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US Core CPI Tops Estimates, Pressuring Fed as It Weighs Hike (bloomberg.com) 176

Posted by msmash from the closer-look dept.
Underlying US consumer prices rose in February by the most in five months, an acceleration that leaves the Federal Reserve in a tough position as it tries to thwart still-rapid inflation without adding to the turmoil in the banking sector. From a report: The consumer price index, excluding food and energy, increased 0.5% last month and 5.5% from a year earlier, according to Bureau of Labor Statistics data out Tuesday. Economists see the gauge -- known as the core CPI -- as a better indicator of underlying inflation than the headline measure. The overall CPI climbed 0.4% in February and 6% from a year earlier. The median estimates in a Bloomberg survey of economists called for a 0.4% monthly advance in the overall and core CPI measures. The figures reaffirm that the Fed's quest to tame inflation will be a bumpy one as the economy has largely proven resilient to a year's worth of interest-rate hikes so far. The challenge for the Fed now is how to prioritize inflation that is still far too high with growing financial stability risks in the unraveling of Silicon Valley Bank.
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US Core CPI Tops Estimates, Pressuring Fed as It Weighs Hike More

US Core CPI Tops Estimates, Pressuring Fed as It Weighs Hike

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  • The results of a long term low rate policy (Score:5, Insightful)

    by turp182 ( 1020263 ) on Tuesday March 14, 2023 @09:08AM (#63369381) Journal

    Here's my opinion (I was an actuary long ago).

    The Federal funds rate was effectively 0% from 2010 through 2015, and then again from 2020 through 2022:
    https://fred.stlouisfed.org/se... [stlouisfed.org]

    Lots of assumptions were based on this "trend" and money was pretty close to free to borrow (institutional level). This led to a lot of startup funding/venture capital. With money close to free, it can pay to be risky, it's take less successes to cover failure without interest expense strain.

    Now the yield curve is inverted (short term rates higher than long term), so banks holding long term treasury debt are in a bad position, they have to sell those securities at a loss if they are called (this is self-reinforcing, "run on the bank"). Exactly what happened at Silicon Valley Bank.

    It's a Catch 22 now. The Fed can't continue to raise rates to tame inflation as it would kill the banking system (this is just now coming into focus).

    I've seen articles about the Fed possibly pulling back and reducing rates to help the banking system.

    THE LONG TERM ZERO INTEREST RATE ON FEDERAL FUNDS CAUSED THIS. THE FED CAUSED THIS.

    • Bullshit (Score:3, Interesting)

      by rsilvergun ( 571051 )
      It's got nothing to do with how much money we printed and everything to do with who we gave it to.

      Our economy has been growing and that requires us to print money. That's why we came off the gold standard.

      The problem is that in the last 40 years we've shifted 50 trillion in wealth to the 1%. They used that money to buy up all their competitors and to buy up apartment blocks, houses and even trailer parks.

      Because we stopped and forcing antitrust laws we have monopolies and trusts at scales greate

      • Re:Bullshit (Score:5, Interesting)

        by Brain-Fu ( 1274756 ) on Tuesday March 14, 2023 @11:50AM (#63369837) Homepage Journal

        I agree that monopolism is a contributing factor, in particular in the housing/rental market. It's actually pretty bad right now, there is basically no price competition for rent as the very-few companies who own all the rental property use price-recommending computer software to fix prices while seeming to keep their hands clean. The makers of this software are being sued over this, as I recall, though I don't know the current state. In any event, the housing cartel's price fixing is really blatant and is a significant driver of the inflation we are seeing.

        However, that alone doesn't explain the high prices, across the board, for home sales. Those are being offered by individuals and many times are being bought by individuals who aren't using any price-fixing software. Its a simple problem of supply and demand. There just aren't enough houses on the market and that is because builders have been building other things ever since the last housing crash. This low-supply is something that we really can't get around by any other means: we must build more houses, and that's that. Of course, we aren't doing that.

        Be that as it may, I disagree that "It's got nothing to do with how much money we printed and everything to do with who we gave it to." The economy is very interconnected and every significant change has an impact. Regardless of who we gave it to, the raw increase in money supply absolutely was a contributing factor in driving up inflation, it is impossible for it not to have been. That's simply how it works. Money supply goes up, prices go up, and done. The other things you mentioned are also contributing factors, but they do not stand alone as the only cause.

