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Federal Reserve Capitulates to Inflation Revival – Swamponomics

Plus, new home sales and Groucho Marx’ nickel solution.

by | Apr 25, 2024 | Articles, Business News, Opinion

Did Federal Reserve Chair Jerome Powell’s December declaration of loosening monetary policy backfire? The US central bank has ostensibly capitulated to the inflation revival following four consecutive hotter-than-expected consumer price index (CPI) reports. Instead of preparing for the first cut to interest rates, the Eccles Building is getting ready to convey that the world’s largest economy needs to start bracing for a higher-for-longer climate. Oh, the humanity!

The Second Inflation Wave

Investors were disappointed after the March CPI data that convinced monetary policymakers that the reacceleration in inflation is more than a bump in the road. The numbers have been so bad that the Fed is giving up on a rate cut at the June Federal Open Market Committee (FOMC) policy meeting. So, this is what it feels like when doves cry!

In the past couple of weeks, remarks from Fed officials have been compelling. Chicago Fed President Austan Goolsbee admitted that progress on inflation has stalled, and it would make sense to wait on interest rates. New York Fed chief John Williams does not feel the “urgency” to cut rates. Fed Vice Chair Philip Jefferson warned that rates could stay higher for longer if inflation persists. The big man, Chair Powell, asserted that the economic conditions necessary to reduce rates might take longer to appear in the data.

For Wall Street investors, this is the defeatist language they did not want to hear. According to the CME Fed Watch Tool, traders are now only penciling in two rate cuts beginning in September. By comparison, heading into 2024, the futures market penciled in six rate cuts starting in March.

But what about the odds of a rate hike? Liberty Nation recently discussed this possibility as the headline and under-the-hood inflation metrics traveled in the wrong direction. This talk is turning from distant cries to audible whispers. The Atlanta Fed’s Market Probability Tracker suggests a slight chance of a quarter-point rate hike sometime this year. The Fed is expected to take no action and keep the benchmark federal funds rate unchanged at a range of 5.25% and 5.5%.

For the next inflation reading, the Cleveland Fed Inflation Nowcasting model anticipates that the CPI will remain unchanged at 3.5% and rise 0.4% month over month.

New Home Sales Rebound

In March, sales of new US single-family homes rebounded from February’s downwardly revised figure. Census Bureau data confirmed that new home sales surged 8.8% to a seasonally adjusted annual rate of 693,000 units. This was the best reading since September. Additionally, the average sales price was $524,800, and the median sales price was $430,700.

New banner Swamponomics 3The numbers were notable because mortgage rates have been ballooning. According to the latest Primary Mortgage Market Survey from Freddie Mac, the 30-year fixed-rate mortgage exceeded 7% for the first time in 2024, a six-month high. So, why would new residential property sales surge while mortgage rates are climbing? Supply.

As Liberty Nation has reported, existing home inventories have been lackluster, so prospective homebuyers are shifting their demand toward newer properties. Interestingly enough, median existing home sale prices are on the cusp of topping new home sale prices for the first time ever. This is because homeowners are refraining from listing their fortresses of solitude and castles of chaos since they locked in a cheap 3% mortgage on a $250,000 house.

No Coinage for Old Men

A penny found is a penny earned? As Americans’ purchasing power has been eroded for the past century thanks to the Fed, a single cent cannot buy you anything anymore. What about a nickel? A dime? Considering the change you find underneath your sofa cushions or car seats can hardly buy you a can of soda these days, the demand for coinage has plummeted over the years. In fact, only 10% of Americans primarily use physical money to pay for goods and services.

But should everyone be so cavalier about tossing away their change? Reworld, a sustainable-waste processing company, estimates that Americans throw away as much as $68 million of change each year. The firm is profiting from this act and has scooped up approximately $10 million worth of coins. Dominic Rossi, Reworld’s director of finance and business support, told The Wall Street Journal that many coins are left behind. “Coins are left in couch cushions or cars, then sucked into vacuums and sent to landfill,” the newspaper reported.

In recent years, there have been calls for the government to scrap the penny, following in the footsteps of Australia and Canada. Coins are a significant expense for the federal government, with the US Mint spending more than $700 million last year to produce coins. Moreover, the US central bank says that more than half of all the coins in the US are resting nicely in people’s homes.

Maybe the answer to America’s economic challenges and coinage could be found in a famous Groucho Marx bit from Animal Crackers:

“The nickel today is not what it was fifteen years ago. Do you know what this country needs today? A seven-cent nickel. Yes, siree, we’ve been using the five-cent nickel in this country since 1492. Now that’s pretty near 100 years daylight saving. Now, why not give the seven-cent nickel a chance? If that works out, next year, we can have an eight-cent nickel. Think what that would mean. You could go to a newsstand, buy a three-cent newspaper, and get the same nickel back again. One nickel carefully used would last a family a lifetime.”

But while the face value of the coins cannot – to Groucho’s dismay – buy much, the materials are worth something. A nickel, for example, is worth about eight cents because it is 75% copper and 25% nickel. Plus, if you are lucky enough to find 1946-1964 Roosevelt dimes, you could have a single coin in your couch cushion worth as much as $2.

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