It’s Higher For Longer

Powell slams the door on premature rate cuts. April 17, 2024 [WEBSITE]( | [UNSUBSCRIBE]( It’s Higher For Longer SEAN RING Dear Reader, After the recent resurgence in inflation, Jay Powell is unlikely to give the markets their desperately desired rate cuts. And who can blame him? Contrary to what they say on Wall Street and inside the Beltway, inflation isn’t simply “going down.” In reality, prices are still going up, just not as fast as before. Bidenomic apologists conveniently overlook that fact when talking about the economy. Amazingly, the major stock markets were flat yesterday rather than down hard. But even in a world of fiscal dominance, Powell’s words still matter. Powell’s Speech Chairman Powell's speech yesterday, "The Economic Outlook and the Road Ahead for Monetary Policy," focused on the Federal Reserve's commitment to transparency, communication, and public trust. He emphasized the importance of avoiding mission creep and respecting the limits of the Fed's mandate, particularly regarding issues such as tax and spending policies, immigration policy, trade policy, and climate change. Powell also discussed the economic outlook and monetary policy, noting that the Federal Open Market Committee (FOMC) participants see it as likely to be appropriate to begin lowering the policy rate at some point this year, depending on the progress of inflation and the labor market. He acknowledged the risks on both sides of the decision, such as reducing rates too soon or too much, which could reverse progress on inflation, and easing policy too late or too little, which could unduly weaken economic activity and employment. [Apr 19 --- Event Of The Century]( Six years ago, James Altucher went on CNBC and made a shocking prediction which is now becoming a reality. He believes [an upcoming Bitcoin catalyst]( will trigger the biggest bull market in the history of financial markets… It’s scheduled for THIS WEEK – on April 19. [Click here for all the details]( [Click Here To Learn More]( The Outcome Nick Timiraos, known colloquially on The Street as “Nikileaks” for his spot-on Fed watching, wrote in [The Wall Street Journal]( (bolds mine): [Powell’s] remarks indicated a clear shift in the Fed’s outlook following a third consecutive month of stronger-than-anticipated inflation readings, which derailed hopes that the central bank might be able to deliver pre-emptive rate cuts this summer. Officials had previously said they were looking for greater confidence that inflation was returning to their target and were optimistic another month or two of data might meet that standard. “The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence,” Powell said at a moderated question-and-answer session in Washington. The remarks were his first public comments since an inflation report last week sent stocks sliding as investors recalibrated their rate-cut expectations. The S&P 500 fell slightly after Powell spoke, and investors sold Treasurys, sending up yields. The 2-year Treasury note yield briefly hit 5% for the first time since November. Powell indicated Tuesday the Fed wasn’t considering rate increases, either. Instead, Powell said officials would leave rates at their current level “as long as needed” if inflation proved more stubborn.He also said the Fed would be prepared to cut rates if the economy was slowing sharply. Officials raised rates last summer to a 23-year high and have held them there since July. The Effects on the Convenience Yield The convenience yield is a concept in finance that refers to the benefit of holding a physical asset, such as a commodity, like gold, or a bond, instead of a financial asset, such as a futures contract or a cash equivalent. The Federal Reserve's decision to maintain interest rates at their current level has a profound impact, leaving the convenience yield high for several reasons. First, the Federal Reserve's interest rate policy affects the supply and demand for reserves, which impacts the convenience yield on reserves. When the Federal Reserve holds interest rates steady, it increases the demand for reserves, increasing the convenience yield on reserves. Banks and other financial institutions may be willing to have more reserves if they earn a higher return than on different assets, such as Treasury bills or commercial paper. Second, the Federal Reserve's interest rate policy affects the convenience yield on Treasury securities. When the Federal Reserve holds interest rates steady, it increases the demand for Treasury securities, increasing the convenience yield on these securities. Investors may be willing to hold Treasury securities even if they offer a lower yield than other assets, such as corporate bonds or stocks because they are perceived as safer and more liquid. Third, the Federal Reserve's interest rate policy affects the convenience yield on other financial assets, such as futures contracts or options. When the Federal Reserve holds interest rates steady, it increases the demand for these assets, which increases the convenience yield on these assets. Investors may be willing to hold these assets even if they offer a lower yield than other assets, such as Treasury securities or corporate bonds because they are perceived as being less risky and more liquid. The Federal Reserve's decision to hold interest rates steady leaves the convenience yield high for several reasons. Its interest rate policy affects the supply and demand for reserves, affecting their convenience yield. The Federal Reserve's interest rate policy also affects the convenience yield on Treasury securities and other financial assets, such as futures contracts or options. By holding interest rates steady, the Federal Reserve increases the demand for these assets, which increases the convenience yield on these assets. Bottom line: increase the convenience yield and decrease the asset price, like gold. Or is it? Wrap Up That’s the theory, anyway. Despite the economic fluctuations, gold, silver, and copper prices demonstrated remarkable resilience, providing a sense of stability in the market. Now, they see these metals as hedges against war, keeping their prices up. Gold should reach $2,400 any day now. All the best, Sean Ring Editor, Rude Awakening X (formerly Twitter): [@seaniechaos]( Rate this email Like Dislike Thanks for rating this content! Looks like something went wrong. Please try to rate again. In Case You Missed It… Steroids For The State — And You’re The Dealer SEAN RING Uncle Miltie