At the end of the day, what has happened the last eighteen months is
that, more than anything, the rate of inflation has actually been what has
dictated FED policy, and not the other way around. The FED has been
reactionary. And I think that the rate of inflation is really what's in the
driver's seat here. And obviously the market had to swallow it after March's inflation
rate printed, and here, you know, there was some concern that we
were going to have as high of a rate of inflation as we did last
month. You were listening to Carrie Let's's Financial Survival Network, where you get
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Your nose, scary Lutz. Well, hey, inflation is proving to be
sticky? Is that the next step from transitory? What comes after sticky?
That's what I'd like to know. Well, Ted Thatcher is with us now,
Ted, great having you back, so sticky. What does that mean?
Is sticky as like, you know, you go to the movie theater
and you're walking through the aisles and your feet kind of stick to the floor.
That's what I think about what's sticky. I don't think of inflation as
being sticky. Sure, I can actually feel the soles of my shoes.
I think when you say that, actually just grip the ground. I think,
you know, you posed a really nice question there, which is at
first it was transitory, you know, then it was you know, peeking.
Now it's sticky. Where do we go from here? And I think
we're in this place carry because at the end of the day, what has
happened the last eighteen months is that, more than anything, the rate of
inflation has actually been what has dictated FED policy and not the other way around.
The FED has been reactionary, and I think that the rate of inflation
is really what's in the driver's seat here. And obviously the market had to
swallow it after March's inflation rate printed, and here, you know, there
was some concern that we were going to have as high of a rate of
inflation as we did last month. It's all will a little less than expected
or a little less than that last month rather, but it's not gone.
And as much as I think that, you know, there's this political pressure
and the markets desired at lower rates, it's just not happening. And so
what comes after, you know, what comes next, I think is we're
in these dol drums. You know, we've said so long interest rates are
going to be higher, you know, than we'd like, for perhaps longer
than we anticipated. And I think that this just proves that point continually.
And you know, we kind of joked beforehand saying it might be cemented,
and I think we're kind of seeing that, Yeah, well permanently a fixed
in place, but they don't worry about it. They're going to focus group
test. Another term is it's prolonged but it's easing, or something like that,
where it's it was bad, but it's getting better. It's all fed
speak, are right. It's just I think absolutely word salad as they say,
you know, I've seen soothing, you know soothing. Do you feel
soothed? I'm not sure that I do. I actually, well, not
to go two in the weeds here, but I actually saw a really really
interesting breakdown from Larry Summers the previous Treasury Secretary. Of course, you know,
you and I have discussed before how the way they calculate the inflation CPI
data now has changed so much from the way it used to be calculated.
Of course, nowadays they can use proxies supplements for different you know, aspects
of the underlying data. And one thing that Larry Summer is released on x
a couple weeks ago, I think it was now a semi viral thread breaking
down the way he tracks inflation the rate used to be calculated. One of
the significant considerations that they no longer put in the CPI data is the cost
of borrowing for consumers on top of using these different proxies. And so by
Larry's calculation the inflation rate, the CPI rate did not peek around that nine
percent figure that has been thrown around so often, but closer to twenty percent.
Of course, that just being over one anum, not not the total
total rate of inflation over the last several years. And so that to me
really matches much more with what I would say I experience when I go to
the grocery store or fill up my vehicle at the pump, and certainly matches
much more with what I find folks experience just in day to day hoverstation John
Williams, shadowstats dot Com. You know, when you look at the numbers
of governments putting out, he still calculates it the way they did in the
eighties, and it's not too pretty here. And obviously it's very difficult to
figure out inflation. You know, we didn't have iPhones back in the eighties.
Maybe that makes it easier to figure out the inflation rate, or at
least to see what the real rate is. But things were a lot different.
You know, they always talk about substitutes. So state gets too expensive,
then you substitute hamburger, it gets too expensive, Then you do chicken,
and then that gets too expensive, and you substitute spam. But you
know, it's ridiculous because your eyes are not lying, and the felt they're
not putting in debt payments in the inflation rate just shows. But we do
have an election year. They have to cut rates, don't they. So
this is absolutely I think where I would take the conversation too, because you
know, sure in its purest form, maybe the FED would only operate with
the data itself, right, the inflation rate and the unemployment rate. We've
already discussed the issues the way they calculate those numbers, that is to say
nothing of what you just brought up, which is the incredible political pressure that
is now placed on the FED, a more and more politicized organization, unfortunately.
