Bannon’s War Room: Steve Cortes Raising Interest Rates Will Be Necessary to Fight this Inflation. March 16, 2022.
The Economy: Guest Steve Cortes. March 16, 2022.
Transcripts from Bannon’s War Room on Rumble: Steve Cortes Raising Interest Rates Will Be Necessary to Fight this Inflation Published March 16, 2022.
Dr. Peter Navarro
We're going to go to Cortes now. Steve we’re in the second day of the FED meeting. Bring us up to date. Give us a market update where stocks were in response to the various news things. I guess they'd be up on the Ukraine peace possibility, but down on the economic news and where bond yields are at and then give us your read on where J. Powell is likely to lead us at 2 p.m.
Steve Cortes:
Sure, you bet. So, for a check on bond markets and markets, of course, have been incredibly volatile and mostly to the downside for risk assets. Of course, in recent weeks having a good day today the Dow is up 400 points right now. The headline from CNBC, ‘Dow rallies 400 points on hopes for Russia, Ukraine ceasefire.’ It's fascinating, by the way, this also points to this contrast Peter, you see right now among the political class in Washington DC and certainly their allies in the media, just a clamoring for war.
A constant call for escalation, but we see the actual belligerence in that war Ukraine and Russia trying desperately to deescalate and it seems making progress towards de-escalation. Well, the markets at least financial markets are cheering on the prospect of de-escalation for the near term, and I would certainly say obviously good news for the world as well as good news for capital markets, but it would by no means give capital markets the all-clear nor would it give main street even more importantly, the main Street economy, the all clear. One of the reasons Peter is rising interest rates.
Right now, as we speak 10-year yield is on a new high for the move interest rates on the 10-year treasury bond, which is the benchmark for the entire world. All interest rates, globally, whether its foreign government debt, or your credit card tab, all interest rates are predicated upon our or gauged on 10-year treasury yield, and it is right now, at 2.17 percent. To put that in perspective, on election day, November 3rd of 2020, when Joe Biden illegitimately prevailed, 10-year yield was point eight percent. So, we had below 1% , 10-year yield with an economy at that point in fall of 2020, which was aggressively reopening. So, we had fast, fast growth, fast rebound in the economy with extremely low interest rates, extremely low inflation.
Now, we have the exact inverse. We have an economy that is decelerating. We have consumer confidence that is crashing and interest rates that are rising because of the Biden profligacy, the Biden and Chuck and Nancy borrowing and spending spree and the corresponding soaring prices that Americans are having to endure right now. So, the fed, listen I’ll shed no tears for the FED. I'm as cynical as you are about the FED. I think as an institution, it's incredibly partisan. It’s incredibly political and I think Jay Powell’s first prerogative, first and foremost is always to protect the institutional power of the FED rather than the prosperity the American people. And the fed put itself in this quandary by not normalizing policy a very long time ago. But it does now face I will say they are quite in a bind right now. They have quite a predicament because you're not supposed to be raising rates, normalizing policy Pete while consumer confidence is plunging, right? It's supposed to be the opposite, the metaphorical punchbowl.
You're supposed to be pulling the punch bowl away when the party is really getting going. When you're afraid it's going to be too wild. Well right now the punch bowl is empty and okay, and the FED has to take corrective action. Again, they made their bed, and they have to lie it now. So, I don't feel sorry for them but there are no good options. I guess is my point is because of what Jay Powell because of what the FED has done over the course of the years, because of what Joe Biden has done in just a year. It's fascinating how fast Biden put us in this predicament.
The United States right now faces no good options. What I mean by that is raising interest rates, normalizing policy is necessary to fight this inflation. There's just no other way out of it. This inflation is crushing middle and lower-income Americans, but at the same time we have an economy that is already problematic, challenged and decelerating and raising interest rates is only going to make that were so either way, it's heads or tails, we lose right now economically because of the policy choices of the Fed and Joe Biden.
Dr. Peter Navarro:
Let me ask you. Let me get your specific forecast. So, we talked off the air you said it’s just obligatory. It’s going to be at least 25 basis points hike today announcement, quarter of a point, but the real issue is going to be how many hikes are going to lay out over the next six or 12, or 18 months? What's your read on that? And also, are they going to talk about shrinking the balance sheet of the FED, which is the other way that they tighten money. Tell me what you think's going to happen here.
Steve Cortes:
The announcement will be at 2 p.m. Eastern time in the press conference after that. The press conference is s likely to be far more interesting and telling for the country and certainly for financial markets because there's really a lot of argument over what Powell will say and what he will forecast and is he going to try to use this situation in Ukraine as an excuse to not normalize policy.
So, my prognosis is he, yes, he is going to use it as an excuse. He's going to take this opportunity because he is hyper partisan, because he is deeply political, and because he wants to protect Biden, every bit as much as he wanted to harm Donald Trump. So, I think he's going to use Ukraine as an excuse to slow roll the normalization of policy on the rates side.
Dr. Peter Navarro:
Four hikes before the end of the year?
Steve Cortes:
Perhaps.
Peter Navarro:
This is where the rubber meets the road, Steve. If he doesn’t say that, what does that say? I mean, don't you think he's got to like layout how, look they do four hikes before the end the year, that's only 100 basis points. I mean in the old days you usually started with 50 and then work your way, What’s your read? Tell us.
Steve Cortes:
In terms of what he should be doing. He should be doing a 50-basis point, a half since point hike today because we absolutely need it. Look, we just got producer prices out yesterday. 10% double-digit producer prices, producer prices the wholesale level soon become consumer prices, that matched the all-time high since those records have been kept. Okay, so we have an inflation explosion and inflation crisis in this country. What he should be doing is raising 50 basis points today and telegraphing that he's willing to do it again and to do it soon.
And to put that in perspective, in terms of, you know, forward-looking indicators, Goldman Sachs premier among me the Wall Street Banks. Goldman Sachs originally predicted that there would be seven quarter-point hikes for the year. So, 1.5 percent overall for the year. That has been ratcheted back significantly since then and I'll have to tell you the honest truth here. It's so hard to know because he's such a political beast Powell what he will do.
I know what he should do, which is get aggressive, because again, this inflation is so real world. It's so tangible. It's so crushing, and you don't have to take my word for it, look at those consumer confidence numbers. I mean the consumer right now is so anxious understandably So, and it's not just food and energy. Those are really important. It's also rents, rental prices for apartments and homes are absolutely soaring in the high teens as a percentage. That is crushing to America's prosperity, it has nothing to do with Putin. He can't be the Patsy and, and the onus is on them.
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