        • In most American markets (Score:4, Insightful)

          by rsilvergun ( 571051 ) on Tuesday March 14, 2023 @03:01PM (#63370399)
          25-33% of all new home purchases are some form of multi-national corporation. I heard Toronto hit 40%, which seems to be what made Canada ban the purchase of single family homes by foreign nationals at least.

          Then you've got the boomers looking for an easy gig to retire on because they didn't save enough while they were working. Then you've got AirBnB and it's competitors.

          We turned housing into an investment and retirement plan. Build all the housing you want. It's like adding highway lanes at this point. If you're going to give unlimited cash to the 1% they're going to buy up all your supply. They'll leave it empty if they have to.

          Not that we build new cities anymore. Again, you can't build anything when all the money goes to the 1%, and we're all fighting for scraps. So it's not even going to come to that.

    • Re:The results of a long term low rate policy (Score:4, Insightful)

      by ranton ( 36917 ) on Tuesday March 14, 2023 @09:34AM (#63369425)

      It's a Catch 22 now. The Fed can't continue to raise rates to tame inflation as it would kill the banking system (this is just now coming into focus).

      Would the banking system really be killed? What happened to Silicon Valley Bank appears to be perfect. The investors and lenders lost their money, but depositors are going to get their deposits back. This seems to be how a bank should be allowed to fail. And banks have been doing very well lately. Chase has had their stock raise 500% since the banking crisis, and BofA is up 600%. Let all of them have their stock drop 75% and they are still doing fine.

      I don't understand everyone's fascination with having such valuable banks. If they just got back to lending and borrowing they would be worth a fraction of what they are now and the economy would be arguably better off.

      • The problem is when it happens to too many banks, which the Fed action may cause.

        It's s tough nut. Banks need to be liquid enough to handle withdrawals. This requires some scale (and initial equity).

        I worked at a life insurance company that had a run on a LIBOR+20 Points vehicle that they were treating as a long term investment fund (it wasn't, and it got called). Small spreads can kill and the Fed has been making very large changes (haven't seen such fast raises since the 1970's/80s).

        https://fred.stloui [stlouisfed.org]

        • Well I have seen some discussion that perhaps this size of bank sortof should not exist if they can't be assed or able to comply with the liquidity regulations the larger banks are;

          The proposal I saw was so combine most of the $50-250B regionals into a few more larger banks to compete with BoFA, JPM, etc and get some more up top competition and also still allow that smaller $50B cap local banks to operate.

          Basicallt SVB did lobby and succeeded in exempting themselvs from the additional scrutiny that the larg

      • What happened to Silicon Valley Bank appears to be perfect. The investors and lenders lost their money, but depositors are going to get their deposits back.

        What's not perfect about it is that SVB didn't pay enough in FDIC insurance to warrant the amount of money the FDIC is going to spend to make the depositors whole. It's arguably only necessary because Roku had so much money in there that wouldn't have been insured, and they employ a lot of people so if they go under it damages the economy, so the FDIC is paying for Roku's incompetence in how and where they kept their cash. This is not a big deal this one time, but if this keeps happening at an accelerated r

    • "The estimated weighted average duration of SIVB's investment securities portfolio spiked to 5.7 years at December 31, 2022 compared to only 4.0 years at December 31, 2021." (https://seekingalpha.com/article/4587030-svb-financial-group-reached-for-yield-failed-perhaps-a-canary-in-the-coal-mine) The fed started raising rates in march of 2022. It seems that SVB bet against the fed following through and actually fighting inflation and extended the duration of their bonds poorly. I did the same thing (sadly)

    • The government printing loads of extra money also caused this. And government deficit spending also caused this. Everything that expands the money supply is a contributing factor. Our government could make a significant contribution to reducing inflation by abstaining from spending borrowed money. That budget reduction would go a long way. But of course, they won't.

      Also, broken supply chains could still be a contributing factor, and repairing those will also help reduce inflation.

      So, there are meaningf

      • Also, broken supply chains could still be a contributing factor, and repairing those will also help reduce inflation.

