The consumer price index (CPI) numbers came out for the month of March 2022.  Price inflation rose a staggering 1.2% from the previous month.  The year-over-year shows an increase of 8.5%, which is slightly higher than expected.

The less volatile median CPI had a monthly increase of 0.5%, while the year-over-year median CPI now stands at 4.9%.

The rate of annual price inflation has not been this high for over 40 years since Paul Volcker was head of the Fed.  That was when there was double-digit price inflation and double-digit interest rates.  Volcker slammed on the monetary brakes and allowed interest rates to rise dramatically, which put a stop to the high price inflation and gave us recessionary conditions in the early 1980s.

If you just look at the one-month increase of 1.2%, that will translate into an annualized inflation rate of something close to 15%.  We are entering something resembling the 1970s now except interest rates are still ultra low and the national debt is a staggering $30 trillion (not including unfunded liabilities).

The CPI less food and energy stands at 6.5% year-over-year.  This is fine as long as you don’t eat and fill up your car.  It wouldn’t surprise me to hear something like this suggested out of the Biden administration.

Of course, this isn’t all Biden’s fault.  The ballooning debt started a long time ago.  The heavy money creation started in 2008.  The direct stimulus checks started in 2020.  Biden has just continued the disastrous policies and upped the ante on the spending.  But if the Fed didn’t provide the easy money and low interest rates, Congress would be more limited in its ability to spend so much money.

Jerome Powell and company were telling us that the inflation was transitory about a year ago.  Apparently they were correct in a sense.  The 4 or 5 percent price inflation they were looking at was only temporary.  Unfortunately, instead of going back to 2 percent or less, now we are over 8 percent and climbing.

The Fed is closer to its 2% target on a month-over-month basis than on an annual basis.

I wonder how many people are getting an annual salary increase at their job of 8.5%.  You have to pay taxes on the additional income, so you would actually need a salary increase of at least 10% just to break even with inflation.  So if you aren’t getting an annual raise of at least 10% at your job at this point, then your wages are going down.

It is also incredible to consider just how low interest rates are.  They have ticked up in the last few weeks, but they are still historically low.  In real terms, interest rates are deep in negative territory.

The 3-month yield is still well under 1% and the 10-year yield is below 3%.  An investment in regular government bonds is going to give you a real return of negative 5.5% or worse.  Of course, that’s better than the negative 8.5% it will get sitting in a checking account.

Just to get real interest rates to zero, the Fed would have to drive them up to 8.5%.  Imagine how much bigger the interest payments on the $30 trillion national debt will be when the Fed starts rolling over debt into securities with an interest rate of 8.5%.

This is bad news for the Fed and the U.S. dollar.  The Fed is going to be forced to deal with the high price inflation by raising its target federal funds rate and by selling off assets on its balance sheet, which reached nearly $9 trillion.

The next FOMC meeting will conclude on May 4.  That is Star Wars day (May the Fourth be with you).  The Fed isn’t going to get any help from the force on this one.  They have run into a brick wall, which is the laws of economics.

If the Fed is really aggressive in trying to get price inflation under control, it will crash the markets.  The Everything Bubble will get popped good and hard.  We are likely to see many trillions of dollars in assets wiped out.  It was mostly an illusion as the result of easy money.  We will likely see a major downturn in stocks and housing prices.  Even more speculative assets like cryptocurrencies will be mostly wiped out.  At that point, your checking account that is losing 8.5% per year may end up being your best investment.