The logical view of the current scenario.
Analysis of microeconomic data, macroeconomic data, political data, geo-political data and monetary policy with commentary on it.
How can Neel Kashkari say that "deflation is definitely worse than inflation"?
It must be a quotation error because deflation is the main purpose of the monetary policy tightening path to ensure price stability while maintaining maximum employment.
The United States job market data is strong (Statistics: Employment . ), as are industrial production and capacity utilization data (Statistics: Industrial Production , Capacity Utilization . ), allowing for a more hawkish monetary policy stance, as some but not all supply-side inflationary pressures decrease as industrial production and capacity utilization increase.
Note: Not all supply-side inflationary pressures are decreasing, Energy sector and Semiconductors supply-side inflationary pressures persist due to low or non-existent domestic production of Energy sector and Semiconductors. (Sources: 1 , 2 , 3 . )
Figure 1. The current and forward tightening path is the reason behind the dollar rally to all time highs.
Left side of the chart index levels. (Blue line)
Right side of the chart Volatility of the index. (Red line)
Current Level: 227.01
All Time High: 230.67
Do take a look at it if you want on the Bloomberg Terminal, the ticker is: DBUSDX <GO>
Figure 2. Ascent Broad Index has also rallied to all time high.
Left side of the chart index levels. (Blue line)
Right side of the chart Volatility of the index. (Red line)
Current Level: 651.66
All Time High: 651.66
Do take a look at it if you want on the Bloomberg Terminal, the ticker is: DBACTBRU <GO>
To ensure a soft-landing of the World's reserve currency country (The United States), industrial production and capacity utilization must keep increasing, because both increases mean less supply-side inflationary pressures; as industrial production increases, it means that supply of goods to the market increases, which equals less demand, which equals less inflation. (Simple microeconomics, production supply and demand dynamics . )
Also, as capacity utilization rises, it means that there is a rise in output, which means less cost from production in the long run, which allows competitivity in prices of goods production, which lowers demand-side inflationary pressures as supply of goods increases, which consequently lowers inflation.
The tightening path of monetary policy allows to reduce demand-side inflationary pressures by reducing speculative growth in and over goods. However, if supply does not increase from domestic production, it will cause a recession, given the fact that just reducing demand-side inflationary pressures doesn't make supply increase, which means that reducing demand-side inflationary pressures doesn't make supply-side inflationary pressures decrease. Which is why the government must focus on domestic production of energy sector commodities, to which energy and supply-chain cost variation are attached to, which would lower inflation while also allowing the FOMC members of the Federal Reserve to have more space for a more hawkish stance.
Note: The Federal Reserve can’t control domestic production of goods nor has tools to help in that aspect. The president of the United States has the tools to increase domestic production of goods.
The United States' CHIPS Act is not enough to replace China’s production of semiconductors in Taiwan. Increasing domestic semiconductor production in the United States will also be critical in the coming months as Taiwan is the Achilles heel of the World given the fact that it's mainly the source of the World's tech companies' supply of semiconductors (Statistics: Semiconductors . ), and China is willing to reunify Taiwan from separatists either with diplomacy or with the army, which shows how geo-political tensions are playing out.
In the 18th of March 2022, President Xi Jinping Has a Video Call with US President Joe Biden, in which Biden said to President Xi Jinping that the United States doesn’t seek "Taiwan independence" and also said that the United States is ready to have a candid dialogue and closer cooperation with China and stay committed to the one-China policy.
Source: Ministry of Foreign Affairs, the People's Republic of China.
Source: Ministry of Foreign Affairs, the People's Republic of China.
Months after that video call of President Xi Jinping with the United States President Joe Biden, Nancy Pelosi visits Taiwan in support of Taiwanese separatists, which proved to be the first treason of Joe Biden to Xi Jinping, given the fact that Joe Biden said to Xi Jinping in a video call on March the 18th of 2022, that the United States doesn’t seek “Taiwan independence” or intend to seek conflict with China, which Nancy Pelosi’s seeks by doing what She did.
Which China responded to Pelosi with diplomats and with China’s People’s Liberation Army.
As the United States govenment continues to spend on arms to Taiwan (Statistics: United States Arms Sales to Taiwan Timeline , Under previous United States Administrations , Under Biden Administration . ) and even sending a United States arms sales official to Taiwan with the current geo-political tensions, it demonstrates that the United States government does not seek peace and stability in the Asia Pacific region.
