Powell: Rates Will Rise Until Job Is Done

[NW-Bound]

Oh, my fellow posters, why are you so alarmed?

From Jan 1, 2020 to July 31, 2022, the S&P went up 33%. This despite a worldwide pandemic, and all sorts of political turmoil and war going on. Does it make sense?

So, we will not do as well this year of 2022. I think we are just giving back some gains that are undeserved. It's not the end of the world.

Come on, pour yourself a stiff drink, and go to bed early today. Tomorrow, you will wake up and see that life is still good.


PS. About that 33% gain, you did not withdraw and spend all of it, did you? You stuck with the 4% SWR, did you not? If so, you still have plenty left over for lean years.

 

[jim584672]

There's always the i-Bonds at 9.62% .. that works

On $10K a year, that is pocket change.

 

[11522914]

QE was stopped months ago, it's QT they need to move on.

And moving they are. IIRC June, July and August they are doing/did 30B each month in Treasuries and 17.5B in MBS.

Come September that increases to 60B and 35B respectively per month.

Since QT has only been tried once before this is still relatively new. And when they did it before inflation was tame.

IMO we will continue to see some crazy stock market volatility and QT will potentially lead to - along with Fed hikes - higher long term rates. Maybe much higher than expected.

We all saw what QE did for the stock market particularly in 2020/21. The million dollar question is what will QT do to the stock market?

I know, I know, it doesn't matter because we're all buy and hold. Long term horizons. Still, it may suck for awhile. [emoji848]

YMMV

 

[CarbonaNotGlue]

Then we're #%@!ed.

Marginal retirees like myself will be homeless

-------------

The Fed definitely screwed up badly, falsely believing inflation was transitory and failing to act timely to curtail it. However, they may be right about not needing to raise rates higher than the current CPI to tame inflation. Most people that think this is necessary refer to the way Volker tamed inflation, starting in the late 70s. Those high fed funds rates led to a deep recession that ultimately tamed inflation in the early 80s. However, the economy was far less indebted back then and arguably required those high rates to cause recessionary demand destruction. Now, with our massive federal deficits and relatively astronomical indebtedness when compared to the late 70s/early 80s, its quite possible that a fed funds rate of only 3.5-4% would have the equivalent impact and put us into a demand killing recession, particularly when combined with QT sopping up money supply. I'm not sure that I'm fully convinced of this but I believe we're about to find out within the next 3-6 months. Here's hoping that the FED gets this one right.

 

[Lawrence of Suburbia]

There's always the i-Bonds at 9.62% .. that works

I wish I could put my entire bond portfolio into an I-Bond ETF.

 

[Chuckanut]

On $10K a year, that is pocket change.

10k here, 10k there, pretty soon it adds up to real money.

The Congress just passed inflation reducing legislation. So relax, be happy, and let it do it’s job.

Does the app have a sarcasm button?

 

[Drake3287]

Yup, that sums it up well. This speech is a surprise to … no one.

I can think of one person.

 

[Drake3287]

Interesting to read all these comments. Although everyone has an opinion, I believe the next huge financial blow will be the upcoming GDP report when it comes out in October. If its bad news, the much needed holiday spending season will come to a grinding halt. That in itself will be the final blow in calling this a real session or not. Although in the long term, it may help inflation.

The next few months will be interesting to say the least.

 

[HI Bill]

...At some point, the narrative will change to global supply chain bottlenecks, or "it's a supply-side problem, and monetary tools will have certain limits."

^THIS^! Well one thing is for certain, with the current and future rising rate, real estate is tanking. My house has lost $100-200K of its newfound 'value' already! I think that the FED will be affecting certain industries negatively (such as housing, travel and discretionary), but won't have much effect on the shipping problems and supply problems. Already, lumber prices are on they way back down. My wife has noticed that there are actually multiple Hermes purses available for purchase on their website, which hadn't happened for the past two years!

