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Yellen backed into a corner on hiking rates as stagflation roars to the forefront in U.S. economy

Yellen backed into a corner on hiking rates as stagflation roars to the forefront in U.S. economy

On Valentines Day, Federal Reserve Chairman Janet Yellen went before Congress to discuss the state of the economy, and the direction that the cost of borrowing might go in the coming months. ¬†And as the Fed Head suddenly changes her tune from ‘the economy is good’ back in December when Barack Obama was still President to ‘the economy is uncertain’ just two months later under Donald Trump, the fact of the matter is the chickens have come home to roost after years of ZIRP, and now the central bank is backed into a corner because stagflation has suddenly roared onto the scene.

As prognosticators ohh and aah over the soaring consumer price index (up 2.5% YoY Рthe most since March 2012), driven by a 14.2% YoY spike in gasoline prices, it appears they missed the fact that real average weekly earnings  plunged by 0.6% YoY Рthe biggest wage collapse since November 2011.

After Germany and China’s inflation-a-palooza, US consumer prices are soaring too.

Some details from the report:

  • The food index rose 0.1 percent in January, its first increase since April 2016. The index for food away from home rose 0.4 percent, its largest increase since September 2015. The food at home index was unchanged in January after declining in recent months. The index for meats, poultry, fish, and eggs, which had declined for 16 consecutive months, rose 0.7 percent in January as the index for eggs rose 14.3 percent. The index for other food at home also rose in January, increasing 0.2 percent.
  • The energy index rose 4.0 percent in January, its fifth straight increase. The gasoline index continued to rise, increasing 7.8 percent.¬† The index for natural gas also increased, rising 1.5 percent in January. The index for energy increased 10.8 percent over the past year, with all of its major components rising. The gasoline index rose 20.3 percent, and the index for natural gas increased 10.1 percent.
  • The shelter index rose 0.2 percent in January after increasing 0.3 percent in both November and December. The rent index rose 0.3 percent, and the index for owners’ equivalent rent increased 0.2 percent. The apparel index rose in January, increasing 1.4 percent.
  • The index for new vehicles rose 0.9 percent, its largest increase since November 2009.¬† The index for motor vehicle insurance continued to rise, increasing 0.8 percent in January, and the index for airline fares rose 2.0 percent.¬† The used cars and trucks index was one of the few to decline in January, falling 0.4 percent after increasing late in 2016.
  • The medical care index also rose in January, increasing 0.2 percent. The indexes for prescription drugs and for hospital services both increased 0.3 percent. The recreation index increased 0.4 percent, the largest advance since January 2012. The index for household furnishings and operations rose 0.3 percent over the month. The alcoholic beverages index increased 0.2 percent, and the indexes for tobacco and for personal care both rose 0.1 percent.

The 0.6% MoM rise is the most since Feb 2013 and 2.5% YoY rise is the highest since March 2012. – Zerohedge

The growing rise in price inflation was in part what led to the 2016 Q3 revision of GDP, which had its highest quarterly move since the second quarter of 2015.  However, with consumers being burdened with more debt now than since the 2008 financial crisis, the caveat is that they will soon be spending more for fewer goods and services, and this will counterbalance the consumer spending component of future GDP numbers in 2017.

Bond yields have already signaled that the Fed was too late in adjusting to growing inflation, and they are now rightfully hesitant to raise rates since the economy has not really recovered since the crisis nine years ago despite the tens of trillions of dollars they infused, and their continuous rhetoric that has only resulted in the stock markets climbing to new all-time highs.  And now the worst of both worlds is occurring in rising price inflation and declining growth, and we already know that Yellen is no Volker when it comes to being willing to do what needs to be done to stop the damage she and her predecessor Ben Bernanke created.

Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.


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