didn’t mean to do it, but the repercussions are undeniable. Milton Friedman played a significant role in developing income tax withholding from employees' paychecks during World War II. As an economist at the Treasury Department, Friedman was part of a technical group that developed the withholding system to collect taxes as income was earned rather than a year later. The primary objective of introducing the withholding system during World War II was to finance a significant portion of the wartime expenditure with tax money, thereby mitigating the risk of inflation. Despite his later regret and call for the repeal of withholding, Friedman acknowledged his inadvertent contribution to a system that made taxes seemingly invisible and painless for taxpayers, paving the way for the current practice of direct tax deductions from employees' paychecks. [Friedman wrote]( “At the time, we concentrated single-mindedly on promoting the war effort. We gave next to no consideration to any longer-run consequences. It never occurred to me at the time that I was helping to develop machinery that would make possible a government that I would come to criticize severely as too large, too intrusive, too destructive of freedom. Yet, that was precisely what I was doing.” Before World War II, when income tax rates were comparatively low, most people paid tax in a lump sum in March. Tax day was the shock it should be for the nation. The country got to see in real-time what the government actually cost them. Yesterday was merely the day Americans filed. In a couple of months, they’ll get a “refund.” And they celebrate. Pathetic. [Your Credit Card: Declined?]( Take a moment and picture this scenario: The line at the gas pump is getting longer as you insert your credit card for the second time. It’s not just you. Everyone is declined. Something doesn’t seem right. A sinking feeling sets in as you realize something has gone terribly wrong. [Click here now for an urgent new prediction from a former advisor to the CIA and Pentagon.]( [Click Here To Learn More]( Living in Singapore When I lived in Singapore, I was blown away. My paycheck arrived “gross” every month. That is, I received the entire paycheck in my bank account. Then, it was my responsibility to set aside enough money to pay my taxes at the end of the year. The Singapore government allowed a 12-month interest-free payment scheme if I couldn't do that. The only caveat was that if I were to leave Singapore permanently, I would have to pay all the taxes due before I got on the plane. Believe me, Reader, they enforce it. A friend of mine was stopped at the airport gate and forced to stay until he paid up. It took him a year to do it. While the US system infantilizes the taxpayer, the SG system forces the taxpayer to grow up and take charge of his affairs. I know I’m much better with my money because I was forced to save for my taxes. And I felt the pain of seeing that colossal cash outflow every year, though it was far less than I would’ve paid had I not renounced my US citizenship. Steroids For The State Withholding income tax at source is the equivalent of an interest-free loan to the government because the money that is withheld from an individual's paychecks is held by the government until the individual files their income tax return. During this time, the government uses the withheld funds for its own purposes, effectively borrowing the money from the individual without paying interest. This means that the individual isn’t earning any interest on the withheld money, and the government uses the funds to finance its operations without incurring additional costs. The withheld funds are typically refunded to the individual if they have overpaid their taxes, but this can take several months. In the meantime, the individual has effectively provided the government with an interest-free loan. This is significant for individuals who have large amounts withheld from their paychecks, as they may be missing out on the opportunity to earn interest on that money. So you’re not losing only the cash itself, but the opportunity costs of that cash, too. Why The State Loves Withholding Income Tax These may seem like positives to you, but a government taking your money should be the hardest thing in the world. Withholding tax ensures that employees have enough money to pay their taxes, making it harder for them to evade taxes. It also makes it practically impossible for tax protesters and evaders to keep their money out of the IRS's hands. Withholding tax lowers collection costs because most people have all or most of their taxes sent to the government by their employers. Fewer taxpayer dollars are needed to fund the IRS's collection efforts. The government uses the money sooner and steadily, allowing for a more predictable and stable revenue stream. This is particularly useful for financing bloated government programs and operations. Withholding tax reduces the risk of non-compliance and underreporting of income, as it requires payers to withhold tax and remit it to the government. Tax authorities take your income as quickly as possible. Withholding tax increases transparency in the tax system, allowing tax authorities to track and monitor tax payments more efficiently. Then, it’s easier to identify and address issues of non-compliance and underreporting. Withholding tax encourages compliance with the tax system, as it makes it more difficult for taxpayers to avoid paying their taxes. This helps ensure that the government receives the revenue it needs to fund public expenditure and social programs sustainably. Wrap Up I’m sure yesterday sucked. And getting a return in a few months might feel good. But I encourage you to consider what happens when your employer pays you directly. And if you haven’t already, start a side hustle that pays you the total amount. When you get around to paying taxes on that, you’ll understand much better the slogan “taxation is theft.” And if you’ve already got a thriving business paying the government the fewest times a year you can, I salute you. Starving the beast is the only way to solve our problems. All the best, Sean Ring Editor, Rude Awakening Twitter: [@seaniechaos]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Rude Awakening e-mail subscription and associated external offers sent from Rude Awakening, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@rudeawakening.info. This address is for feedback only. 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