U.S. October PPI Rises 6.5% YoY, Highest in Nearly Four Years

They decided to not vote on rates in October, but they moved up the December meeting to November.

https://www.cnbc.com/2026/11/12/in-policy-switch-fed-says-it...

It's a great question. The Fed cannot print more oil, and so any efforts to reduce energy inflation with interest rates is going to be futile. Fiscal policy must step in (Congress) to both stabilize the oil market and accelerate our transition off of oil (which would prevent energy inflation in the future, EVs, batteries, enough sunlight hits the Earth every 30 minutes to power humanity for a year, etc, etc).

Fundamentally, due to structural demographics, we have arrived at a capital shortage period after a long capital surplus period [1]; there will be, for long into the future, more projects chasing a shrinking supply of capital. This will continue to push interest rates up, which will also drive asset prices down (real estate, private equity, etc) [2].

Tangentially, about a year ago, I predicted that the Fed could beat on the economy all it wants with higher rates and this would not cause mass unemployment, because the world is rapidly aging and how fast workers are retiring out of the labor force [3]. This thesis appears to have been proven accurate, but more time is required to make the thesis more durable.

[1] https://www.apollo.com/wealth/insights-news/insights/daily-s...

[2] https://news.ycombinator.com/item?id=50329344

[3] https://news.ycombinator.com/item?id=44392820

It's not sound no, and never really was given how doggedly the policy has been stuck to. The policy amounts to handing out wadges of cash to people with money, then ignoring that bit and hoping the hardship suffered by those that need to borrow will offset the activity of the people with interest income. At best, it's weak sauce compared to actual fiscal policy.

The Fed can control inflation through demand destruction. Tank the economy and throw enough people out of work so people buy less and inflation goes down.

It's like chemotherapy: it works, but it destroys so much of the rest of your body in the meantime that sometimes you wonder if the pain is worth the gain.

Trump & Congress have access to much less painful means to lower inflation, but they've refused to act.

There are two big levers the government has to control inflation: monetary policy and fiscal policy.

Monetary policy is where the central bank changes rates. This is effective to a point. It defuses a lot of zero-interest nonsense but the primary idea was to cool the business sector by making borrowing more expensive. Thing is, we don't really do that anymore. We don't borrow a bunch of money to build a factory to make widgets. No, we simply financialize everything. Yes, we have a ton of AI debt now but (IMHO) it's not productive output. The big product and promise of AI is labor displacement. That's going to destroy the economy.

Private equity technically borrows money but usually only temporarily. The target gets bought, restructured, a loan is taken out against the assets to pay back to investors and the corpse is spun out before the debt explodes. The problem? The market seems to be wising up to this bargain and these husks need to be kept on the books longer than desired. PE firms are having to borrow to refinance. That's another house of cards in all of this.

But what really fuels PE and all of this? Real estate. Hoarding land has become the best performing asset.

So the second lever the government has is fiscal policy, specifically taxation. Prior to the pandemic, a lot of companies were afraid to raising prices too much as they'd lose market share. An energy crisis triggered a fundamental change in corporate attitudes to raising prices and we've had a ton of raising prices simply to maintain profits or in anticipation of inflation. Pepsi now is in deep trouble because they've discovered that people don't want to pay $8 for corn chips and Walmart's generic brand is $5 and probably made by the same factory.

In the wake of the pandemic some countries introduced a windfall profits tax. Basically, predatory price-raising should be punished with at least a form of wealth redistribution. These measures were few and far between however.

As an example, because of 2020 energy crisis (caused by Trump) and Russia's invasion of Ukraine, Europe has been in a deep energy crisis for years with no end in sight. Many European governments have tried to protect consumers by subsidizing electricity. Well, these energy providers are making record profits. Why aren't they taxing the back end to pay for those subsidies? Instead, we just have a massive wealth transfer from European governments to (often private) utilities and gas producers.

But fiscal policy, particularly in the US, never gets discussed int his way. We could solve so many problems by simply having a 50% corporate tax rate. The standard objection is "they'll move overseas". Well, you can't move land overseas, particularly mines and oil wells. And the IRS is capable of tackling transfer pricing and profit shifting. Well, they would be if they weren't deliberately starved by successive governments. And if all else fails, punish companies for moving overseas with tariffs. That's what they're actually for.

So, back to your question, no, I don't think the theory is sound because we have a malignant tumor at the heart of our economy, which is land-hoarding.

