The September 2023 CPI numbers came in a little higher than expected.  The CPI came in at 0.4% for the month.  The year-over-year number came in at 3.7%.

The median CPI was up 0.5% for September, while the median CPI year-over-year stands at 5.5%.

Consumer price inflation has cooled since last year, but it is still running well above the Fed’s made-up target of 2%.

Remember a few years ago the Fed came out with this nonsense that they would try to average 2% over time. They never gave a timeframe for this average, but it was an excuse to bring consumer price inflation above the 2% target while not worrying about slamming on the monetary brakes.

Now that we have been running way above 2% for a couple of years, is the Fed encouraging a rate below 2% in order to get a 2% average?  I haven’t heard any talk of this average ever since consumer prices shot way past that 2% target.

It’s interesting that there is still an inflation problem for the Fed.  If you look at something like car insurance premiums, it is hard to believe that consumer prices are “only” going up by 3.7% annually, even when taking into account some things that aren’t increasing much in price.

But aside from the issue of the CPI numbers being understated, the Fed is still struggling to get the official numbers down to 2%.  All that money created, especially since 2020, is not that easy to get rid of.  There are lag effects from the inflationary boom, and there are lag effects when it comes to the bust.

The Fed’s Balance Sheet

The Fed’s balance sheet finally fell below the $8 trillion mark.  This hasn’t been seen since 2021.  It is down about $1 trillion from its peak in March 2022.

There is going to be a big lag effect both ways.  The Fed is having trouble keeping price inflation under control because the more than doubling of the balance sheet since March 2020 is still running through the economy.  Now that the Fed has pulled away $1 trillion, it will take some time for that to be seen.

You can see it in the bond market where the yield curve has been inverted for the entire calendar year.  It has just started to flatten towards normal in the last few weeks with long-term bond yields going higher.

The Fed is still draining its balance sheet.

The Boom Turns Into Bust

If you study Mises and the Austrian Business Cycle Theory at all, then it is fairly easy to see the writing on the wall.  Mises said that you don’t even have to reduce the money supply to bring on a bust.  If you don’t continually accelerate the easy money, then the bust will eventually come anyway.

In this case, the Fed is reducing the supply of money, and it has been pushing up short-term interest rates.  The people at the Fed have to know that they are setting us up for a recession.

Without a total overhaul or removal of the central banking system, I think this is the best we can hope for.  The Fed already made its errors from 2008 to 2014, and again from 2020 until 2022.  The Fed Is essentially doing the right thing now, which is going to cause a recession.  The recession would eventually happen anyway, but the current Fed policies are almost guaranteeing it in the somewhat near future.

The Everything Bubble is going to pop.  It has started out slowly.  Housing prices have mostly held up in most areas of the country.  This has been helped by people not selling their houses because of a low fixed-rate mortgage.  But the high prices cannot be sustained in the long run, especially when housing is unaffordable for most of those who don’t already own.

The stock market has had a good year, but it has gotten rockier recently.  The recession that officially started in December 2007 (declared after the fact) didn’t become evident until the financial crisis hit in September 2008.  That was when stocks really got hit hard.

It is amazing how many financial analysts say that we may get a recession, or at least a softer economy, yet they aren’t yelling from the rooftops to sell your stocks.

The Next Fed Move

The next FOMC meeting is on October 31 and November 1.  The Fed probably won’t hike rates again on November 1, but it probably doesn’t matter much either way whether we get another 25-basis point hike.

The damage is already done.  The damage was already done in 2020.  There is no stopping this train wreck from happening.  It is just a question of when it will happen and how much damage can be prevented.  There is also the question of the reaction after.  We’ll see if the Fed goes back to 2008/ 2020 mode again as soon as the next crisis hits.

It will be more difficult to turn on the digital printing presses again to such a degree if consumer prices are still going up at 3% or more.  The Fed’s reaction to the next crisis will determine the best ways to protect your wealth and possibly even profit.

For now, expect the Fed to stay in tight money mode and for a recession to hit in 2024.  The bond market sees the recession ahead.  The stock market is ignoring it.