March Inflation comes in HOT! Will we see another rate hike!? | All-In Podcast

Summary

The recent higher-than-expected 3.5% year-over-year CPI increase reported by the Bureau of Labor Statistics indicates persistent inflation, contrary to previous predictions of a downward trend. This challenges the Federal Reserve's 2022 rate hikes effectiveness and delays anticipated rate cuts, impacting the election cycle. Larry Summers suggests the possibility of upward rate moves, reflecting on Biden's $2 trillion COVID relief bill's inflationary impact. The inflation narrative has shifted from a temporary rise to a more prolonged issue, affecting consumers, housing, and car payments, with potential political and economic repercussions.

Takeaways

• 📈 The March CPI reported by the Bureau of Labor Statistics was higher than forecast at 3.5% year-over-year, up from 3.2% in February.
• 🔄 Inflation has been higher than expected for three consecutive months, challenging the Federal Reserve's goal of reducing it to 2%.
• 🏦 The Federal Reserve had conducted 11 rate hikes in 2022 and 2023 with the intention of curbing inflation.
• 📊 The persistent high inflation has led to a shift in expectations from rate cuts to a possibility of further rate increases.
• 🏠 Sector-specific inflation data shows housing up 5.7%, transportation costs up 10.7%, and car insurance up 22.2% year-over-year.
• 🔽 The inflation report could negatively impact Biden's election prospects as rate cuts, typically beneficial for incumbents, are now uncertain.
• 🗣️ Larry Summers, who previously warned against inflation risks associated with the $2 trillion COVID relief bill, has been proven correct in his assessments.
• 🚫 The narrative of inflation decreasing through 2023 has been undermined by the consistent high inflation readings.
• 💵 The cost of borrowing is a significant factor impacting consumers, potentially leading to a decrease in consumer sentiment despite positive economic indicators.
• 🏠🚗 Higher borrowing costs may lead to a correction in the housing market and increased car payments, amplifying the financial burden on consumers.
• 🤔 The independence of the Federal Reserve has been questioned, especially considering recent allegations of plagiarism against one of its Governors.

Q & A

What was the March CPI reported by the Bureau of Labor Statistics?

The March CPI reported by the Bureau of Labor Statistics was 3.5% year-over-year, which is higher than the forecast.

How does the recent CPI data compare to the previous months?

The recent CPI data is higher than expected for three straight months, indicating a persistent trend of inflation above expectations.

What was the Federal Reserve's intention with the 11 rate hikes in 2022 and 2023?

The Federal Reserve's intention with the rate hikes was to bring inflation down to their target of 2%.

How has the inflation trend affected the expectations for rate cuts?

The persistent high inflation has led to eroded expectations for rate cuts, with some analysts now suggesting that the next rate move could be upwards rather than downwards.

What specific areas have seen significant year-over-year price increases?

Housing is up 5.7%, transportation costs are up 10.7%, and car insurance is up 22.2% year-over-year.

How might the election cycle be influenced by the current inflation report?

The inflation report is bad news for Biden, as it contradicts expectations of rate cuts that usually help the incumbent. The persistent inflation may weaken his position going into the election.

What was Larry Summers' prediction about inflation and rate hikes last year?

Last year, Larry Summers predicted that the market was underestimating the need for higher rates for a longer period and that the economy might require much higher rates than anticipated.

What was the criticism against the $2 trillion COVID relief bill?

Larry Summers criticized the $2 trillion COVID relief bill as being inflationary and unnecessary, arguing that the economy was already recovering and did not need additional stimulus.

How does the cost of borrowing affect consumer sentiment according to Larry Summers?

Larry Summers suggested that including the cost of borrowing in inflation calculations would show a higher inflation rate, which is a significant factor in the depressed consumer sentiment despite good GDP growth and low unemployment.

What is the current prediction for Federal Reserve actions based on the recent inflation data?

The recent inflation data suggests that the Federal Reserve may not provide the expected rate cuts and could potentially implement a rate hike, which would be unfavorable for Biden's election prospects.

How independent is the Federal Reserve Board of Governors in practice?

While the Federal Reserve Board of Governors is intended to be independent, there have been concerns in recent years that it may be influenced by political considerations, especially during election years.

What recent controversy has arisen involving a Federal Reserve Governor?