 

[Freedom56]

A combination of excess stimulation to the tune of $6 Trillion ($2T in 2021 and $4T in 2020) and corporate greed caused this rapid rise inflation. Retailers raised prices to consumers because they could. However, they caused their own demand destruction. There is so much inventory overhang in commodities and finished goods that prices will continue to plunge. At some point, later this year, deflation will be the "buzz word". The bond market knows this, otherwise long term rates would be rising if there was a longer term inflation threat. A good indicator of a bottom in equities is when stocks of worthless companies that have declared or are on the verge of bankruptcy stop surging 80% in a day and quintuple in a week. The long term trends that were in place pre-pandemic will continue - malls will shut down, retailers will shut stores, airline ticket prices will continue to fall, Chipolte will continue to poison customers periodically, hotel prices will continue to fall, and so on... The excess stimulus just provides some temporary relief. I wonder if I'll be able to buy a 65" 4K TV for under $300 and create that video wall in my garage with four 65" TVs for about $1200 this coming Black Friday?

 

[explanade]

Members of the Fed are 50-50 on .50% and .75% interest rate hike. Yeah sure, Powell will keep saying they will fight inflation, but it could either be a .50% hike or .75% hike in September .. we don't know. My guess is, it will be 0.50% hike in September.
At some point, the narrative will change to global supply chain bottlenecks, or "it's a supply-side problem, and monetary tools will have certain limits."

The market has always know that the Feds will keep raising rates until the end of 2023, so this 1000 points drop looks like an over-reaction. The market will continue to be very volatile until end of they year, or early next year. But I don't think we will have a recession.

Supply chain problems should be part of the narrative.

China can always lock down cities and shut down key manufacturing hubs.

On the one hand, there is a glut of certain chip products like DRAM. But lower end processors are still in short supply. Are car dealer inventories anywhere near normal yet?

They can keep raising rates but if certain products remain in low supply, it would take a lot more than pushing up rates to eliminate a lot of demand.

 

[W2R]

Probably W2R has the best plan: keep a good attitude and LBYM. May I also suggest some French wine as well Older vintage while the Euro is weak, bad grapes this year due to drought.

I don't drink wine or anything alcoholic, but honestly my favorite drink is tap water, and I have a glass of it beside me now. The cost is consistent with my LBYM intentions! So I'll drink to good intentions and toast to all of us here.

 

[luckydude]

It's easy and cheap for JP to talk tough about fighting inflation when we're still near record low unemployment rate and the economy seems to be holding up well despite recent successive rate hikes.

Let's see if he can really stick with it if we're closer to the mid-terms and unemployment rate starts creeping up, economy slips into a recession, and consumer confidence takes a dive. Then there might be "nudge nudge" from certain circles for JP to declare "victory" on fighting inflation and ease up on further rate hikes.

 

[wallygator69]

On $10K a year, that is pocket change.

You can buy gifts for your spouse and they can buy for you. They are put in a gift box and you can deliver $10k per year....


if you have trust it can buy $10k and each can buy $5k paper bonds...$35k per year.



All here AND More....GOOD LUCK HAPPY READING..



https://www.bogleheads.org/forum/viewtopic.php?t=346091

 

[marko]

Oh, my fellow posters, why are you so alarmed?

From Jan 1, 2020 to July 31, 2022, the S&P went up 33%. This despite a worldwide pandemic, and all sorts of political turmoil and war going on. Does it make sense?

So, we will not do as well this year of 2022. I think we are just giving back some gains that are undeserved. It's not the end of the world.

Come on, pour yourself a stiff drink, and go to bed early today. Tomorrow, you will wake up and see that life is still good.


PS. About that 33% gain, you did not withdraw and spend all of it, did you? You stuck with the 4% SWR, did you not? If so, you still have plenty left over for lean years.

+100

 

[street]

+100

+ another 100.

 

[Winemaker]

Probably W2R has the best plan: keep a good attitude and LBYM. May I also suggest some French wine as well Older vintage while the Euro is weak, bad grapes this year due to drought.

