Powell may be forced to lower rates while inflation remains elevated.
Price inflation as measured by CPI won’t get down to the Fed’s 2% target without unemployment rising if history tells us anything (See below chart: Unemployment Rate = Red, CPI = Green).
- Core CPI will likely remain above 4% when October CPI data is released on November 14th, well above the Fed’s 2% target.
- The Fed will be forced to lower rates in 2024 as the Treasury debt load has grown to such an elevated level ($33.7 Trillion). The U.S. simply can’t afford to carry $33.7 Trillion in Treasury debt at a 5% Fed Funds rate. The interest expense on the Treasury debt is crowding out Government spending and the only thing Washington’s politicians are good at is spending other people’s money.
- Therefore, Powell will face enormous political pressure to lower rates.
- However, it is not clear that inflation/CPI will decline to the Fed’s 2% target before the Central Bank lowers rates.
- A looming recession will likely get CPI down to 2% or lower if the monetary and fiscal powers that be (the Fed on the former, Treasury on the latter), allow a recession to persist before pumping the economy full of inflation-inducing artificial stimulus.