Good Friday Morning! Congratulations to the Warriors on winning their 7th NBA Title and 4th of the Curry era. It’s hard to believe, but we’re probably coming up on the end of the Curry-era Warriors. And also major props to the Atlanta Braves for winning 14 games in a row (so far), bringing them back into the playoff hunt, and gunning for a Mets team that’s struggling. Baseball is a long way off from the playoffs, but watching the meltdown of Mets fans is funny.
It’s been quite a week since I last wrote. We have new CPI numbers, a slew of recent economic data, meltdowns in the markets, and more. My thoughts on the CPI report are in the CI links below. This week, we’re digging into what on earth the Federal Reserve and Biden administration are doing – links to follow.
- P.S. The Supreme Court released 11 opinions this last week. None of the blockbuster decisions, though a few of legal nerdery note. The Court is on pace now to easily hit the end of June deadline they have for decisions. Opinions are released two days again next week — fireworks eventually have to start going off. I’ve seen no new leaks or rumors on Dobbs.
Where you can find me this week
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[6/13/2022] Inflation Runs Red Hot, while Biden Has No Ideas – Conservative Institute
[6/17/2022] Biden demands oil companies solve his crisis – Conservative Institute
The White House without a plan. On anything.
When I wrote last week, I did so at the disadvantage of not knowing the CPI report. We’ve had quite a shift in the economic universe since the previous week.
- CPI came in scorching hot at 8.6%. All major categories that the BLS measures in CPI were up.
- Real average hourly earnings for employees followed suit, showing inflation and lower work hours decreased hourly wages by 3.9% over the last year.
- The Atlanta Federal Reserve bank’s GDP Now model is projecting 0.0% GDP growth for Q2 in the US (no typo). Back-to-back quarters of negative GDP are on the table.
- Late on Monday, the WSJ got a scoop from the Federal Reserve (likely Jerome Powell) that said the Fed was “thinking” about raising rates 0.75 basis points instead of the planned 0.50. That was the Fed’s warning to the markets — we’re speeding up.
- All of which led to the 0.75 basis point increase on Wednesday. That’s the largest single interest rate hike since 1994.
- On Thursday, the Dow closed below 30,000 for the first time since January 2021. The S&P 500 closed below 3,700 to 3,666.77, a level it hasn’t seen since December 2020 (the part of my brain that’s slightly superstitious keeps staring at that S&P 500 number). The Nasdaq closed at 10,646.10, the lowest level since September 2020. The S&P 500 and Nasdaq have given up all their gains since the pandemic re-opening, and the Dow should follow soon. The S&P 500 and Nasdaq are on pace for closing down ten weeks out of the last eleven, and the Dow is on pace to do the same in eleven out of the previous twelve weeks. All things considered, this has been a very swift drawdown in equity prices — wiping out 2+ years of valuation growth in 10-12 weeks.
I should state at the outset here: I agree with the Federal Reserve’s policy decision to raise by 0.75 basis points. Shocking the markets and moving faster to contain inflation is a good idea. The problem is that the Fed’s policy is being undermined by the statements of both the White House and the Fed itself. That’s creating considerable uncertainty in markets.
Where are we headed? No one knows. Bloomberg reports, “Traders looking to bet on the path of Federal Reserve policy and its impact on the economy griped about being flummoxed after Chair Jerome Powell’s press conference Wednesday. With precious little to base an investment case on, it took them less than a day to decide to sell everything.”
That doesn’t mean we’ll continue into a sell-off in the coming days. Markets are finicky and change day to day. But there’s nothing in the news cycle you can point that says, “this is bottom/inflation is turning around.”
The most immediate change is everyone is talking about the “r” word: recession. Are we in one? 56% of Americans think we’re in a recession now. That might explain why Joe Biden’s approval crashed below 40% for the first time. Consumer confidence is at all-time lows, going back to the 1950s. The RealClearPolitics average of “Right Track/Wrong Track” is above 70% for wrong track — which is rare for that index.
Are we in a recession? We likely won’t know for a while. The Wall Street Journal has a good piece about how the NBER makes that determination. Here’s what you need to know: the NBER didn’t declare a recession in the Great Financial Crisis of 07/08 until December 1, 2008. By that point, Bear Stearns and Lehman Brothers had already liquidated, the stock markets had crashed, Congress had passed TARP, more bailouts were getting debated, and layoffs were underway.
NBER dates the recession back to November/December 2007. Still, realistically, the Federal Reserve responded to the subprime crisis by August 2007, and you can find signs in 2006. In short, by the time we get an official declaration of a recession, we’ll likely already be talking about what the recovery looks like — in fact, had you bought the stock market the day the NBER declared the 2008 recession, you’d have been close to buying the bottom of the stock market during the financial crisis.
