Where to? The Federal Reserve’s preferred measure of inflation—the core PCE—rose 0.2% from November and 2.8% from a year earlier. The data largely met expectations but is still considerably higher than the 2.0% speed limit.
Real disposable income barely rose for a second month, perhaps causing the savings rate to fall to 3.8%, the lowest in two years, which is pressuring consumers to dip into savings (or borrow) to maintain their standard of living.
Is this data inflationary or begets the negative side of boomflation?
Inflation and interest rates are perhaps the greatest determinant of fiscal policy and economic activity.
The Treasury Department reports the average interest rate that the federal government pays on our nation debt is 3.3%–more than double what it was when Trump left office.
In 2024 net interest costs accounted for 18% of federal revenue or approximately $1.1 trillion up from about $350 billion four years ago.
The Treasury Department reports that nearly half of every dollar we borrowed went to finance the debt.
The trend is continuing: By 2035 interest payments will suck up almost a quarter of federal revenues and about two thirds of every dollar borrowed will go to finance the debt according to the Treasury Department.
Many say—including the Chairman of the FOMC–this is unsustainable and believe a fiscal crisis may occur.
Growth in the federal government took off under President Biden with the workforce rising to 2.4 million by the end of 2024—a 7% increase over 2022 and 11% over 2020. There were more federal workers added during the last four years than in the 10 years prior.
The largest cost of production is labor. Has there been a commensurate increase in outcome and productivity with this huge addition to the federal workforce?
President Trump has offered to “buy out” all Federal employees.
The federal government is supposed to be responsive to the people through elected officials. However, many believe bureaucracy has become too powerful, lacking accountability.
It is believed by both the left and the right that bureaucracy can work to undermine reforms with behind-the-scenes obstruction including sensationalist comments/headlines leaked to the press, statements that take an entire life of their own given the lack of gate keepers and influence of social media.
Shrinking the federal workforce is crucial to making Washington more accountable and it must be done.
Speaking of jobs, there are a multitude of employment reports released this week. How will the data be interpreted?
The economic calendar is comprised of numerous top tier indicators including the JOLTS Jobs Openings, the Manufacturing and Services ISM, ADP private sector employment survey, durable goods and the BLS Employment report.
Last night the foreign markets were down. London was down 1.23%, Paris down 1.65% and Frankfurt down 1.70%. Chian was closed for r a holiday, Japan down 2.66% and Hang Seng down 0.04%.
Dow and NASDAQ futures are down 1.25% and 1.85%, respectively on tariffs implemented against China, Canada and Mexico.
The 10-year is up 5/32 to yield 4.52%.
