Hot Inflation Report Derails Case for Fed’s June Rate Cut

[jaichind]

This means that the Fed is less likely to lower rates this year and blow up the Biden Treasury strategy of issuing short-term debt hoping to finance these debts later this year or early next year when borrowing rates might be lower due to Fed rate cuts.

The act of issuing short-term debt (bills) is highly unusual and usually only done during times of economic crisis.  This is likely partly a bet on rate cuts as well as fears that selling too much long-term debt might run into liquidity problems.  Now both legs of that bet might go against Biden 

[jaichind]

US CPI Urban Consumers Less Food & Energy which I know the Fed pays a lot of attention to continues at a rate of 3.8%.  This does not sound like a level anywhere close to the 2% inflation target to justify any talk of rate cuts anytime in 2024.

[jaichind]

https://www.bloomberg.com/news/articles/2024-04-10/biden-s-battle-against-inflation-gets-tougher-with-latest-data

"Biden Predicts Fed Will Cut Rates Despite High Inflation"

Biden says that Fed will cut rates anyway

[jaichind]

There is zero reason to cut rates for the foreseeable future.

Debt servicing is the main reason I think powell might still do it.

It's crazy that interest will be over a trillion a year, but that's not enough of a reason by itself.

Interest rates will make a big difference in US public debt interest payments as a % of GDP.  The USA will head toward an unprecedented but still manageable level of interest payments as a % of GDP.  To make it management will require some fiscal adjustments in the coming years though.

[jaichind]

https://www.nytimes.com/2024/04/24/us/politics/borrowing-costs-biden-federal-reserve.html

"High Borrowing Costs Have Some Democrats Urging Biden to Pressure the Fed"

Some Democrats are finally figuring out why approval for the economy is so poor despite "good" macroeconomic numbers.

[jaichind]

Japanese yen now 156 to the dollar.

If the BOJ raises rates they will be a fiscal crisis in Japan so they are just hoping somehow the Fed cuts rates soon.  They are really in the same camp as the Biden campaign.