> anyone confused how the fed rate could go up without a fed meeting; it cannot

Finance being finance, the jargon around this is fucked.

The federal funds rate–"the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight"–is set by the market [1]. (Well, by banks. But among themselves.)

The FOMC "meets eight times a year to determine the federal funds target range." The FOMC then directs the buying and selling of securities–usually Treasuries–to encourage that market rate into their range. (The FOMC is "composed of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents" [2]. It's a superset of the Board of Governors.)

[1] https://fred.stlouisfed.org/series/FEDFUNDS

[2] https://en.wikipedia.org/wiki/Structure_of_the_Federal_Reser...

https://www.investopedia.com/articles/bonds/09/bond-market-i... ("Rising inflation reduces a bond’s purchasing power, often leading to higher interest rates and impacting bond prices and yields.")

https://www.pimco.com/us/en/resources/education/bonds-102-in... ("Apart from purchasing power, inflation can influence bonds in another way. When inflation rises above a certain level, interest rates also tend to rise as central banks try to put pressure on consumers to reduce spending. In response, bond prices fall which can reduce their total return.")

> The second link is current prediction for fed rate changes, which doesn't help anyone understand changes from this PPI report, and the last link is the yield curve, which just shows that long term rates are higher than short term rates (generally seen as indicative there's no near term recession risk).

The second link predicts forward interest rate changes by the Fed based on underlying futures contract market activity, activity that is driven by...released inflation data impacting market participant activity.

Understanding the CME Group FedWatch Tool Methodology - https://www.cmegroup.com/articles/2023/understanding-the-cme... - January 24th, 2025

System: "Economic data and indicators -> Market impact -> Forecasts based on market changes -> Fed decisions and announcements"

There's no chance the Democrats will reduce the deficit. It's been growing almost unbounded since 2000 regardless of who was in power.

I'm not sure either party tries especially hard to reduce spending. Clinton was strong-armed into abandoning expensive social programs in his first term and had a hell of a good bubble economy paired with a pre-Norquist tax regime and a post-base-closure budget to reduce the deficit in his second term.

I would say "look at the numbers," but the 2008 housing crisis and the 2020 pandemic really don't make for easy comparisons.

But by a first order of approximation, I fear your statement is correct. Tax cuts sometimes goose the economy but always increase the deficit. Democrats sometimes advocate for tax cuts, but Republicans always do, regardless of the current macro-economic climate.

As someone else pointed out they will increase the deficit (over the baseline expectation) as they did before under Obama and Biden.

They might partially repeal tax cuts, but if they expand social security and medicare then the deficit will increase dramatically. Don't expect any of the recently elected senators to do the fiscally responsible thing when Social Security is insolvent in 2032.

Let's do that, but also let's tax the rich.

Funny. They used to say the only way to fix the budget is to stop spending less on defense.

Now that is the number three or four. Depending on how you count, we're going for the actual number one, which is unfunded Medicare.

Unfortunately, the second highest expense now is interest on the debt accrued.

The thing is that "inflating it away" isn't a serious long-term proposal. Suppose we were do something drastic, like target 6% intentional inflation, obviously nobody would buy bonds at 6% anymore, they'd demand at minimum 12% (because they'd lose 6% of it due to inflation). Once they demanded 12% the interest payments would shoot up, and then the amount we'd need to inflate would again spiral up. The spiral runs away, there's no secret cheat to a free lunch.

But there's also new debt being taken out, at inflated price levels.

I was being imprecise, it's not literally making up the entire deficit with new money, though the Federal Reserve's securities did increase by $200B over the past year, and M2 money supply increased by $1.2T. A lot of the deficit is inflationary in that it adds to the financial balance sheets of the private sector, even when financed by bonds sold to non-banks. It pushes up aggregate demand even when it doesn't increase the money supply. When aggregate supply can't keep up, you get inflation.

You're totally right, of course. I wrote it in an attempt to "both sides" it but that one line caused the rest of what I wrote to be completely discounted. To double down on the comment about democrats, though, there's obviously a lot of conversation about increasing spending (e.g., Medicare for All and less-tectonic items like reintroducing health care subsidies) and with Trump in the White House nothing is going to happen on the increasing revenue side of things and so we have at least another two years of both rampant spending, and continued giveaways to those who can afford to give (some of it) back, a cocktail for even more inflation.