        I'm done with this excuse. If you're telling us that private industry is so fragile that it can't get its act together two years after a minor inconvenience, then that only shows how incompetent they are.

        At this point there is no excuse not to have full shelves, yet it can be weeks before bags of cat food are stocked. And which point they promptly disappear and not return for a few

    • Yes, the previous Fed administrators caused this issue.

      Most Fed administrators are cautious at bumping up the Fed interest rate because of the effect it can have on the economy. Too much bump and the economy goes into recession. No Fed administration wants to unintentionally cause a recession. The current Fed administration does want to encourage the economic effects of a recession economy in order to slow down inflation because out of control inflation makes everything unaffordable, can stop or drastically

    • I think this is a lie - "the fed can't raise rates because it would kill the banking system". Banks who are structurally unsound "fail" - i.e. have to be restructured. It's not the end of the banking system. It sure seems like the people who control the financial press and have a vested interest in having low rates (because it gets them cheap money) are pushing this false narrative awfully hard. The Fed wants to give banks time to adjust their structures, but having a bank have to force restructure is n

    • That is half correct. The other half is that Biden fiscal policy -- pumping trillions of additional dollars into the economy without any concern for productive uses, while at the same time shutting down a large fraction of the economy by the states (at federal prompting) -- led to a massive inflation, which finally woke the Fed out of its slumber.

      (For the what-abouters: Trump started the money pump, but Biden outdid him immensely.)

    • Re: (Score:2)

      by amorsen ( 7485 )

      Yes, the hawks has been predicting crazy inflation for the last decade. It was around the corner at every moment.

      And now they pretend that their predictions were correct, just like you are.

      The Fed will continue to raise interest rates. The banks will be just fine. Inflation will be tamed. And the hawks will go back to their inane cries about how dangerous inflation is and how stagflation is going to happen.

  • Really fucked up (Score:5, Insightful)

    by DarkOx ( 621550 ) on Tuesday March 14, 2023 @09:11AM (#63369389) Journal

    The fed really fucked up keeping rates low as long as they did.

    If you look at SVB for example their structural problems have everything to do with the fact they have to big a pool of long dated bonds at low interest rates. Why because the rates were in the dumper for 15 YEARS.

    Now as rates go up nobody wants that paper. Sure its good for its face amount if you sit on it to maturity but who wants .5% interest when you can get 4+% on newly issued paper with similar maturity dates! I am sure SVB isn't the only bank sitting on tons of this stuff because it isnt as if deer old Uncle Sam wasnt issuing it like it was going out of style - so much for deficits don't matter.

    The Federal Treasury has literally managed to poison the commercial banking industry by follow the old saying 'owe the bank 100k you have a problem, owe the bank 100m they have problem.'

    The FED let it happen. Now the FED is going to be handcuffed not just by the ability of Uncle Sam to cope with higher borrowing costs but also a commercial banking industry looking at increased spreads between the growth of the Treasury backing and what they have pay for liquid deposits..

    The whole thing is like a chinese finger trap.

    About the only path out is going to be deposit institutions and money markets are going to have spread the rates further between what they offer on deposits and what they charge borrows over the feds prime rate and hope their competitors can afford to offer their clients better deals and take their business. I predict we see a lot of consolidation in banking over the next few years where the Wells Fargo / JPM / Citi / HSBCs / BOA types with alternative revenue streams and TBTF status to waive in front of commercial treasury clients, buy up the regionals NYCB, Truist, Gratz etc.

    Which will suck because we will find we are dealing with some social policy person at these big institutions deciding they just want shut certain businesses, political campaigns, etc of bank access according to the cause of the week and there will be no place to go. Which is going to lead to even more crypto bullshit and other grey-market financial institutions to facilitate perfectly legal activity but also entirely without the ability or incentive to deal with actual crime, that almost everyone but not quite truly does consider deplorable and undesirable.

    Before you get to excited about that being some kind of libertarian wet dream it won't be it will be much more like being caught be a scary imperialist force on your left, and ACTUAL pirates on your right. There won't be transparency and their won't be fair execution of contracts.

