High Prices Are Here To Stay

I am not in the deflation camp which is to say I do not believe that prices for goods and services are going to roll over in the near-to-intermediate term. Forget CPI and Truflation, neither is an apples-to-apples SKU-level comparison. For prices to truly come in, unemployment needs to spike and fiscal spending needs to slow dramatically. Until that happens, prices will not roll over.

The money supply is growing (chart below, new M2 numbers will be published on Tuesday) and fiscal deficit spending is alive and well. I do not necessarily agree that fiscal spending will slow under a Trump or Harris Administration as each principal will want to spend the peoples’ money on their personal agendas and Congress will not exact fiscal discipline.

The Fed could threaten Congress as former Fed Chair Arthur Burns did (for every month that you run a fiscal deficit, the Fed will tighten policy a bit more). Powell talks too much and shows his hand months in advance. Powell is not about to accelerate QT while he’s lowering rates. Powell cares more about being liked than he does about carrying out monetary policy that benefits the Dollar and the U.S. Economy.

• Could housing prices come in as rates come in and supply increases? Sure, but the 10-year Treasury yield has moved higher since the Fed lowered its Fed Funds rate, not lower. If the 10-year continues to climb, so too shall mortgage interest rates.

• Could car prices roll over? Sure, it has already started to happen. The automakers make a crap product at too high a cost. Most auto makers lose money on small cars and small SUVs. It is only a matter of time before the Auto OEMs are looking to be bailed out again.

• I do not see food prices rolling over.

• I do not see healthcare services or any service price rolling over.

• I do see Commercial Real Estate (CRE) suffering in the Office segment. I would not be surprised to see a Trump Administration create a bail out for the Office segment. The “CRE growth credit facility” or some such nonsense. The next Treasury Secretary and Fed Chair will be perma-doves just as all Treasury Secretaries and Fed Chairs are.

If Trump gets elected the Defense contractors will see demand drop as the U.S. will stop subsidizing Ukraine, which has been a boondoggle for the Biden Administration. If Harris were to magically find herself in the Oval Office as she magically found herself the Democrat nominee without winning a single vote (Where was Democracy in the Democrat Primary? Reid Hoffman and a handful of other large Democrat donors ushered in Harris without a Primary vote. Not one Democrat voter voice was heard. Why aren’t more people pissed off about that?)

It is Saturday and I am beginning to ramble as I find it difficult to contain my disdain for all things Washington D.C., including fiscal and monetary policy.

Suffice to say that high prices are here to stay.