It depends on the location when it comes to real estate. I never had my HELOC or credit card limit reduced ever, however one of my HELOC from Home Savings was expiring, 10 year limit and I didn’t use it, so they closed.
I do have a HELOC now, just in case, this one also has 10 year borrowing limit.
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Some of the people doing that now, I’d guess, would be AirBnB investors. They take out loans against their primary homes to buy an airbnb. If something happens to the Airbnb ( like Covid or town restricts number of permits etc) then the market could crash and those folks will lose it all.
In some regions, airbnb rentals are hurting the ability of local people to live and rent. In desirable areas, people often own multiple Airbnb’s and real estate prices are still going up. At some point, things will come crashing down.
(Column: Painful signs emerge that Fed is moving too far, too fast with aggressive rate increases)
The Fed blew it. They are raising rates too quickly and not waiting for the rest of the central banks to catch up. The spike in the dollar is a sign that the Fed is way out in front of the curve on this, and that is not a good thing.
Siegel is right that Powell blew it a year ago and he is compounding the problem by blowing it again now. I think a 0.50%, 0.25% and 0.25% increase are warranted to bring about a soft landing, but inflation is already slowing without the Fed.
Siegel points out that the money supply shrank in Q2 for the first time in decades, which partially explains by inflation hit the brakes over the summer and the dollar has spiked.
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You are 100% correct here. Rising inflation, within reason, is actually good for the working and middle class. Yes, prices increase, but so do wages. Also, if there is inflation it generally means the job market is strong and everyone is working.
The rich, many of whom are living off inherited wealth in trusts or in ownership of mature companies, very much dislike inflation. Banks also dislike inflation.
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Of course the money supply shrank, by design. The Fed announced Quantitative Tightening in May (not rolling over bonds that came due, ~$95b per month). But the Fed wanted to ease QT in, and only did QT at a 50% rate until this now, when it kicks in 100%.
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I addressed this further above. The Fed QT is going to have a meaningful impact on credit markets over time, which further reduces the need for such aggressive rate hikes, and more importantly, reduces the need for Powell to jump in front of a microphone every other day and talk about how much he wants to cause “pain” in the economy. Is he a sociopath or just an imbecile? Your guess is as good as mine, but we may find out soon that he has blown inflation in both directions, which will be an all time first for a Fed chair.
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Even the Regional Feds are getting in on the speech action.
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Pretty soon CDs are going to make sense for those retiring soon.
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With everything he’s gotten wrong - from rolling out a new policy in 2020 to let inflation run “hot” to repeatedly claiming inflation is transitory even when it became clear it wasn’t to allowing QE to continue even after the Fed started raising rates - I sense “imbecile” is the more likely verdict on his tenure.
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I think he’s pressured to say inflation was transitory before he got reappointed. Now he’s appointed, he’s telling the truth.
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Powell was still talking about “transitory” inflation well into the second half of 2021, long after he should have started raising rates and reversing QE. The Fed Balance sheet was still growing, on its way to $9 trillion, as the economy was booming. What was Powell thinking?
Now, after back to back 0.75% rate hikes, there is evidence that inflation is cooling significantly with July and August inflation numbers. Furthermore, Europe and Asia are reversing their dovish policies, so worldwide demand is also peaking and starting to decline. What does Powell do? Another 0.75% rate hike and spends the last two months talking about all the economic pain he wants to cause.
As I have said above, I am not against continuing to increase fed funds rates to some historically normalized level of between 3% and 4%. Rather than all this tough talk, Powell should be slowing things down to make sure he doesn’t wildly overshoot the target and throw the economy over a cliff.
One of the most troubling aspects of Powell’s inflation fight is that he says and does things that make it seem like he doesn’t even understand the data. It is one thing when many of the business press report 8.3% as the headline inflation number for August, when that is a number that looks back a year and is not useful at all predictively. It is another when a central banker makes the same mistake. The only aspect of the August inflation report that was bad was that non-food, non-fuel inflation was 0.6% in August. Every other aspect of the inflation and economic reports from August shows an economy cooling off fairly rapidly. If most of us can figure that out, why can’t Powell?
I hope that a central banker as influenced by his press coverage as Powell clearly is recognizes that the press is turning on him and pumps the brakes on this inflation crusade.
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Don’t blame Powell. Even Janet Yellen admitted she was wrong on inflation.
I don’t think it’s Powell’s decision to raise rate alone, I think the whole committee agreed on his decision.
Yellen admits error on inflation, says the administration is doing all it can
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They have different roles. Yellen is now a mouthpiece for her boss and his policies. (Any acknowledgement about rising prices would have hindered Biden’s spending goals.)
Powell is supposed to (appear?) independent.
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Yeah, that’s before he was reappointed, with the thread of several senators not wanting to confirm him, he’s not stupid even if he sees a train wreck.
Inflation is still very high. Everything costs more than it did 18+ months ago and the prices of most items are still on their way up. A slight decline or smaller increase doesn’t mean inflation is fixed.
“The government’s food index, for example, has risen 11.4 percent over the past year, the largest 12-month increase since May 1979.
Food prices were up 0.8 percent from July to August. Flour was up 2.2 percent over that span. Potato prices rose 2.5 percent. Butter jumped 1.9 percent, and canned fruit spiked 3.4 percent.
Electricity costs, for example, rose 1.5 percent in August, the fourth straight month of at least a 1.3 percent increase.
The food index increased 0.8% in August and shelter costs, which make up about one-third of the weighting in the CPI, jumped 0.7% and are up 6.2% from a year ago.
Medical care services also showed a big gain, rising 0.8% on the month and up 5.6% from August 2021. New vehicle prices also climbed, increasing 0.8% though used vehicles fell 0.1%.
“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.”
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The Fed was late to the inflation party and even when they got there they were very slow to react. Now with record inflation the Fed has no choice but to be overly aggressive to be sure we return to normal and don’t have stagflation. Yes, runaway inflation and stagflation are becoming less and less likely, but the Fed has to be sure they kill those two menaces.
Are the rate hikes too much? Of course! The Fed has no choice but to over react.
When do we want to compare prices to? As prices have gone up wages have increased dramatically and even social security payments are tied to inflation. These are built in costs that are going to be difficult if not impossible to reverse even if we enter a recession. I am curious how much the cost of food has increased month to month. Are prices remaining flat from July to September? If not are we starting to get a handle on inflation but because we are comparing prices to this time a year ago are we reporting it as if it’s still increasing at that rate? I doubt unless we have a serious recession that we are going to see prices get reduced to levels of a year ago. My fear is that if we treat September of 2021 as the benchmark we will send our economy into a tailspin.
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According to that WAPO article:
I agree that a certain amount of price increases will be baked in because wages have risen as well as transportation and energy costs. Has SS increased their payments yet or does that start Jan 1, 2023?
In addition, recession might reset wages to a degree, for example, because you’ll have layoffs and then those people will be rehired at some point at potentially lower salaries.
The economy feels like a combination of herding cats and piloting a big ship that doesn’t corner well. The year over year numbers are pretty eye-opening, especially in the energy sector. It will be interesting to see the numbers for September in a few weeks.
JANUARY 2023 CPI WEIGHT UPDATE
Interesting……
- Starting with January 2023 data, the BLS plans to update weights annually for the Consumer Price Index based on a single calendar year of data, using consumer expenditure data from 2021. This reflects a change from prior practice of updating weights biennially using two years of expenditure data.
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Here’s a perspective on why inflation data lags,
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I doubt they will be hired at lower rates. In my opinion it might stagnate wages at current rates for awhile unless we do something absurd like supplement unemployment insurance so that people are making more money on unemployment than they could working.