    What the government really needs to do is
    1) break up the TBTFS before it happens
    2) balance in budget, curbing inflationary pressure and pushing commercial banks toward higher paying commercial paper
    3) pressure the fed to hold rates about where they are for the duration while the market sorts itself out again

    It will hurt a lot but its about the only way to preserve anything resembling our financial structure and not suffer total calamity.

    • What's incredible though is how long those low rates persisted without inflation going up. Everybody was predicting it for, literally, a decade +. Raising the rates and triggering deflation would not have gone well either.

    • "...It will hurt a lot ..."

      Your entire post is really well written and interesting, but this is the point at which it collapses.

      Bush 1 was the last president I can think of who was willing to do something painful that nevertheless needed to be done (raise taxes, in his case, and it cost him his 2nd term).

      There's simply no appetite in the modern era from senior politicians - nor an intelligent-enough electorate generally - to ever make a short-term-pain, long-term-gain choice.

      • There's simply no appetite in the modern era from senior politicians - nor an intelligent-enough electorate generally - to ever make a short-term-pain, long-term-gain choice.

        It's too bad that Biden, given his age and accompanying health decline...doesn't see the writing on the wall for his long term career in politics, and make one of those painful stands and tries to do what is actually needed to save us.

    • It is a pity that crypto became synonymous with NFTs and low-scalability surveillance-ready Bitcoin. There is much better crypto technology and it is actually being used as currency rather than Beanie Baby trading

  • Inflation versus greed? (Score:5, Interesting)

    by dirk ( 87083 ) <dirk@one.net> on Tuesday March 14, 2023 @09:22AM (#63369403) Homepage

    I wonder if there is a way to tell how much of the price raises are inflation versus just plain greed? We know that many companies are raising prices more than the cost of inflation and it clearly shows in that many are making record profits during these times. So how do we tell how much is really inflation (which is definitely an issue) versus companies taking advantage of the inflation to raise their profits.

    • Yeah, like probably half of companies are raising their prices more than inflation and half of them less than inflation as a whole. It's almost like somebody averaged those numbers to come up with the inflation figure or something. Companies don't raise prices to match inflation. They set prices to maximize profits. Normally pricing power is limited as competitors would underprice you. But right now when there just isn't enough of anything the prices get run up such that the entire inventory sells with

    • Funny you should ask (Score:5, Interesting)

      by rsilvergun ( 571051 ) on Tuesday March 14, 2023 @10:21AM (#63369557)
      wages were flat during the last 6 months but inflation is still up. Raising interest rates has exactly one benefit, it "cools" the economy. This is a euphemism for lowering wages by triggering layoffs.

      Jerome Powell's own projections call for 2 million layoffs, and everything we know about economics says a minimum of 1.5 million will follow after that.

      So we've got flat wage growth but still have inflation. That means something other than wage growth and high employment is causing inflation. But Powell doesn't care. He's repeatedly said he won't stop until he gets his 3.5 million layoffs.

      Senator Warren asked him how he plans to stop the cycle of layoffs when it starts. He didn't have an answer. We could be heading into a depression caused by Powell's idiotic tinkering. And I think that would suit him just fine. At this point he's like a kid with a magnifying glass playing with ants. Only we're the ants.

      • Re: (Score:2)

        by shanen ( 462549 )

        Mod parent up, but we're farked until they get the politics out of money. [sic]

      • The dual mandate in the 1977 federal reserve act is a complete farce, it sufficiently muddies the water of their performance where they can deny any responsibility for what happens.

    • So how do we tell how much is really inflation (which is definitely an issue) versus companies taking advantage of the inflation to raise their profits.

      As a consumer you can never know. So it's safer to assume everyone is taking advantage to increase profits. You'll be wrong sometimes. You'll be right most of the time. Especially when talking about corporations whose stated purpose is to increase shareholder value.

      • Especially when talking about corporations whose stated purpose is to increase shareholder value.

        I would be hard pressed to find a better example of class warfare than this.

    • I wonder if there is a way to tell how much of the price raises are inflation versus just plain greed?

      Yes

      https://www.epi.org/blog/corpo... [epi.org]
      https://www.theguardian.com/co... [theguardian.com]

      As it turns out, over half of inflation is caused by increases in corporate profits.

    • Inflation doesn't care why you raised prices.
      All economic activity is based on greed. The only question is whether the government was complicit in letting you screw the other guy.

