Powell: "We now understand better, how little we understand about inflation"

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by VBL
Tuesday, Jul 12, 2022 - 13:02

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SPECIAL PREP: CPI Expected To Be 9% Wednesday


  1. CPI inflation is expected to come in at 9.0% by more than one bank
  2. Many are now expecting this to be a top and are extrapolating a decrease in the months ahead.
  3. We offer some longer term perspective/comments

CPI Expectations


Goldfix on the Bank Analysis:

  • The fact that these banks are all on the same page implies they are probably right for the next month or quarter. Maybe off by a month, but generally right
  • However, the fact that they are all on the same page after 3 months out is not a good thing. These types are good at turnarounds in trend ( after missing it 3x running) but horrible in that they tend to extrapolate trend forever until proven wrong.
  • To be fair, how can these banks know any better than the Fed, which has itself stated they “now understand better, how little they understand”.


Powell is saying here: ‘We now know that we know very little about inflation.’ so they recognize their ignorance, but they are still ignorant. Not a good look.

Our belief in the Big Big Big picture is this:

1- Inflation will have turned a corner lower soon for now...


2- It has done this in the past with catastrophic results as officials pat themselves on the back (1970’s) and become complacent and will continue to be sticky as long as Oil remains higher…


3- Inflation is already as high or higher than it was in the mid 1970s using the metrics from back then…

H/T @stockshaman


4- We haven’t even experienced wage-price spiral yet, (a big part of 1970s), and Powell is rightfully desperate to make sure that doesn’t happen on his watch…

Inflation is already higher than the 1980 highs (using shadostats). Salary increases are not nearly on pace to compensate like they did then yet (weaker unions, COLAs). The Fed knows this. That why they are rightly afraid of wage-price spiral


5- The political nature of this is killing Biden, and therefore the inflation will be fought as midterms come up and for as long as it stays in the news headlines…

What’s worse for approval; inflation or recession, Joe?


6- But, the moment we get real crash risk realized, with recession headlines replacing inflation headlines, the Fed will turn dove again and Powell will have to reverse or risk bigger problems like hyperstagflation…


7- For this week, expect a lot of media coverage of CPI...

  • If it is low: “Have we turned a corner?”
  • If it is high: “How bad will it get?” and “Have we turned a corner?”

Politics and Drug Addiction

  1. Biden Will ultimately blame the Fed when all else fails
  2. The Fed is doing what Biden wants, and what we need right now.
  3. But once the recessionary numbers come in and The Fed does nothing, and stocks crash then Powell will be able to point to Biden and say “I told you so”
  4. Then we get the next round of a QE rescue until recession is out of the headlines
  5. The markets are on a cocktail of sleeping pills and coffee to take them off an addiction to heroin and cocaine. It might not be enough this time.

One Bank's Analysis

UBS Says: June CPI preview: Headline inflation hits 9.0% Headline CPI: UBS US Econ 1.26%, consensus 1.07% Next Wednesday's CPI release should show another huge headline CPI increase. We project the second largest seasonally adjusted monthly CPI rise in 40 years (a couple basis points above March this year and behind only September 2005). Energy prices account for a little more than half of the June price jump with gasoline prices rising 11% compared to May. However, according to AAA retail gasoline prices peaked on June 13 and have fallen 22 cents per gallon over the past three weeks, suggesting close to half of the gasoline price surge in June will be reversed in the July CPI. Outside of energy prices we expect the June CPI to show large increases in prices for food, new and used vehicles, rents, and airfares. At 1.26%, our CPI projection is above the current Bloomberg consensus average of 1.07%, and our forecast for the June NSA CPI level, at 296.101, is about 8bp higher than recent CPI swaps fixings.

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