US inflation hits record highs

Well there it is – proof the US Federal Reserve is way behind the ball on tackling inflation which will have massive implication for global markets in 2022. Here’s the scoop on the print last night:

Inflation jumped at its fastest pace in nearly 40 years last month, a 7% spike from a year earlier that is increasing household expenses, eating into wage gains and heaping pressure on President Joe Biden and the Federal Reserve to address what has become the biggest threat to the U.S. economy.

Prices rose sharply in 2021 for cars, gas, food and furniture as part of a rapid recovery from the pandemic recession. Vast infusions of government aid and ultra-low interest rates helped spur demand for goods, while vaccinations gave people confidence to dine out and travel.

As Americans ramped up spending, supply chains remained squeezed by shortages of workers and raw materials and this magnified price pressures.

And the five year chart:

And the 25 year chart:

And current policy rates:

This chart from Callum Thomas shows how far the Fed has to play catchup:

Somethings got to give soon and that means a lot more interest rate rises planned in coming months, and with US stock markets at record high valuations, this will be a very volatile year to say the least!

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Comments

    • Jumping jack flash

      Exactly.

      There are no more interest rates to cut, debt underpins the global economy for the past 15 years, only made possible through cutting interest rates while wages remained stagnant and inflation was contained. Without interest rate cuts, debt capacity returns to being a function of income. Income = wages, a function of prices and sales, and in this kind of economy that is linked back to debt spending (on services and retail of imported goods).

      There is nothing else. Everything else that used to be available has been shipped overseas and outsourced there is only inflation now to raise wages and increase the debt pool to spend.

  1. So if America raises rates multiple times, will we have to? The savvy multi million dollar question is how much can rates rise in Aus before it crashes housing?

    • Diogenes the CynicMEMBER

      1% will do it as banks will load up 2% rate rises on their mortgages – market will sag like a punctured balloon.

    • 0.5% will be the max before it cripples the economy.

      It won’t be fixed without widescale defaults at that time.

    • yeah no one has any balls these days to make a call on Aussie interest rates rising, I thought banks borrowed 1/3 offshore, so if US rates rise wouldn’t that force our banks?

    • After the second or third mortgage rate rise irrespective of the official RBA cash rate – because most of the wholesale funding sources pre-TFF were overseas (read: US) – the government will step in with TFFv2 but under a different name and the banks will once again replace all of their costly foreign funding with ultra-cheap freshly minted government money.

      There is exactly zero chance of SFM allowing rising mortgage rates and the associated house price falls to jeopardise his election chances. Zero.

      • That’s it, good insights!! At what point would we be forced to raise rates, inflation only right? Or continue to look through

        • At the second or third US rate rise we’ll see local banks raise mortgage rates. The second time local mortgage rates rise (note: not RBA cash rate, that’s pretty much irrelevant), house prices will begin to be affected.

          The government, fearing a looming election wipeout as homeowners see their “wealth” trend downward, introduces TFFv2. Confidence returns, house prices continue to the moon and SFM wins another term.

      • Jumping jack flash

        Agree,

        Banks are simple creatures, they won’t raise interest rates as long as someone pays them the difference.
        Our great leaders have been using this strategy for a while to push interest rates down even though there hasn’t been many interest rates left to cut. The same strategy will of course work so they don’t rise.

    • Because they lied about it being transient, gave them more time. See Christopher’s comment. We keep getting drip fed BS about their projections but they are mainly wrong. Imagine in any other field you’d be out on your ar** being that bad at your job.

      • Jumping jack flash

        Yes, it was never transient except to transition into more inflation.
        It is essential of course for the path they have chosen.

    • The Travelling PhantomMEMBER

      True, nothing I used to buy is same price , all up.
      Gas prices got revised up last week,
      Groceries up by $20_$30 for every shopping trip I do, usually $140 for the week now around $160.
      Diesel is steady at 160c but that’s up from 110c to 140c..
      So I had to raise my prices to keep up with the increase in life cost

    • C.M.BurnsMEMBER

      wine, especially via vinomofo and similar sites, is bloody cheap for excellent value stuff. So that’s not inflating.

      Thanks Poo Bear !!

      • kiwikarynMEMBER

        Yes, some of it even came our way. Only problem is that buying said wine is what is inflating my shopping bill.

    • Jumping jack flash

      We’re back to the same statistical dance from yesteryear where falling prices of imported goods offsets completely the rising cost of domestic services and retail of said imported goods. The magical weightings and baskets does the rest.

      • Absolute BeachMEMBER

        Interesting to see what happens if the COVID cases and lock downs in Chyna grow into 2022 post-Olympics. This will constrain output and increase prices. Then we may have imported inflation adding fuel. Ugly.

  2. Even Bunnings etc, prices up 20-30%.
    And l bet they never come down after this bottleneck clears.