Inflation threatens to turn 2022 into ‘annus horribilis’ for Powell, Biden: Morning Brief

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Thursday January 13, 2021

Soaring prices are now both an economic and a political risk

“Annus horribilis”, a Latin term which means “Horrible year” is a term once famous deployed by the Queen of England to describe 1992, a tumultuous year that she said she would not regard fondly.

Given current trends, the same label could still apply to the year 2022, as inflationary pressures burn American consumers at a rate not seen in decades, degrading the political fortunes of a barely one American president. year after the start of his mandate. It is also a plot to make the difficult task even more difficult for the chairman of the Federal Reserve whom he recommends for a second term.

Data on Wednesday showed that headline consumer inflation in December edged up to a staggering 7% year-over-year, with base prices gaining 5.5% – the highest since 1991 and the biggest 12-month rise since 1982. As Wall Street took the news eagerly, sending benchmarks on an unlikely rally as investors do what they do best – watch the news – beyond the bad news – at least two things have become clear.

First, it’s time to say sayonara to the tame inflation environment that investors and consumers once took for granted. Second, not only have businesses become accustomed to charging higher prices, but consumers have become accustomed to paying them (ideas the Morning Brief cautioned readers late last year).

“Once you have inflation, right, like when inflation goes, things don’t have to get any cheaper,” US bank chief economist Tendayi Kapfidze told Yahoo on Wednesday Finance Live. “They just need to stop increasing,” he added.

Although king of bonds Jeff Gundlach – who took over from Noriel Roubini’s “Dr. Doom” – said this week that he sees “Recessionary pressure”, even as strong demand inflates prices, a tight labor market and higher wages are more than likely to continue to support insatiable demand.

This is why economists regularly reassess how aggressive the Fed could become as it undertakes its first tightening campaign since 2018.

Capital Economics chief economist Paul Ashworth on Wednesday called December price data “as bad as expected.” We expect the Fed to start raising interest rates in March, with a total of four 25bp hikes this year and four more in 2023. “

This call puts him squarely on the side of JPMorgan Chase CEO Jamie Dimon, who this week predicted the the central bank would be forced to increase more aggressively based on upward trends in growth and prices.

Which brings us to the two people most vulnerable to that “annus horribilis” I mentioned earlier – namely Fed Chairman Jerome Powell and President Joe Biden. The latter’s signing legislation is stalled in Congress (arguably a good thing as an increase in government spending would almost certainly make the inflation problem worse), and he’s already taking the heat for soaring prices and the bare shelves created. by port arrears.

Faithful readers may recall that the Morning Brief wrote last year that the president’s re-appointment of Powell meant that the two men now effectively owned the current inflationary environment. At the time, I wrote that:

This is one of the reasons Biden is already working to mitigate the impact of inflation on consumers by tackling spikes in food and energy costs, as wrote. Yahoo Finance’s Ben Werschkul Wednesday.

A grim public mood over inflation and COVID-19 hangs over the November midterm elections.

But the shockwaves caused by the high prices are already rippling through the political landscape, with voters increasingly in a bad mood. In an analysis, Eurasia Group’s Jon Lieber noted that the backlash against Biden has only intensified in recent months, and his policy initiatives are “either unpopular or have been lost amid the ongoing pandemic and crisis. high inflation ”.

Wait, it’s getting worse and worse. Lieber added that “the backlash causes us to increase the odds that Republicans will take the House to 90%, down from 80% previously.

“This is an unusually high degree of confidence so far removed from an election, but the historic median of 30 seats lost midterm for the ruling party, the current narrow margin in the House, the redistribution patterns , 26 House Democratic retirements and The persistent low approval ratings for Biden support the point of view, ”Lieber added.

It’s worth mentioning that the last president to preside over such high core inflation readings was President George HW Bush in 1991. And we all know what happened to him the following year.

Through Javier E. David, editor of Yahoo finance. Follow him on @Teflongeek

What to watch today

Economy

  • 8:30 a.m.ET: Producer price index (PPI), month to month, December (0.4% expected, 0.8% in November)

  • 8:30 a.m.ET: PPI excluding power and energy, month to month, December (0.5% expected, 0.7% in November)

  • 8:30 a.m.ET: Year-to-year PPI, December (9.8% expected, 9.6% in November)

  • 8:30 a.m.ET: PPI excluding power and energy, year-on-year, December (8.0% forecast, 7.7% in November)

  • 8:30 a.m.ET: Initial jobless claims, week ended January 8 (200,000 expected, 207,000 the previous week)

  • 8:30 a.m.ET: Continuing complaints, week ended January 1 (1.733 million in the previous week)

Earnings

7:25 a.m. ET: Delta Airlines (DAL) Expected to Report Adjusted Earnings of $ 0.225 per Share on Revenue of $ 8.452 Billion

Politics

  • President Biden has a speech at 10:30 a.m. ET on his administration’s “whole-of-government response to the COVID-19 outbreak”. seems to be in trouble to the Supreme Court.

  • The White House also hosts a range of tech companies – Amazon at Oracle – to discuss the security of open source software. The meeting comes after a vulnerability in an Apache logging library called Log4j opened hundreds of popular apps and services to hacker attacks.

  • At the Capitol, it’s confirmation hearing day for Lael Brainard. She will answer questions at 10 a.m. ET on her appointment as vice-chair of the Federal Reserve System Board of Governors.

Top news

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Visa and Consensys team up to develop digital currency technology for central banks [Yahoo Finance]

What economists say about the highest inflation in almost 40 years [Yahoo Finance]

Yahoo Finance Highlights

World Bank: High inflation is a “global phenomenon”

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