A Federal Reserve Governor has been accused of plagiarizing a significant portion of their academic work, raising questions about the integrity and objectivity of the Federal Reserve's decision-making process.

Outlines

00:00

📈 Inflation Concerns and Impact on Elections

The first paragraph discusses the recent Consumer Price Index (CPI) report, which shows a 3.5% year-over-year increase in inflation, exceeding expectations. It highlights the Federal Reserve's previous 11 rate hikes in 2022 and 2023 with the aim to reduce inflation to a target of 2%. However, the persistence of high inflation, especially in sectors like housing, transportation, and car insurance, contradicts this goal. The discussion then shifts to the potential impact of these economic conditions on the election cycle, noting that the incumbent, Biden, was hoping for rate cuts to bolster his position. The narrative of inflation subsiding and rate cuts has been challenged by the sustained high inflation, with experts like Larry Summers suggesting the possibility of further rate increases instead. The paragraph also reflects on past economic decisions, such as the $2 trillion COVID relief bill, and questions their necessity, suggesting they may have contributed to the current inflationary pressures.

05:01

💰 Consumer Impact and Potential Policy Shifts

The second paragraph delves into the broader implications of the sustained inflation and the potential for higher borrowing costs. It discusses how these conditions affect consumers' ability to purchase homes and vehicles, and the resultant impact on housing and car markets. The paragraph also mentions Larry Summers' assertion that including the cost of borrowing in inflation calculations would show an even higher inflation rate, which aligns with consumers' perception of economic hardship despite positive GDP growth and low unemployment. The discussion then touches on Biden's prediction of a rate cut by the end of the year, which seems increasingly unlikely given the current economic data. The paragraph concludes with a consideration of the Federal Reserve's independence and potential political influences, questioning the effectiveness of its policy decisions in light of recent allegations of plagiarism against one of its governors.

Keywords

💡CPI

CPI stands for Consumer Price Index, which is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. In the context of the video, the March CPI numbers are mentioned as being higher than forecast, indicating increased inflation.

💡Bureau of Labor Statistics

The Bureau of Labor Statistics (BLS) is a unit of the United States Department of Labor that collects, processes, and disseminates essential statistical data related to the US labor market. In the video, the BLS is responsible for reporting the CPI figures that show the inflation rate.

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. In the video, inflation is a central theme, with the discussion focusing on the persistently high inflation rates and their implications.

💡Federal Reserve

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States, responsible for implementing monetary policy to maintain price stability and achieve maximum employment. In the video, the Fed's actions, specifically rate hikes, are discussed in relation to their intended effect on inflation.

💡Rate Cuts

Rate cuts refer to the reduction in interest rates set by a central bank, like the Federal Reserve. These cuts are typically intended to stimulate economic growth by making borrowing cheaper. In the video, there is a discussion about the expectation of rate cuts and how the latest inflation data might affect these plans.

💡Election Cycle

The election cycle refers to the entire process of preparing for, carrying out, and recovering from an election. In the context of the video, the election cycle is discussed in relation to how economic factors, such as inflation and interest rates, can influence the outcome of an election.

💡Larry Summers

Larry Summers is an American economist who served as the Secretary of the Treasury under President Bill Clinton and as the Director of the National Economic Council under President Barack Obama. In the video, his commentary and predictions about inflation and interest rates are highlighted as being particularly insightful and prescient.

💡American Rescue Plan

The American Rescue Plan is a $2 trillion COVID-19 relief bill passed in March 2021旨在提供急需的经济援助 to mitigate the economic impact of the COVID-19 pandemic. In the video, the plan is discussed as having potentially contributing to inflationary pressures.

💡Interest Rates

Interest rates are the percentage at which borrowers pay lenders for the privilege of borrowing money. They are a critical tool used by central banks to control inflation and stabilize economies. In the video, the discussion of interest rates centers around how they might remain higher for longer due to persistent inflation.

💡Consumer Sentiment

Consumer sentiment refers to the overall outlook and attitudes of consumers toward the economy, including their confidence in making purchases. In the video, it is suggested that consumer sentiment is depressed due to high inflation, despite positive economic indicators like GDP growth and low unemployment.

💡Political Influence

Political influence refers to the ability of individuals or groups to affect the decisions, policies, or actions of a political entity, such as a government or a central bank. In the context of the video, there is a discussion about whether the Federal Reserve's decisions might be influenced by the upcoming election cycle.

