Editor’s note: This is a lightly edited transcript of the accompanying video from professor Peter St. Onge.
Inflation is rising again, and even Federal Reserve cheerleader Bloomberg is worried the Fed is losing the plot.
Inflation rising is awkward for the Fed, given Chairman Jerome Powell already cut rates for the looming recession.
In fact, he just did a jumbo half-point cut—which makes inflation go up.
This is known as a policy error. And the Fed’s been making a lot these days.
In raw numbers, the consumer price index surprised on the upside at around 2.2% annualized, but the bombshell was so-called core CPI, which strips out food and energy. That came in at nearly 4% annualized.
Prices rose across the board: Groceries were up the most since the beginning of the year, with meat up more than 10% annualized.
Car prices (new and used), car insurance, medical costs, and plane tickets all jumped. Services as a whole jumped nearly 5% annualized.
Interestingly, watches and jewelry jumped at an 84% annualized rate—perhaps as a flight from paper money to real assets. Or perhaps because senators got big donations this election cycle and need to keep their mistresses happy.
Meanwhile, eggs—which is how the rest of us keep our wives happy—jumped 8.4% annualized.
So, this is not supposed to be happening at this stage of the game. I mentioned in a recent video how recessions tend to reduce inflation—in fact, by 3.7% on average.
So, if we’re bumping along at 4% core with a recession coming, it suggests that underlying inflation could be 7-plus percent.
That would make it very dumb for Powell to have just cut rates by a jumbo half-point, with more cuts on deck.
It’s just another month in the Federal Reserve clown car.
To be fair, Powell did admit last year they have no idea what they’re doing. He phrased it as the Fed navigating by star on a cloudy night. As in navigating by stars you can’t see.
Which is not navigating; it’s pretending to navigate.
To be fair, pretending pretty much sums up the Federal Reserve—or central banks in general, really: They pretend to manage the economy, but really all they do is print as much money as possible—which causes inflation, then recessions—and then try to balance the two to keep headlines manageable.
A little pain here (inflation); a little pain there (recession)—with the people not realizing the Fed’s causing both.
So, what’s next?
If prices are rising, the Fed’s room for errors just got a lot tighter. Markets can see this, with the odds of another mega-cut dropping to zero for the Fed’s next meeting and mortgage rates rising again since higher interest rates mean expensive mortgages.
This means we could be stuck with 7% mortgages and a frozen housing market well into next year.
More importantly, these were not good numbers for Kamala Harris.
Because this was the very last inflation report for Harris before she faces voters. And, with core near 4%, Harris is facing voters with a looming recession, rising joblessness, and rising inflation.
Which rhymes with Jimmy Carter—who, famously, won just six states against Ronald Reagan in 1980 after Carter, too, delivered inflation and recession.
Now, Harris won’t win just six—our media is even less objective than it was in the 1970s. But rising inflation with a slowing economy is pretty much the worst possible way to fight an election.
Of course, if Donald Trump does win next month, you can take it to the bank that the media will put both the Biden-Harris inflation and the Biden-Harris recession on Trump.
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