Actually, the vintage might be pretty good, wine grapes like being stressed. But the severe frosts this spring hurt the crop during flowering and bud break. The crop will be very small, and there is a chance like in 2003, where the vines shut down and prevented grapes to fully mature.

 

[pb4uski]

You can buy gifts for your spouse and they can buy for you. They are put in a gift box and you can deliver $10k per year....


if you have trust it can buy $10k and each can buy $5k paper bonds...$35k per year.



All here AND More....GOOD LUCK HAPPY READING..



https://www.bogleheads.org/forum/viewtopic.php?t=346091

We can buy/deliver past gifts of up to $55k a year... $10k each for me and DW, $10k each for his, her and joint trusts that cost us $100 to set up and $5k with our tax return.

We had $0 in I Bonds a year ago and now have $135k invested including $30k each in gifts.

 

[Badger]

Here's what I think - - I think that the government will do what it will do; being just a little old lady retiree, I don't have control over any of this, myself. So, I plan to hope for the best, and prepare for the worst. I'll polish up my LBYM skills, work on maintaining a decent attitude as much as I can, save money, and try to wait patiently for this situation to resolve itself.

+1

And then, if/when I need to vent, I'll vent to Frank and vice versa since our politics are almost perfectly aligned. So, I know whatever I say won't be seen as hostile or offensive by him, even though I have quite a temper. I like the members here too much to take a chance on possibly skirting to close to a political diatribe here and upsetting anybody.

Although I have only been a member here for the past 14 years I don't remember ever seeing a post from you that was like this. I'm willing to listen.

Cheers!

 

[aldo]

We can buy/deliver past gifts of up to $55k a year... $10k each for me and DW, $10k each for his, her and joint trusts that cost us $100 to set up and $5k with our tax return.

We had $0 in I Bonds a year ago and now have $135k invested including $30k each in gifts.

Can one gift $10,000 of I bonds to a joint trust?

 

[jblack]

We can buy/deliver past gifts of up to $55k a year... $10k each for me and DW, $10k each for his, her and joint trusts that cost us $100 to set up and $5k with our tax return.

We had $0 in I Bonds a year ago and now have $135k invested including $30k each in gifts.

Wow, nice work. But some of the gifts can be retroactive to past years to increase the amount? How?

 

[cyber888]

Did anyone notice? Powell’s hands was trembling and shaking profusely during the entire speech yesterday. Seems like he really didn’t like to read that script, but it was all prepared for him.

 

[GenXguy]

There's still a lot of money that was dumped into the economy that hasn't been spent, and now up to another trillion dollars is getting dumped for pay for student loans, so the Fed is fighting against the government. It's going to be difficult to bring down inflation at this rate. And even if inflation happens to come down to 5% by year end, that does NOT mean that prices come down. Prices will continue to rise. There will be no deflation, although there will be some items here and there that will drop in price.

 

[38Chevy454]

There's still a lot of money that was dumped into the economy that hasn't been spent, and now up to another trillion dollars is getting dumped for pay for student loans, so the Fed is fighting against the government. It's going to be difficult to bring down inflation at this rate. And even if inflation happens to come down to 5% by year end, that does NOT mean that prices come down. Prices will continue to rise. There will be no deflation, although there will be some items here and there that will drop in price.

Kind of my question when making the original post. The Fed is fighting against the govt spending. Fed was late to the game in recognizing the need to raise rates (my nice way of saying they screwed up), and is playing catch up now. Did Fed learn from past mistakes?

Also agree that lower inflation is still inflation and prices will rise, just not as fast. I am more concerned about inflation than a recession. As NWBound pointed out, most of us have a nice bump in savings and are just giving back some of the gains. Still not fun to watch the decline in market and economy, and will hurt some people that need to withdraw from reduced savings.

I actually think that the recent student loan issue will not make it as legal, and SCOTUS as ultimate decision authority will knock it down as being unconstitutional. But until then it makes for political theater, without me getting on any more of soapbox.

 

[MichaelB]

Thanks for an interesting discussion, which has moved from monetary policy to politics.