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Inflation Keeps Coming in Waves, but Economist Can't Even Get on their Surfboards

Even with the Fed consistently warning that its inflation fight has quite a ways to go due to the prevailing forces pounding against it, many people in financial markets just don’t want to see it. Well, they can pound sand as the price waves keep knocking them down then.

Force Fed stays with the fight

Fed Governor Michelle Bowman said that an interest-rate hike will be on the table, as far as she is concerned, if inflation doesn’t start moving back downward again. The Fed is certainly nowhere near a point of lowering rates.

Bowman noted that there are “a number of upside risks” prevailing that could accelerate her outlook, which is among the most hawkish of all policymakers. “Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy….”

Bowman said she still expects the Fed to hold its key overnight borrowing rate in a range between 5.25%-5.50% “for some time….” She is not being swayed by rate reductions from the Fed’s global counterparts such as the European Central Bank, which recently lowered its key rates by a quarter percentage point. Bowman said “it is possible over the coming months that the path of monetary policy in the U.S. will diverge from that of other advanced economies.”

Along similar lines …

Governor Lisa Cook expressed optimism that inflation would show more significant progress in 2025, allowing the Fed to lower rates at some point.

Cook is one of the most dovish Fed members; so, a first rate cut sometime in 2025 has become the Fed’s most optimistic outlook.

Fed Governor Daly …

told CNBC’s Deirdre Bosa…. “We’re going to be resolute until we finish the job. That’s why not taking preemptive action [against an economic slowdown] when it’s not necessary is so important.”

Chicago Fed President Austan Goolsbee told CNBC’s Steve Liesman earlier on Monday that if he sees “more months” of good inflation data, then he would question whether policy needs to be as restrictive as it has been, paving the way for cuts.

Emphasis mine because right now they’re not seeing it. Even if they do … and do for some time, we’re talking “more months” of holding.

Consumers feel all the waves but don’t want them. Experts have sand in their eyes.

With a long continuing hold having been laid out by Fed repeatedly, and the dove’s view that sometime in 2025 would be optimistic for a rate cut, there are still some dummies that just deliberately (it would seem) want to see things the wrong way even when they can plainly see consumers don’t agree with them:

“There continues to be positive progress against bringing down inflation,” said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. However, “consumers continue to feel worse about it.”

There has been NO progress all year, unless slightly upward is called progress. I guess this guy likes to sit in the surf on his but while everyone watches.

Consumers feel a lot worse about inflation because inflation IS worse!

Concerns about inflation and interest rates are now at a two-year high, according to a recent report by credit reporting agency TransUnion.

As they should be!

84% of all adults still rank inflation among their top concerns, followed by housing prices and interest rates.

One has to wonder how long it will be before the expert economists begin to understand why. Even the guy heading up this poll continues to think the Fed is making progress and that consumers are just bothered because we’ve leveled out a high level.

“We are seeing now a price level that is much higher than two or three years ago and that feels bad,” Wise said.

That is a penetrating glance that misses the obvious. People are not feeling so intense about inflation just because prices have held at a high level. They are upset because prices are rising faster than they were months ago, and they can feel that in their bones. Statistics, as I’ve repeatedly shown, prove it again and again, too; but some of these guys just don’t want to see that inflation is rising again.

Here is another way of not seeing it:

If you’re a homeowner or if you own financial assets, you’ve done very well, but you’re leaving out huge segments of the population,” Joyce Chang, JPMorgan’s chair of global research, said at the CNBC Financial Advisor Summit last month.

If you’re a homeowner and you own only one home, the fact that houses have gone way up in value does you no good. You’re not selling. You have to keep living somewhere, so you home is not an asset so much as a necessity. When prices have soared, it means your property tax has soared and your homeowners insurance has likely gone up some, too. The home’s value as an asset may put you in a good place someday on the ocean’s far horizon, but it puts you in a worse place right now; and, if you want to borrow off of your equity, that cost of doing that has soared, too, with no hope of coming down until the Fed moves rates down, which will also take a long time to get far enough down to help you. You’re not going to want to mess up your 3% mortgage rate with a HELOC tagged to it at 7%.

For those making ends meet by using their credit cards, the cost of doing that is way higher as well because the Fed has to keep fighting inflation. And those prices are not going down anytime soon because …

The prevailing winds are against the Fed’s fight

As Governor Bowman said, there are “a number of upside risks” prevailing. One of those that I’ve called out frequently is the near certainty of oil rising and pushing up the price of everything else, especially now that the summer travel season is starting. Well, the news since making that claim says the travel season, involving all kinds of machines that use some form of fossil fuel, has started out with an enormous bang:

The U.S. Transportation Security Administration said it had screened 2.99 million airline passengers on Sunday, the highest-ever number in a single day.

That is following on the heels of several previous record days in the past month, and it is expected to climb:

The agency said on Monday it expects to screen more than 32 million travelers during the 2024 Independence Day travel period that runs from Thursday through July 8, which is 5.4% higher than 2023 levels.

