Jackson Hole, Wyoming is where the Federal Reserve moguls go in late August, not naturally, but pondering the direction of interest rates and all the associated economic issues that come with it. Fed tycoon Jerome Powell is widely expected to declare that even higher interest rates are needed to “fight” inflation.
It’s called “The Retreat,” and if you receive an invitation from the organizers, the Kansas City Federal Reserve Bank, you’re definitely on the A-list of people to count among economists in the country. If you can get out of the monotonous office, new ideas may come to your mind, but it may not seem like it.
The concern this year is that inflation remains at levels considered to be in the “too high” range. This is despite the recent drop in gas prices at pumps. The problem remains that the CPI and PPI numbers are very high. According to those who closely and religiously practice the dire science of economics, these numbers need to come down.
So the solution, widely accepted by pundits and financial journalists, is to keep interest rates going up, and Jerome Powell will articulate that when he makes his big speech on Friday. Widely discussed, the Federal Funds Rate could rise another 3/4%.
They want the stock and property markets to cool more than they already have. How this relates to CPI and PPI is the subject of many economics doctoral dissertations and could be discovered and studied, but importantly, the Powell and Retreat crowds If they say they need to raise, they’re going to go up.
Many of these have already been priced into bond markets, with 2-year and 10-year Treasuries flying at much higher yields than expected.
Here it is 2 year yield point and figure chart:
Note that for the first time in many years, yields are above the long-term downtrend line (red). There are already far more sellers than buyers for 2-year bonds as yields rise and attract interest. In other words, this part of the bond market has already priced in what Chairman Powell is about to declare.
Here is a chart of the 10-year Treasury yield.
In fact, even the 10-year yield has crossed the red long-term downtrend line. Yields on both the 2-year note and his 10-year note are already trending up, confirming how “pre-priced” Powell’s remarks are.
This new direction of interest rates is a big change from the recent past and comes with deep concerns about what happens next in the economy. How far can these yields go before Fed officials decide to hold off and work towards lower levels?This will depend on his CPI and PPI readings in the coming months. it’s different.
We hope the Federal Reserve moguls enjoy the beauty and tranquility of Jackson Hole, Wyoming. Rising interest rates to curb inflation will also affect property and stock growth, so we are unlikely to enjoy a beautiful calm this winter.
It is not investment advice. For educational purposes only.