The irony of the NBER being very late on calling a recession is that you can bet on journalists “fact-checking” recession claims in an election year. If economic conditions continue to deteriorate, we’ll see more prominent people claim we’re already in a recession. “Fact checkers” will argue that we’re not in a recession because no official designation by NBER has been made. It’s an idiotic semantic game to play. But the media is likely to play it.
If it sounds like I’m presuming a recession is coming, it’s because I am. I do not see a way for the Federal Reserve to continue hiking interest rates, trying to kill demand, employment, and wages, but avoid a recession. The unemployment rate is sitting at 3.6% right now. The Federal Reserve said it is aiming for a “slight rise” to 4.1% unemployment.
There are two things I see as impossible with that goal. First, the Fed has never aced a goal like that, and they will overshoot. We’ll see unemployment well above 4%, meaning people getting laid off (this is already happening in the tech sector). Second, it’s unclear whether the Federal Reserve will get what it wants with only 4.1% unemployment.
I listened to Fed Chair Jerome Powell’s press conference. It was a confusing mess. Dominic Pino at National Reviewnoticed the same things I did:
There’s an inconsistency in the Fed’s stance on inflation, as reflected in Jerome Powell’s comments after the meeting. He said, “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.” He then went on to talk about supply constraints, commodity prices, the war in Ukraine, and logistics concerns as factors contributing to higher-than-expected inflation.
The Fed does not have any tools to fix supply constraints, commodity prices, the war in Ukraine, or logistics concerns. If those things are causing inflation, the Fed will have a very hard time restoring price stability.
Later on, Powell mentioned that things such as the price of gas affect inflation expectations as well as actual inflation. That’s certainly true, and he expressed a commitment to keeping the public’s inflation expectations anchored at 2 percent in the long run.
But that still doesn’t resolve the fundamental tension in the Fed’s position. It’s basically, “We got this! — but also there are all these things we can’t control that keep catching us by surprise and driving inflation up.” The first part is difficult to believe if you also believe the second part.
Every point Powell made in that press conference was contradicted or undermined by something he said later. It’s wild to see — but he’s not alone. It’s where the White House is too.
Around 18 months into his Presidency, Biden gave his very first sit-down interview with “any reporters at the AP, Reuters, Bloomberg, The New York Times, The Wall Street Journal, or the Washington Post.” Biden has stuck closer to friendlier TV outlets thus far, and that’s been rare. This interview was with the AP, and Biden responded to various questions.
For a guy who entered office thinking of himself like FDR, Biden sounds worse than Jimmy Carter. The AP journalist asked him about inflation and the negativity surrounding the American outlook. Biden replied:
As for the overall American mindset, Biden said, “People are really, really down.”
“Their need for mental health in America has skyrocketed because people have seen everything upset,” Biden said. “Everything they’ve counted on upset. But most of it’s the consequence of what happened, what happened as a consequence of the, the COVID crisis.”
“People are really, really down” is probably the closest Biden can get to Carter’s “malaise” line. Biden was thoroughly defensive but contradicted every point he made.
First, he started with the possibility of recession:
“First of all, it’s not inevitable,” he said. “Secondly, we’re in a stronger position than any nation in the world to overcome this inflation.”
As for the causes of inflation, Biden flashed some defensiveness on that count. “If it’s my fault, why is it the case in every other major industrial country in the world that inflation is higher? You ask yourself that? I’m not being a wise guy,” he said.
This is the “everyone is dealing with it, why is it my fault?” line. But a little further in, Biden takes the blame. Here he is on Ukraine:
The president outlined some of the hard choices he has faced, saying the U.S. needed to stand up to Russian President Vladimir Putin for invading Ukraine in February even though tough sanctions imposed as a result of that war have caused gas prices to surge, creating a political risk for Biden in an election year. He called on oil companies to think of the world’s short-term needs and increase production.
Asked why he ordered the financial penalties against Moscow that have disrupted food and energy markets globally, Biden said he made his calculation as commander in chief rather than as a politician thinking about elections.
“I’m the president of the United States,” he said. “It’s not about my political survival. It’s about what’s best for the country. No kidding. No kidding. So what happens? What happens if the strongest power, NATO, the organizational structure we put together, walked away from Russian aggression?”
The logic here is: “Everyone is dealing with inflation. But the root cause is the Ukraine war, which Biden takes credit for, but doesn’t take credit for the inflation-causing aspects, even though those were hard choices causing inflation.” Confused yet? He’s not finished.