World War III is inevitable, given the fact that Joe Biden said that "United States men and women would defend Taiwan in the event of a Chinese invasion".
China is willing to reunify Taiwan from separatists through diplomacy or military force, whereas the United States has decided to defend Taiwanese separatists, resulting in direct conflict with China and World War III.
A quick reminder is that the Biden Administration is burying the past of previous United States Administrations' efforts to recognise that there is only one China and Taiwan is part of China, which is what the One-China principle represents.
Source: Office of the Historian, Foreign Service Institute United States Department of State
As the United States is pushing a foreign policy agenda that cares more about and supports foreign countries' separatist forces than caring about border security. It really does show how messy the United States' leadership is.
As midterm elections approach in the United States, it’s key for politicians to decide if they want the good or the bad for their people and thus act in the correct manner to reduce both inflation through legislative and fiscal policy actions while ensuring peace and stability in the World through de-escalation of tensions and also ensuring border policy security to ensure stability in the United States and the World.
Figure 3. The Statistics prove to show how people does feels about the government.
The previous chart depicts the public's reaction to the current United States Administration's legislative and fiscal policy actions, which have resulted in inflation; here are the reasons for the public's reaction:
The government, through spending, i.e., fiscal policy and legislative policy actions, has increased both demand-side and supply-side inflationary pressures through spending packages that have allowed the consumer to increase spending, which has pushed inflation higher.
And supply-side inflationary pressures that have made domestic production of energy sector lower through legislative actions that have pushed inflation higher. (Sources: 1 , 2 , 3 , 4 . )
Figure 4. Inflation is top concern of Americans.
As data shows in the previous chart, inflation is the top concern of Americans, which is given the fact that the current United States Administration, the Biden Administration, has made inflation worsen as explained before. This is the main reason behind the average person's movement towards conservatives rather than democrats. As the data shows in the next chart.
Figure 5. “Inflation is by far the top national problem among Republicans” (Pew Research).
The conclusion of all of this is that it is more than plausible that Republicans win the midterms and so the economy gets back on track by Republicans ensuring that what the Biden Administration has done wrong gets done in the correct manner.
Figure 6. Democrats are slightly favored to win the Senate, Republicans are favored to win the House of Representatives.
The forward outlook of the United States economy is enhanced by the plausible change in government leadership in the United States, which would help to lower supply-side inflationary pressures, and the constant reiteration from FOMC members towards decreasing inflation.
Until after the midterm elections, there is a disinflationary environment caused by the Department of Energy (DoE) Strategic Petroleum Reserve (SPR) releases, supposedly to suppress what they call the "Putin price hike", which in reality Putin has not caused it. The Biden Administration and United States Congress legislative actions have reduced domestic production of energy sector commodities, which has resulted in higher prices. Those price pressures have been suppressed through SPR releases, which have generated a disinflation environment.
After these Department of Energy (DoE) Strategic Petroleum Reserve (SPR) releases conclude, reflation will be in place. Given the fact that domestic production of energy sector commodities is low, the OPEC+ has cut production in order to lower market volatility based on economic factors, which is coherent given the fact that the only factor that is suppressing the price of commodities is the United States Department of Energy (DoE) Strategic Petroleum Reserve (SPR) releases.
Figure 7. OPEC and Non-OPEC liquid fuels production.
Figure 8. United States Department of Energy (DoE) Crude Oil Total Production Data.
Until domestic production of energy sector commodities rises in the United States, reflation will be in place. After domestic production of energy sector commodities rises, deflation will be in place, causing a natural decrease in prices by decreasing demand-side and supply-side inflationary pressures by increasing supply from production and decreasing demand-side inflationary pressures by increasing interest rates.
The increase in domestic production in the United States by the change in the government Administration through people’s decisions in the midterm elections in the United States is the only way of achieving a soft-landing of the economy.
The change in the government leadership in the United States gives more space to the FOMC members to decrease inflation through bigger rate hikes and faster paces of quantitative tightening as the supply-side inflationary pressures decrease by an increase in domestic production of goods in demand.
Which is plausible given the statistics that show a change in government leadership being favourable.
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