Highlights

March CPI numbers came in higher than forecast at 3.5% year-over-year.

Inflation has been higher than expected for three straight months.

The Fed did 11 rate hikes in 2022 and 2023 aiming to bring inflation down to 2%.

Housing costs are up 5.7% year-over-year.

Transportation costs have risen by 10.7% year-over-year.

Car insurance is up 22.2% year-over-year.

Larry Summers suggests the possibility of rate increases rather than decreases.

Inflation persistence is bad news for Biden's election prospects.

Expectations of rate cuts have been a key point for Biden's campaign.

Larry Summers previously warned about inflation risks with the $2 trillion COVID relief bill.

The inflation narrative of it peaking and decreasing is now considered dead.

The new narrative is that rates will be higher for longer.

Consumers face higher borrowing costs, impacting the housing and car markets.

GDP growth is good and unemployment is low, but high inflation depresses consumer sentiment.

Biden maintains his prediction of a rate cut by year-end, despite potential delays.

The Fed had expected three rate cuts this year, which now seems unlikely.

A rate hike before the election could significantly harm Biden's chances.

The Federal Reserve's independence has been questioned, especially in election years.

A Fed Governor has been accused of plagiarizing a large portion of their academic work.

Transcripts

so you know on the docket today we were

going to talk about CPI the March CPI

numbers came in from the Bureau of Labor

Statistics yesterday higher than

forecast at 3.5% year-over-year this is

up from 3.2% year-over-year inflation

reported by the Bureau of Labor

Statistics in February higher than

expected for three straight months now

let's pull up this chart neck as we all

know the FED did 11 rate hikes in 2022

and 23 and the intention was that we

would see inflation come down to their

target of 2% and they would start to

lower rates and obviously we're not

seeing that inflation is remaining hot

things are getting more and more

expensive I pulled together some of the

numbers on eurover year price increase

housing is up 5.7% year-over-year

Transportation costs are up

10.7% year-over-year and the highest car

insurance is up

22.2% year-over-year

so the expectation has been that the

market will do rate Cuts Larry Summers

came out and said you have to take

seriously the possibility that the next

rate move will be upwards rather than

downwards I guess saaks let me let me

ask you first for your commentary on how

this plays into the election cycle I

know Biden was expecting a rate cut or

several rate Cuts going into the

election which usually helps the case of

the incumbent maybe you can comment on

where the the election cycle might be

influenced by this inflation report well

I think it's definitely bad news for

Biden I was expecting a fed put this

year and really the whole Market was the

market was expecting three rate Cuts

this year which would have been really

good news for for Biden and I think this

latest inflation print was kind of a

dagger to the heart of of that

expectation and I think the Wall Street

Journal put it best it said here

Wednesday's report had been hotly

anticipated because fed leaders had been

willing to play Down stronger than

anticipated inflation readings in

January and February as reflecting

potential seasonal quirks but a third

straight month of above expectations

inflation data erodes that story and

could lead fed officials to postpone

anticipated rate Cuts until July or

later so it's not just the fact that

this inflation print was higher than

expected it was also higher than

expected in January in February but

people were willing to kind of Overlook

that saying well maybe it was just kind

of a you know quirky reading but now

we've had three straight months it's

pretty clear that the narrative that we

had going into this year which was that

inflation was on its way down that it

peaked at 9% uh as the official rate I

think in 2022 and then it was going down

every month through all of 2023 and I

think the expectation going into 24 was

it would keep going down we get these

rate Cuts well after 3 straight months

of inflation being more persistent and

stickier Than People expected I think

that narrative is basically dead so I

think the new narrative now is it's

going to be rates are going to be higher

longer and I think Larry Summers is

reflecting that view Larry's going

further he's not just saying that rates

are going to be you know at the current

rates for longer he's saying they might

actually

increase and that's a risk yeah last

summer he said and this was last summer

so almost a year ago he was saying the

Market's got it totally wrong we're

actually going to need much higher rates

than the Market's anticipating for much

longer as well than the market is

anticipating and so did Mario dry they

both said the same thing no one paid

attention to him everyone ignored it and

assumed that this was going to be a

quick rebound to normalization it's

clear that you know once again Larry has

proven himself to be fairly

preent understanding where head it Larry

Summers has for the most part been spot

on from this on this whole inflation

question going all the way back to 2021

remember 100% 100% q1 of 2021 Biden's

first quarter in office the big

legislative push was for the $2 trillion

covid relief bill this the so-called