And so now when we look at the futures markets, the market is
pricing in I think it's around a seventy percent likelihood chance now that we will
get a interest rate decrease literally in September before the election cycle. Of course,
I think President Biden would prefer that to I would say, sort of
put some proverbial lipstick on the pig to prop up the value of financial assets
going into election season. And you know, I think that the market for
a minute there after last months the March inflation print data came out kind of
corrected a bit because because of how sticky inflation has been, it just makes
it that much harder for Jerome Powell to have a justification to lower rates up
until I think it was two fridays ago. Now the labor market data came
out and the labor market had I believe, lost more jobs than it had
in six months, or the rate of new job growth was as low as
that had been in six months, which is of course the other analytical piece
that the FED looks at the unemployment rate. And so I think that Jerome
Powell will use the cover of those types of soft jobs numbers to justify a
what will end up being, in my opinion, a reasonably likely political move
of a rate decrease potentially later this year. All right, well, hey,
you know transitory. You know I always say had the best things in
life are transitory. I think Jerome would agree with you. All right,
hey, you know, looking at the FEDS two conflicting, and I would
argue they have three functions now. Number one insure stable prices. Number two
is ensure full full employment, and number three is to make sure the stock
market never goes down. Indeed, it's three plates spinning in the air.
And you know these Fed guys, man, they could be in the circus
juggling dishes, right, getting those dishes to stay up in the air.
I think that they would say that their jobs are so hard. But I
would say, look that they just keep putting out. Like we said before,
this word solid. Then yes, I mean I effectively agree with the
last, you know, joke of the comment there a little bit that they
are trying to keep the market up again, and at the end of the
day, it seems like it's been a political game as much as an analytical
one. Unfortunately, you know, and ultimately I think that it really erodes
confidence of the American consumer because you and I, like you said before,
our eyes aren't lying to us, and so we have this huge discrepancy,
this canism really that's been created between what's happening on Wall Street and what's happening
on Main Street. It's this huge dichotomy, especially when you combine what we've
discussed today, even just to put a pin in it, of such high
inflation combined with slowing job growth, and so the average American is not seeing
their wages increase coincidentally with the rate of inflation, if there's less jobs available,
if everything's more expensive. We're all looking at each other asking what's happening
here, and at the same time we're getting headlines of the market reaching all
time highs or approaching all time highs. All those things can only be separated
for so long, at least in my opinion. Yeah, something has to
give, right absolutely, But my things though, and I don't know if
we have the perfect answer to that. Everyone has their for reveal Crystal Ball.
I think if there is a likelihood of such a large amount of political
pressure this year, if we do lower rates, you know, inflation aside,
I think it's more likely that we might get a sort of melt up
in the markets before we actually saw that crash down. Again, depends on
how heavy handed the side wants to be. All right, Okay, So
when we have this conversation come January first, Ted, where are we going
to be? Well? The truth is, Carrie, if I had to
guess, I think we will see at least one rate decrease this year,
perhaps too. Again, it ultimately comes down to how heavy handed that political
pressure is and what the Fed does. But I'd be very surprised if we
didn't still have some let's say, sticky inflation and a lower albeit maybe slightly
interest rate environment, to say nothing of, you know, the potential banking
consequences that might be on the horizon. Okay, So when we look at
the sticky inflation, if you will, right uh a bed, you think
it's going to be well, I mean, essentially we've seen this annual year
over year rates stick around the three to three and a half percent mark.
As of you know, this recent month's print, it's at three point four
percent year over year. Again, that's not considering the other adjustments you and
I have discussed today. How bad can it get? Well, I think
if they're willing to lower rates, they're willing to have well, ultimately more
moving money around any economy, chasing the same goods and services. It wouldn't
surprise me at all, although it might take time to lag if we saw
you know, rates certainly in the high threes in terms of inflation with the
way the CPI is currently calculated. And I just think that that means that
the Fed has said, you know, tongue in cheek perhaps or just in
their own silence, that they are betting that and the average American is willing
to accept an inflation rate in the three or four percent range instead of the
you know, I guess alternative consequence of dealing with rates that are on the
interest rate side even higher than they are today. All right, Hey,
Ted, just tell us where we find you, how we connect with you
on the web. Oh, I appreciate it. You can find us at
bright Lake wealth dot com. All right, And the link is in the
show notes this interview on Financial Survival Network dot com. Please go there and
sign up to your free newsletter. Click through to Ted's link and connect with
him. Ted appreciate you coming on as always, and we'll talk to you
again real soon. Thanks, Kerry, have a great one. Thanks for
listening to Carrie Lets's Financial Survival Network, your solution to today's trying times.
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