🚨 THE FED IS NOW STUCK BETWEEN A SLOWING ECONOMY AND INFLATION THAT WON'T COME DOWN EASILY.
GDP grew just 1.5% in Q2, in line with expectations but well below last year's pace.
The economy is slowing.
PCE inflation came in at 3.7% in July, above the 3.6% expected and nearly double the Fed's 2% target.
But it is down from 4.1% in May, so the direction is improving even if the level is still too high.
This is the trap.
When growth slows, the normal response is to cut rates. But at 3.7% inflation, cutting makes it worse. The Fed cannot cut and staying still risks falling further behind.
The July FOMC vote was already 9 to 3. Three officials voted to hike immediately.
Markets are pricing in a 36% chance of a September hike.
On the other side, the Treasury doubled its bond buybacks and signaled it could draw from its $950 billion general account without issuing new debt.
That is significant liquidity waiting in the system.
Kevin Warsh speaks at Jackson Hole on Friday.
Whatever he signals on rates will set the tone for September and beyond.
#FOMCForecast
GDP grew just 1.5% in Q2, in line with expectations but well below last year's pace.
The economy is slowing.
PCE inflation came in at 3.7% in July, above the 3.6% expected and nearly double the Fed's 2% target.
But it is down from 4.1% in May, so the direction is improving even if the level is still too high.
This is the trap.
When growth slows, the normal response is to cut rates. But at 3.7% inflation, cutting makes it worse. The Fed cannot cut and staying still risks falling further behind.
The July FOMC vote was already 9 to 3. Three officials voted to hike immediately.
Markets are pricing in a 36% chance of a September hike.
On the other side, the Treasury doubled its bond buybacks and signaled it could draw from its $950 billion general account without issuing new debt.
That is significant liquidity waiting in the system.
Kevin Warsh speaks at Jackson Hole on Friday.
Whatever he signals on rates will set the tone for September and beyond.
#FOMCForecast
