Real Yields Are Negative. Core CPI Won't Teach Us Anything Tomorrow.
The current Fed Funds range is 4.50-4.75%.
Core CPI is 3.1-3.3%. However, if you spend any time in the real world, you know that the reported CPI figure is significantly understated. Real world year-over-year price increases are higher than Fed Funds and higher than the entire Treasury yield curve, which has been the case since the Fed started to tighten in May 2022.
Jerome Powell’s lack of will to truly tighten monetary policy has positioned the Fed Chairman to be Arthur Burns 2.0, whereby price inflation reaccelerates after a less-than-sufficient tightening cycle.
Long yields need to move higher and credit spreads - particularly high yield - need to widen.
Social Security is a 5% grower and Medicare is a 7% grower. Meanwhile, Real GDP plods along at around 0% (my estimate).
Powell has egg all over his incredulous face and the next Fed Chairman won’t do any better unless the U.S. works up the courage to deal with entitlement outlays.
