inflation

Retail Stocks and 2017

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retail stocks 2017

Wheee! Well, looks like 2017 is going to be a lot of fun, and by fun, I mean volatile and sketchy all the way through. First up, are announcements by retail stocks such as Macy’s and Sears, both of whom announced that they would be cutting staff and closing stores. Kohls also announced sluggish holiday sales. That means that the 2016 holiday shopping season was not strong enough for a lot of traditional retailers. Look for earnings on the low side, that disappoint Wall Street for most retail stocks. This is a big deal, because this was supposed to be the “up” year for the economy. The stock market is up, closing in on 20,000. Job reports show that unemployment is as low as it’s been since before the Great Recession. The Fed even finally got to raise interest rates in December. If this holiday season wasn’t good, then things maybe aren’t going as well as everyone might have hoped. Of course, it is possible that there was still plenty of consumer spending and it just went different places like online retailers, or specialty stores, but so far, no one is pushing that theory. Trump, The Fed, Inflation and a …

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June Rate Hike Is Off

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fed interest rates caution

Last week, the April inflation numbers came in a little bit high. At the time, I (and several other analysts) pointed out that the higher number was almost all due to a long coming recovery in fuel prices, and that even with that higher number, inflation was nowhere near being a real issue. However, the Fed members went running to just about any media outlet that would listen telling everyone that those shaky numbers were the reason the Fed was very likely to raise interest rates in June. I wrote at the time, that it seems like this Federal Reserve is more interested in showing that they are inflation hawks than they are interested in following the actual data. The Federal Reserve has two official mandates, to keep inflation in check, and to keep employment as close to full employment as possible. This begs the question of why, exactly, the Fed seems so keen on raising rates right away. Employment is doing better, but nowhere near full, and wage growth is stagnant, so no issues there. The twelve month inflation rate, even with April’s increase, is just 1.1 percent, well short of the Fed’s supposed 2.0 percent inflation target. A …

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Inflation Rises… Sort of…

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Today’s version of Let’s Overreact to Economic Statistics comes in the form of news articles noting the “biggest rise in inflation in three years!” The April inflation number, released today, serves up a 0.4% seasonally adjusted increase. This is the biggest inflation number since February 2013. So, does that mean the Fed will race to raise interest rates? Inflation and The Fed Believe it, or not, not all inflation is bad. In fact, some inflation is necessary for a healthy economy. The current Fed repeatedly has stated that it targets inflation at an annual rate of 2.0%. Even with the 0.4 percent increase for April, the 12 month inflation rate is just 1.1 percent. So, inflation isn’t exactly roaring ahead, and the Fed is unlikely to make a snap move in reaction. However, what doesn’t really get enough attention is that the 2.0% target number isn’t really a “close enough” sort of target for most economists and people at the Fed. A number of 2.1% is likely to make people nervous. That’s because while a 2 percent annual inflation is a sign of a healthy economy, anything approaching a 3 percent annual inflation triggers worries about an overheating economy, and …

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Fed Telegraphs Slower Rate Hikes

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The Federal Reserve, via its members, is out announcing that the rate hikes everyone was sure were coming this year, after the December interest rate increase are, in fact, on hold, until the markets and the economy stop being so shaky. Fed Members Nudge Wall Street Off of Hike Forecasts The St. Louis Fed President, James Bullard, said in an interview that rate hikes during 2016 were never a sure thing. He is right that the Fed often, and deliberately, said that rate hikes were dependent upon data going forward, but the markets didn’t believe them, pricing in a full 1% interest rate hike over 2016, and every analyst under the sun talking about a steady march up in interest rates. Bullard blames the previous Fed under Fed Chairman Bernanke for “mechanically” raising interest rates 17 straight times from 2004 to 2006 (and likely triggering the nationwide real estate slump that ended up all but crashing the U.S. banking system in 2007). He says that because of that chain of increases, everyone simply assumed that this year would have similar, albeit slower, rate increases. Bullard leaves out that many of the other current Fed members (including himself) could say often enough …

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Unemployment Hits 7% for November

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Unemployment numbers for November were released today. The unemployment rate hit 7.0 percent for the first time since November 2008. If your recent economic history is a little fuzzy, that’s right about the time the banking crisis and housing market implosion was a full tilt. In other words, we’ve been over seven percent unemployment since the so-called Great Recession started. I get  a lot of questions about economic news stories. In particular, people want to understand the significance of the various economic statistics that come out better so that they can separate real new from hyperbole. So, let’s take a look at these unemployment numbers and see what the deal is. What Is the Unemployment Range? First, off, it can be hard to overstate how important unemployment (or more accurately, employment) is to the overall well being of the economy. I’ve covered before what makes unemployment numbers so important, so we’ll leave that out for today and focus instead on what is going on here, and why it matters so much. One question I get from time to time is why people get so excited over small movements in the numbers. That’s a good question. It can help to have …

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What Causes Inflation?

