers are fleeing but if you don’t think we’re going to see a major correction in home prices, you’re kidding yourself.

Circling back to the consumer, the New York Fed, National Bureau of Economic Research and many others have definitively shown that falling home prices have a chilling effect on consumer spending.

In short, those hoping for a short, shallow recession don’t seem to realize that economic conditions are going to get much tougher from here.

And yet the Fed should raise rates as aggressively as possible. And this is the key; they need to do it quickly. The consumer is set to crash in a way that resembles the 2008 downturn so there isn’t much time left for lifting rates.

Why did the Fed surprise with a 75 basis point hike last month? I think one big factor was Japan: the Fed saw a zombie economy and its for-some-strange-reason-still-revered currency and saw a bit of ourselves. Japan’s long-term game of MMT is more mature and more severe than America’s but make no mistake: we have both played the dangerous game of wild monetary inflation aggressively for far too long, something I suspect Powell does understand.

So why should the Fed bless us with a 100 basis point hike today? Because time is running out, politically, for any further hikes.

We need — yes need — a major recession here in America to clear out the ridiculous malinvestments that blew up the Everything Bubble. Few politicians understand this and none is willing to live through such an environment, which leaves only the Federal Reserve burst the balloon to enact a little fiscal discipline by raising borrowing costs for both the private sector and government itself.

At 2pm EDT today, the Fed will probably announce a 75 basis point hike to the targeted Fed Funds rate.

Here’s to hoping for 100 basis points instead.