    • I wonder if there is a way to tell how much of the price raises are inflation versus just plain greed?

      Your question is like asking how much of weather is caused by solar energy.

      All price increases are caused by greed. All price decreases are also caused by greed. Businesses always seek to find the price level that maximizes their profits, in the context of their competition, costs (materials & labor) and customer demand.

  • You need to fix the labor shortage and just raising pay wont do it if you don't have enough workers. Issuing immigrant work permits to increase labor pool might help. Also lowering tariffs on imported goods and getting more fuel to the market.

    • Raising interest rates is all they've got.

  • Zero rates has left us with zombie banks and businesses. Some culling of the underperformers and stupids is sorely needed.

    Pour encourager les autres, banks like SVB going to the wall, taking their management down, is a Good Thing. It will leave the country stronger.

    Too big to fail? Bah, humbug! Inflation is the only thing.

  • The stupid thing is (Score:3)

    by wakeboarder ( 2695839 ) on Tuesday March 14, 2023 @10:26AM (#63369579)
    Half of the inflation is from deglobalization, that's not something that you can fight with interest rates

  • The CPI excludes "non-core" goods. Like food. And energy.

    And it's still not enough to make the figures look good.

    An index is only useful if you act on it. Acting on inflation figures that don't include the basics of life is never, ever, going to work well no matter how "good" your excuse for ignoring them is.

  • High interest rates destroy production. With less supply, more things become unaffordable as a lesser number of people will be able to obtain said product.

    • No, they destroy demand, because people don't have access to cheap debt for future capital purchases, housing and other things.

      • Instead of crippling the demand side they should figure out how to increase the supply side especially of essential items which are skyrocketing in price. Boost supply and prices will drop. Destroying jobs and creating more poor people is are recipe for recession and poverty.

        • Re: (Score:2)

          by PPH ( 736903 )

          Every late night TV add:

          Order your ${thing} now. But hurry. Once our stock is sold out, they will no longer be available due to production bottlenecks. So act now! (Limit two to a customer.)

        • Re: (Score:2)

          by DarkOx ( 621550 )

          You can't make people produce though.

          Trying to goose supply is always pushing a string. You can remove the barriers to production. Lift environmental controls, permit requirements, license requirements etc.. You can make credit available to suppliers but they are not going to start cranking out more units and taking on risk, if its going to depress prices, not unless they feel pretty confident they can more than make it up in volume.

          Meanwhile look at the consumer right now. Everyone with adjustable rate m

        • De-globalization, early retirement and covid are contributing to the supply side problems

  • Targeting the wrong thing (Score:4, Insightful)

    by Turkinolith ( 7180598 ) on Tuesday March 14, 2023 @12:16PM (#63369903)
    You have to compare CPI with other factors such as https://www.bls.gov/news.relea... [bls.gov]

    The average hourly earnings have been decreasing, but inflation is still going up. That says to me that the increase isn't from workers having more money it's because business are simply charging more. Reference that with those businesses quarterly reports showing all time highs in revenue and I think we can see what's really fueling inflation right now.

    Greed.

  • I'm no economist, but I can see how the Fed's favorite tool of manipulating interest rates only has value to a certain extent. Beyond that, the negative consequences outweigh the intended advantages.

    It's like most things in life, really. Just because a little is needed doesn't mean more keeps making it better. Food needs more salt? Ok, but you can't keep adding more salt and expect the flavor to keep improving.

    I agree with the people who said they kept rates near 0 for far too long. But so much our problem

  • The federal reserve has only a few tools at it's disposal:

    - Modify the interest rate
    - Purchase assets
    - Tinker with reserve requirements

    They're trying to shrink their assets (about $8.3 trillion), not grow them. Reserve requirements are already dodgy, and lowering them lets banks get even more risky. So all that's left is the interest rate, and it's about as coarse an instrument as you can have. You can't wield it surgically. It's a flamethrower attached to a bouncy toy - it'll probably torch what you're aim

  • US inflation is being driven by rising salaries. Salaries rise because the labor pool is shrinking as boomers retire, as there arenâ(TM)t enough working age zoomers to replace them for another 8-10 years. Soâ¦..rate hikes wont cut it.

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