The TSA said it expects on Friday it will for the first time screen more than 3 million people, the busiest day expected during the upcoming holiday period. Sunday's record broke the prior high of 2.95 million set in late May, while seven of the 10 busiest travel days ever have occurred over the past month.

It doesn’t matter how you travel, it takes fuel … unless you plan on walking or biking, surfing or rowing your way there. There’s sailing if the wind is good. So, oil is on a clip deep into the $80/bbl range again, as I’ve said we would almost certainly see this summer, and it’s holding in that range:

U.S. crude oil and global benchmark Brent are ahead by 5.2% and 4.4%, respectively, for the month as prices have bounced back from May doldrums on a more optimistic outlook for summer fuel demand.

and for the reasons that I’ve said are obvious …

Though the rally has taken a breather, geopolitical tensions should prevent another rout in oil prices, as tensions between Israel and Lebanon raise the risk of a disruption to crude supplies, according to McKay.

Israel and the Iran-backed militia Hezbollah have threatened war in recent days after trading fire across the Lebanon border for months.

That and all the other wars in the region, not the least of which has been the Houthi War.

Beached ships

Also in the news: That latter prevailing upside risk to inflation has brought about the return of supply-chain breakdowns I predicted as being highly likely by this summer, too:

Stephanie Loomis had hoped that the chaos besieging the global supply chain was subsiding. The floating traffic jams off ports. The multiplying costs of moving freight. The resulting shortages of goods. All of this had seemed like an unpleasant memory confined to the Covid-19 pandemic.

No such luck.

Nope. No such luck. Too many people (as in most) making projections of when the Fed will start cutting rates are betting everything on luck, instead of likelihood. Look at the situation in the Middle East around the Suez Canal as well as the serious shipping constraints through the Panama Canal due to drought that I’ve been keeping our eyes, and a bet on supply-chain troubles was clearly the more practical bet.

As head of ocean freight for the Americas at Rhenus Logistics, a company based in Germany, Ms. Loomis spends her days negotiating with international shipping carriers on behalf of clients moving products and parts around the globe. Over the last few months, she has watched cargo prices soar as a series of disturbances have roiled the seas.

You read here to know what events or situations are the prevailing forces that are coming. Know the prevailing wind to know tomorrow’s weather. It’s the news before it happens. You already know the backstory from reading The Daily Doom, but the supply-chain troubles are the things that story has caused in the news. (Reading here, you were warned they were coming.)

Late last year, Houthi rebels in Yemen began firing on ships entering the Red Sea en route to the Suez Canal, a vital artery for vessels moving between Asia, Europe and the East Coast of the United States. That prompted ships to avoid the waterway, instead moving the long way around Africa, lengthening their journeys by as much as two weeks.

Then, a severe drought in Central America dropped water levels in the Panama Canal, forcing authorities to limit the number of ships passing through that crucial conduit for international trade….

That’s the backstory, then, we see what was predictable from all of that:

The intensifying upheaval in shipping is prompting carriers to lift rates while raising the specter of waterborne gridlock that could again threaten retailers with product shortages during the make-or-break holiday shopping season. The disruption could also exacerbate inflation, a source of economic anxiety animating the American presidential election.

Retailers typically order now and start stocking warehouses for the coming holiday season. It’s their Christmas in July. The pileups that disrupt that flow of goods are likely now to be made even worse by the threatened dockworker and warehouseman strikes.

If the supply chain disturbances of the pandemic proved anything, it was this: Trouble in any one place tends to ripple out widely.

A container full of chemicals that arrives late to its destination spells delayed production for factories waiting for those ingredients. Ships jammed at ports wreak havoc on the flow of goods, clogging warehouses and putting pressure on the trucking and rail industries.

“I’m lovingly calling the market now ‘Covid junior,’ because in a lot of ways we’re right back to where we were during the pandemic,” said Ms. Loomis. “It’s all happening again.”

You can see the surf is up and see the next big set of waves coming whenever you want to, so I have to scoff at the pros sitting on their butts in the wet sand. Even with the Fed telling them consistently that the battle is far from over, they don’t want to see it. Some have spent too much time predicting the opposite to want to see it. Some have stocks or bonds to sell you. Some are buying stocks and want to believe they will keep rising with a new Fed put behind their back. Many just want to believe otherwise because they wish it were all over.

We all wish it were all over; but, until it is, The Daily Doom will keep bringing it before your eyes. That’s not to pound it into you. The waves of inflation do enough pounding, and I know, as a consumer, you certainly feel them. It’s to help you understand why you’re feeling one way about inflation when the media and the experts keep telling you it’s not what you think it is. It IS what you think it is! It’s to reassure you you’re the rational one. Someone needs to say what others obviously will not.

(I continue to hope for readers who will support me in my daily effort to deliver you the news before it happens. What you read in the editorials, you will see tomorrow. It’s not fortune telling. It’s just objectively seeing which way the wind is blowing and what is out there to be concerned about, instead of seeing what one wants to see. Thank you to those who have supported the efforts here to dial in on the truth beneath the stories or the truth that doesn’t even make it to most stories. You are a treasure.)

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