{"id":624260,"date":"2023-03-31T21:26:00","date_gmt":"2023-04-01T02:26:00","guid":{"rendered":"https:\/\/news.sellorbuyhomefast.com\/index.php\/2023\/03\/31\/carney-on-kudlow-wall-street-is-fooling-itself-by-betting-on-fed-rate-cuts\/"},"modified":"2023-03-31T21:26:00","modified_gmt":"2023-04-01T02:26:00","slug":"carney-on-kudlow-wall-street-is-fooling-itself-by-betting-on-fed-rate-cuts","status":"publish","type":"post","link":"https:\/\/newsycanuse.com\/index.php\/2023\/03\/31\/carney-on-kudlow-wall-street-is-fooling-itself-by-betting-on-fed-rate-cuts\/","title":{"rendered":"Carney on \u2018Kudlow\u2019: Wall Street Is Fooling Itself by Betting on Fed Rate Cuts"},"content":{"rendered":"
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The stock market is still \u201cat loggerheads with the Fed\u201d thinking the central bank will cut interest rates this year instead of hiking them in response to persistently high inflation, Breitbart Economics Editor John Carney said in a Friday interview with Fox Business host Larry Kudlow.<\/p>\n

\u201cStocks are pricing in interest rate cuts as we get towards the year, but I don\u2019t know,\u201d Kudlow told Carney. \u201cInflation, money supply, things of that sort suggest that maybe interest rates are going to go up instead of down.\u201d<\/p>\n

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The stock market\u2019s attitude \u201cdoesn\u2019t quite make sense,\u201d Carney said. \u201cThey looked at the inflation numbers and they said, \u2018Okay, it came down from January. So, maybe the Fed can cut,\u2019 The Fed is not<\/em> going to cut\u2014inflation is way too high\u2014unless we get into a serious economic calamity, in which case the stock market shouldn\u2019t be booming right now.\u201d<\/p>\n

\u201cSo, there\u2019s a contradiction in the thesis of the stock market,\u201d he added. \u201cI would be very skeptical of what I\u2019ve been seeing not in just the stock market, but in the derivatives market right now that is pricing in around three or four [interest rate] cuts by the end of the year. And meanwhile we have Fed officials telling us every time we hear from them, \u2018We\u2019re definitely not going to cut. We\u2019re holding the line. We\u2019re probably going to raise one more time, and then we\u2019re going to hold it through the end of the year and probably into next year.\u2019 But the market has been at loggerheads with the Fed for most of the last year basically. And it got on the same page for about two months. But then we had Silicon Valley Bank, and they said, \u2018That\u2019s it, you know, financial crisis. They\u2019re going to have to cut later this year.\u2019\u201d<\/p>\n

The latest economic data doesn\u2019t back up the market\u2019s rosy projections, Kudlow noted, particularly if Federal Reserve officials maintain their two percent inflation target.<\/p>\n

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\u201cRight now, the inflation rate is about two and a half times the target,\u201d Kudlow said. \u201cSo, they\u2019re going to have to tighten the screws more. But the market thinks what? That they\u2019re going to raise the target to three or four percent?\u201d<\/p>\n

Carney speculated that the market thinks the Fed \u201cwon\u2019t officially raise the target, but just chicken out and back off.\u201d<\/p>\n

All of this wishful thinking flies in the face of the latest inflation data. Carney pointed<\/a> to the Cleveland Fed\u2019s calculation of median inflation, which is currently at 0.4 percent, as it has been for five of the past six months.<\/p>\n

\u201cIt\u2019s been 0.4 percent more or less since August,\u201d Carney said. \u201cSo, that\u2019s no progress at all against inflation. And I think that\u2019s really telling us that the Fed hasn\u2019t gone far enough yet. And Fed officials are going to look at that number. They don\u2019t talk about median inflation that often, but they can look at it. And they say they want to see several months of progress before they\u2019ll think that they\u2019re there. We haven\u2019t seen several months.\u201d<\/p>\n

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Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve in Washington, DC, on March 22, 2023. (OLIVIER DOULIERY\/AFP via Getty Images)<\/p>\n

