The US economy was slowing even before the brunt of any credit crunch stemming from the recent bank failures, while inflation accelerated, highlighting the enormous challenge faced by the Federal Reserve. Gross domestic product rose an annualized 1.1% in the first quarter, notably less than the median forecast for 1.9% in Bloomberg’s survey, Bureau of Economic Analysis data showed Thursday. Frustratingly for the Fed, the central bank’s preferred core gauge of prices, which excludes food and energy, picked up to 4.9% in the January-through-March period, the quickest pace in a year…
It all adds up to… a higher risk of a stagflationary environment, where the economy slumps while inflation sticks at a pace well above the Fed’s 2% target.
- Bloomberg, April 27, 2023
Nobody knows how far you can go with a paper currency before it gets out of control, particularly if you are the world’s reserve currency. Nobody knows the answer to that. And you don’t want to try and pick out a point where it does become a problem, because then it’s all over…
It will be interesting to see how it turns out.
- Warren Buffett, May 6, 2023
Editor’s Note: This is Part I of Volume II, Issue IV of The Macro Value Monitor. Part II, The Old Guy and the Gold, will be published next week.
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The Battle of Karansebes, history’s most catastrophic, and farcical, friendly fire incident, and an apt metaphor for the Federal Reserve’s current battle with inflation.
In the world of publicly listed companies, it’s fairly rare to witness a truly unvarnished assessment of the markets. Most of the time, what is said in interviews in print or on television is slanted in ways to provide promotion, however subtle those slants are. Usually, much remains unspoken.
Sometimes, however, when a market veteran no longer has anything to lose, they let their guard down enough to share their real thoughts.
At the Berkshire Hathaway annual meeting earlier this month, co-chairmen Warren Buffett and Charlie Munger were blunt in their assessment of the impact of higher inflation and higher interest rates on business over the next year. “The majority of our businesses will report lower earnings this year than last year,” Buffett told his audience in Omaha. Munger, who is usually more blunt than his longtime partner, said simply: “Get used to making less.”
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