American Rescue plan and Larry Summers

said that it was it risked inflation it

was an inflationary bill it was

stimulatory yeah to we didn't need it

the economy was already coming back and

we didn't need it and Biden was risking

inflation but of course inflation was

only at 2% at that point so the

administration kind of poo pooed Larry

and said of you know that's is Larry

Summers being Larry or whatever and sure

enough we were at 5% inflation by that

summer and you have to wonder if Biden

had listened to that advice would he be

in a different position right now going

into the election I think probably he

would have been and you got to wonder

for what I mean what did that $2

trillion doll accomplish I mean covid

was winding down I mean these were the

last bit of stimy checks and payments to

these Pharma companies and I mean it was

basically a grab bag and it was passed

on straight party lines and it was just

totally unnecessary I mean the economy

certainly didn't need it and so here we

are and I think that a lot of people

including the markets thought that Biden

was kind of out of the woods that this

year we'd see the final leg of inflation

going back to normal but that's not

going to happen and I think you know

going beyond the political ramifications

I think there could be several other

knock on effects that we should talk

about I mean one is for the

consumer this means that the cost of

borrowing is going to be higher for

longer that makes it harder to buy a

house mortgage payments are higher that

also means if there's fewer home sale

transactions that means the price of

housing could come down so there could

be a correction in that market second if

you want to buy a car your car payment's

higher and if you have loans uh your

your personal interest is going to be

higher and this is why I think consumers

feel like they're worse off then the

economic data would otherwise reflect

and Larry Summers actually had a tweet

storm about this about a month ago where

he calculated that if you included the

cost of borrowing in inflation that

inflation was much higher than people

thought and that it actually peaked not

at 9% but at 18% so Larry had an

excellent tweet storm on that and he

said that the cost of borrowing which

used to be calculated in inflation but

is not anymore was the reason why

consumer sentiment about the economy was

depressed he said that that accounted

for about 70% of it so people should be

feeling better off because GDP growth is

good and unemployment is low but they're

not because inflation is so high and if

you include cost of

borrowing the inflation's even higher so

I think this is really bad news for

Biden but it it's a story that's been

going on now for three years it's not

just this one inflation print right it's

funny yesterday Biden said during a

press conference with Japanese prime

minister kashida that he's sticking with

his prediction of a rate cut before

Year's end but there might be a delay

uh which I think is

obviously you know based on what the

data is showing and what folks that seem

to know and have been pretty good

predictors they're saying is unlikely we

were supposed to get one in April and we

were supposed to get one in June oh yeah

remember the fed the FED Open Market

Committee in December stated that they

expected three rate Cuts this year and I

think the market in some cases were

predicting as high as four or five right

and now we may not have any and we may

actually see a rate hike if you were to

follow some if we see a raate hike

before the election I think Biden is

toast yeah but I mean I think Summers

gave that maybe a 15 to 20% chance which

is it's still not the most likely

scenario but uh possible but it's

possible no one's counting on that in

December chamat if you're a Fed

governor and obviously the the the

Federal Reserve Board of Governors sets

the uh rates they meet and they they

make these decisions how influenced are

they politically how how influenced are

they by this election cycle and you know

historically this is meant to be a

fairly independent board but there's

been a lot of consternation over the

last few years that this board acts like

almost a political apparatus

particularly in election years you mean

when they're not

plagiarizing well tell us what you're

talking

about it turns out that before I answer

your question that that was a joke Nick

you can please show the Tweet but there

was an article that came out that said

one of the FED Governors has

apparently massively plagiarized most of

the work that got her to the position of

being fed Governor yeah so the same

thing that happened to the president of

Harvard so TBD what happens to that fed

Governor but it seems you know my

observation there was just more that

it's like the preferred method of

defenestration now of academics and the

appara right before if you had

right-leaning views or Centrist views

you get run out of town and get fired

now all of those folks are using these

search engines to basically figure out

really quickly that you plagiarize large

quantity of your academic work and that

your scholarship is is a little bit more

speculative which then brings into

question why do you get the right to to

help set the policy of the most

important economy in the world well

anyways so that that was that joke but

so I think that you're asking the

absolute right question