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Recently, I wrote a little bit about inflation. Specifically, I wrote about why the Federal Reserve is so worried about inflation, and why good economic news and inflation often seem to go hand in hand. That led to some questions about what inflation is exactly and where inflation comes from. What Is Inflation? Perhaps, it is best to start at the beginning with a definition of inflation. Inflation defined is, The rise in prices of goods and services when spending increases relative to the supply of the market. In other words, when prices rise because spending, by business, or consumers, or both rises. Where Does Inflation Come From? Pinning down exactly what causes inflation can be tricky. Inflation is a simple word applied to a very big concept that encompasses a lot of how a market economy works. For starters, inflation is natural. This may come as a shock considering how much the Fed and the media harp on keeping inflation down. However, inflation is inevitable as long as the population within an economy is growing, as is the natural state of the human race. Consider a small tribe with a fully modern monetary economy. Let’s say that there are …

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Why the Fed Worries About Inflation

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The Federal Reserve, like many government agencies and organizations, has a dual mission. On the one hand, it is the Fed’s job to keep the economy running smoothly and maintain the economic and monetary systems the country depends upon. On the other hand, it is the Fed’s job to prevent rampant inflation from crippling the economy. Doing one job well, sometimes means messing up the other job. Under normal circumstances, the Federal Reserve uses its power to set interest rates to moderate the ups and downs of the economy. In a free market system, there are periods of expansion and contraction (good times and bad times). These variations in the economy occur for two main reasons. First, people (as a group), do not always behave rationally. Second, even when people are behaving rationally, there can be a significant lag between the arrival of data and the impact of that data on decisions. For example, when we talked before about how inflation works, we talked about a man named Brad who, when prices rise, cuts back on spending by cancelling his gym membership. Theoretically, the exact moment for this to happen is when Brad’s expenses increase beyond his income. However, in …

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Good Economic News and Inflation

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It seems any time economic news gets reported, there is a good news / bad news sort of thing going on. If there is an economic report that offers up good news about the economy, that is paired with the bad news that the Federal Reserve is either not going to do anything (recently) or may move to increase interest rates. Either way, that seems to worry some people, no matter how good the economic news might seem other wise. The Fed and Inflation The Federal Reserve’s mission is to regulate the U.S. economy independently of the U.S government. That role has never been as important as it has been lately when Congress and the President seem constantly paralyzed by politics from taking any steps or implementing any policy to help the economy. In particular, the Fed’s role is to help regulate U.S. monetary policy. This is a historical mandate, and it shows that those who created the Federal Reserve had remarkable foresight, because what is good for the country’s economy does not often square up with what is good for the political parties that want so desperately what to gain and hold power. There are two main missions for …

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Economy Growing Slowly – Inflation Benign

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The U.S. economy continues to grow at a very slow pace according to the Federal Reserve’s Beige Book. That isn’t good enough considering how deep the current recession is. At this rate, growth back to anything resembling an expansion would take a very long time. However, the good news is that the economy isn’t getting any worse for the time being. The Beige Book is a summary of the current state of the U.S economy across all of the Fed’s districts and for the most part, all reports are of "modest" or even "slight" growth. Inflation Not Happening It seems that the highest "street cred" a Fed banker can have is to be an inflation hawk. Since 2008, however, inflation hawks have actually been Chicken Little’s. With the economy growing very slowly and many Americans still out of work, it’s hard to see where inflationary pressure could come from. The just released Consumer Price Index (CPI) just confirmed that there is no real inflation anywhere to be found in the economy. The index rose just 0.1 percent. Prices excluding food and energy, both traditionally volatile pricing sectors that seem to move of their own accord rather than in step with …

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First Ever Fed Press Conference

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Today marks the first time the Federal Reserve will hold a press conference to go along with it’s decision on whether to change interest rates. Most observers expect the Fed to leave interest rates unchanged (basically at zero percent), so the real action will be in the details that emerge from the press conference where questions about how the economy is doing, what the Fed is doing, and how long they think those things will last, will take center stage. In another change, the Federal Open Market Committee will also release the quarterly growth and inflation estimates that is uses to make its rate decisions today. Usually, the Fed releases those numbers weeks later. Today’s changes could make for a very volatile day in the markets because no one has ever done things this way before, so no one really knows how they are supposed to react. Will the markets over-react to something Fed Chairman Ben Bernanke says? Will the markets react less than they would otherwise given how fresh all the data is? Or is this all just a bunch of sound and fury signifying nothing? We’ll all find out later today.