The AP moved on to the Republican critique that had they allowed his Build Back Better legislation to become law, spending trillions more, inflation would have gone up. Biden rejects that, of course:
Consumer prices have jumped 8.6% over the past year, the steepest rise in more than 40 years. Republican lawmakers have said that Biden’s $1.9 trillion coronavirus relief package from last year kick-started a spiral of price increases.
The president said there was “zero evidence” for that claim, noting that other countries have endured higher prices as economies reopened and people became vaccinated. Still, Biden acknowledged Treasury Secretary Janet Yellen’s contention that the spending had a limited inflationary effect.
“You could argue whether it had a marginal, a minor impact on inflation,” he said. “I don’t think it did. And most economists do not think it did. But the idea that it caused inflation is bizarre.”
In other words, it’s false, except Yellen may be right. It’s incoherence. But the most confusing point came in his argument to oil companies.
This line is 100% real:
Biden renewed his contention that major oil companies have benefited from higher prices without increasing production as much as they should. He said the companies needed to think of the world in the short term, not just their investors.
“Don’t just reward yourself,” he said.
Biden calls for oil companies to make long-term capital expenditures to increase oil drilling and refining in the short term. Long term, he wants them out of business. This point isn’t a slip-up. His Energy Secretary said that very thing in a CNN interview. To CNN’s credit, they pressed her on it, and she said short term, they wanted oil companies to be “patriotic,” but long term, 5-10 years away, they wanted those companies gone.
This is a White House with no plan. There are no solutions, no fixes, no anything. Their ideology blinds them to solving the crisis. And I get it, I’m conservative, and you’d expect me to come to that conclusion.
It’s not just me, though. It’s Democrats. I’ll leave you with this story out of Politico Playbook from Thursday, where Congressional Democrats were livid at the White House.
FRIENDLY FIRE: It didn’t go well when senior White House officials MIKE DONILON, JEN O’MALLEY DILLON, and KATE BEDINGFIELD went to the Hill today to brief lawmakers about the economy, several sources told ADAM CANCRYN, CHRIS CADELAGO, and SARAH FERRIS.
Some Democratic members were peeved that the White House crew arrived late (the White House team stayed for a while afterward to make up for that, according to several people).
But members were most dismayed that they didn’t get any sense of the White House’s plan or new messaging on an economy frustrating many voters.
The Q-and-A afterward reflected that frustration. Questions about inflation yielded little new from the White House, according to people present. Donilon took all the questions at once and then delivered one long answer in which he reiterated how important battling inflation was to the White House. Rep. DEAN PHILLIPS (D-Minn.) pointedly reminded the White House that they won’t be able to do anything if Democrats lose the majority.
Said one person: “People are frustrated. There was nothing new. It was their same talking points.”
It’s not just the Fed. There’s no plan — it’s all talking points and optics. That’s the conclusion of Democrats in Congress too.
Jesus needs to take the wheel because no one is at the helm of the White House.
Links of the week
The Formula Crisis Takes an Economic Toll on Families in Gas Money and Wasted Hours: The shortage comes as inflation is squeezing household budgets, and hits low-wage workers especially hard. – Bloomberg
White House Consults with Law Professors in Anticipation of Dobbs Ruling (Updated): The Biden Administration is apparently considering a range of responses should te Supreme Court overturn Roe v. Wade. – Johnathan Adler, Volokh Conspiracy
USA Today to Remove 23 Articles After Investigation Into Fabricated Sources: The articles were removed after an investigation identified stories with sources that appeared to be fabricated, USA Today said. – NYT
Climate activist groups use Endangered Species Act in suing to stop oil and gas leasing on federal lands. Lawsuit filed to cancel 3,500 leases issued during Biden administration on grounds that future carbon emissions were not properly considered. – NYT
The New Politics of Abortion – Matthew Continetti, Commentary Magazine
The Iran Crisis Is Here – Matthew Continetti, The Washington Free Beacon
Afghans go hungry as U.S. and Taliban officials blame each other – Washington Post
Beyond NIMBY vs. YIMBY – How Current Homeowners Can Benefit from Zoning Deregulation: Even if the value of their property goes down, current homeowners still often have much to gain from breaking down barriers to new housing construction. – Ilya Somin, Volokh Conspiracy
Twitter Thread(s) of the week
Satire of the week
McDonald’s Introduces New 1 Bitcoin Value Menu – Babylon Bee
Nationwide Cost Of Living Protests Cancelled As People Can’t Afford Petrol To Get There – Waterford Whispering News
Thanks for reading!