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Kudlow then turned the discussion to the Federal Reserve\u2019s March revision<\/a> of the M2 monetary aggregate\u2014a broad measure of the money supply that includes currency in circulation, checking and savings deposits, and shares in retail money-market mutual funds.<\/p>\n

\u201cThe March revisions to last year\u2019s M2 money supply created reasons to significantly revise expectations on inflation and economic growth,\u201d Carney wrote<\/a> in Thursday\u2019s Breitbart Business Digest. \u201cSpecifically, the revised numbers showed that the money supply had been higher than we previously thought through most of last year and that the peak of M2 happened later.\u201d<\/p>\n

This revision has serious implications for inflation forecasts. Carney highlighted<\/a> a study by economists Steve Hanke and John Greenwood, which argues that inflation tends to lag changes in the money supply by 12 to 24 months. Because the March revision revealed that the money supply \u201cstayed higher for longer,\u201d we can expect that \u201cinflation and economic growth are likely to stay higher for longer too,\u201d Carney explained<\/a> in Wednesday\u2019s Breitbart Business Digest.<\/p>\n

Kudlow, who cut his teeth successfully fighting inflation in the Reagan administration, has long been an advocate for paying attention to M2 as an inflation indicator, even though this has gone out of fashion among economists today.<\/p>\n

\u201cThis is almost making a heretical sin for economics reporters or analysts or whatever. But you\u2019re looking at the money supply\u2014the M2 money supply. I confess, I do too. I was actually trained as a monetarist a million years ago,\u201d Kudlow told Carney.<\/p>\n

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\u201cWe thought that M2 had peaked around March when the Fed first started raising rates,\u201d Carney said. \u201cThat actually seemed a little improbable to me, just because why would it peak right when the Fed was starting to raise rates? You\u2019d think there would be a lagged effect.\u201d<\/p>\n

The revised data, Carney explains, shows that the M2 money supply \u201cstays high from March through July, peaks in July, and then starts to come down. The lesson from that is that inflation, therefore, if you think there\u2019s a 12 to 24-month lag, should still be running high right now, which it is.\u201d<\/p>\n

The money supply was not coming down for nine months as we previously thought, Carney said. \u201cIt\u2019s been coming down for five months. So, we still have a ways to go before we hit whatever the lagged effect from the peak was.\u201d<\/p>\n

Kudlow noted ruefully that for years no one paid attention to the money supply, including Federal Reserve Chairman Jerome Powell.<\/p>\n

\u201cJay Powell says routinely that he never looks at M2, which is really a stupid thing for a Fed chairman to say. You don\u2019t have to be a dogmatic monetarist, but it\u2019s a key indicator,\u201d Kudlow said.<\/p>\n

\u201cLook, I was a skeptic,\u201d Carney replied. \u201cI hadn\u2019t looked at M2 for a while. But if you wanted to predict the inflation wave we had, M2 told you that was coming. And so, I do think there\u2019s a lot to be said for the idea that M2 is probably going to give us an indicator of what inflation might be.\u201d<\/p>\n

Kudlow closed the segment by noting that the M2 money supply \u201chas a lot to do with bank deposits and a lot to do with oversized federal spending.\u201d<\/p>\n<\/p><\/div>\n

Read More<\/a>
\n Margarete Pepper<\/p>\n","protected":false},"excerpt":{"rendered":"

The stock market is still \u201cat loggerheads with the Fed\u201d thinking the central bank will cut interest rates this year instead of hiking them in response to persistently high inflation, Breitbart Economics Editor John Carney said in a Friday interview with Fox Business host Larry Kudlow. \u201cStocks are pricing in interest rate cuts as we […]<\/p>\n","protected":false},"author":1,"featured_media":624261,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28765,534,23650],"tags":[],"class_list":{"0":"post-624260","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-carney","8":"category-financial","9":"category-kudlow"},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/624260","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/comments?post=624260"}],"version-history":[{"count":0,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/posts\/624260\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media\/624261"}],"wp:attachment":[{"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/media?parent=624260"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/categories?post=624260"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/newsycanuse.com\/index.php\/wp-json\/wp\/v2\/tags?post=624260"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}