Where's the Inflation?

Financial FAQs

“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East…Inflation remains elevated relative to the Committee's 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy.” FOMC

MarketWatch

New Fed Chair Kevin Warsh wouldn’t say when the Fed would join the chorus calling for a rate hike at his June press conference. He was waiting to hear from task forces studying problem! When have we heard this before?

The U.S. and Iran keep bombing each other, and Iran has just said they are in no hurry to negotiate another ceasefire, while Trump just found another way to keep tariffs high.

And the bond market and inflation indicators are showing higher inflation ahead. Is there any doubt that the Fed’s Fed Funds rate is going higher, as well, with the Fed’s FOMC statement mentioning “elevated uncertainty” re the Middle East conflict?

The financial markets didn’t like the Fed’s inaction, which is why the market indexes plunged after the FOMC statement—the DOW ended the day down by -1150 pts.

Yet economic disaster is staring Americans in the face, if Trump keeps raising tariffs and can’t stop his Gulf war. It cuts into consumer spending, raising the cost of everything when debt at all levels—national, corporate, and consumers are already at record levels.

Raising the Fed’s interest rate will slow rising inflation by slowing economic growth. The Fed FOMC conclusion that economic activity is “expanding at a solid case” was because of over investment in the AI build out of data centers, almost all of it borrowed money. And many of the AI investors are borrowing from and investing in each other, like Japan’s keiretsu system of interlocking ownerships that impeded them from writing off bad debts when their decades long economic stagnation occurred.

One ‘tell’ of the possibility of a US. recession is that huge new orders for computers and related products jumped 3.1% in June, the government said Monday in its monthly report on durable goods.

The last time there was such a surge in goods investment was during the dot-com era, according to MarketWatch’s Jeffry Bartash. “Over the past year, orders for the AI-related hardware have surged 17%, a level last sustained during the dot-com era more than a quarter of a century ago,” he said.

But the dot-com investments didn’t begin to show enough profit for decades to pay for the investments, hence the 2000 dot-com recession that Alan Greenspan and Nobel Laureate Robert Shiller predicted with their warning that irrational exuberance was blinding investors from reality.

Yet the Fed must act to raise rates sooner or later, since higher inflation is already embedded in consumer surveys, according to the University of Michigan’s sentiment survey:

“Year-ahead inflation expectations ticked down from 4.6% in June to a still-elevated 4.2% this month. The current reading substantially exceeds the 3.4% seen in February before the Iran conflict began, (my bold) along with all 2024 readings. Long-run inflation expectations held steady from last month at 3.3%, remaining a bit higher than the 2.8% to 3.2% range seen in 2024.”

The advance second quarter GDP growth estimate was just 1.5 percent, another casualty of the tariffs and Mideast wars despite the AI investment surge. It’s no wonder the Fed’s Governors are avoiding the obvious; when to begin to restrict credit before inflation becomes entrenched longer term, as it did in the 1970s.

What were the conditions then? Energy supplies were restricted, inflation soared, and economic growth stagnated. Hence the decade of stagflation. Is this a repeat?

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

Another Housing Bubble?

 The Mortgage Corner

“WASHINGTON (July 9, 2026) – Existing-home sales decreased by 2.4% month-over-month and increased 2.8% year-over-year, according to the National Association of REALTORS® Existing-Home Sales report. NAR

FRED30yrmortgage

It’s been months since I last wrote about the housing market, and why it’s had such a slow recovery. FRED’s 30-year fixed mortgage graph tells us why, and why we have a housing shortage.

And the 30-year fixed rate mortgage has hovered above 5 percent since 2023, its longest stretch above 5 percent since 2007 and the start of the Great Recession. Lower interest rates would certainly stimulate more housing construction, especially on the affordable end.

But new Fed Chair Kevin Warsh has been repeating that inflation is too high at his congressional hearings and the Fed may have to make some hard choices and become an inflation hawk to bring inflation back to its 2 percent target rate.

If only we still had Ayn Rand disciple and free market lover Alan Greenspan as the Fed Chair! In a similar situation during the GW Bush 2000 decade, Fed Governors resisted raising the Fed rates to help fund the Bush administration’s wars on terror, despite enacting the large Republican tax cuts that caused the first $trillion in federal debt.

A caveat is to be careful what you wish for, since the last such building surge inflated the housing bubble for mostly the wrong reasons.

And the busted housing bubble that led to the Great Recession of 2008-09 also led to the current housing shortage. Can we ever return to the ‘good old days’ when there was enough housing for those that want to own?

It fueled an earlier housing bubble It was the combination of interest rates being held below rising inflation that caused housing prices to increase by double digits for a couple of years and we were left when a massive oversupply of unsold homes.

Right now we have both a demand and supply problem—how to bring down mortgage rates to lure more home buyers, and kick start more housing construction.

The Trump administration is also attempting to talk down interest rates in the face of its massive tax cuts as it has been waging war on several fronts—from attacking Venezuela to Iran, while again ballooning the federal debt.

The 30-year average fixed mortgage was last at a much more affordable 3 percent rate during the COVID-19 pandemic. It is 6.58 percent at this writing and has remained above 6 percent since 2022 when the Fed last raised interest rates to combat inflation as world economies began to recover from COVID.

And we know both home buyers and mortgage lenders are incredibly sensitive to mortgage rates, in part because mortgage lenders have kept credit standards much higher than they were in the lead up to the housing bubble that caused so many defaults. Anyone remember the no-income verification, liar loans of that time?

The National Association of Realtors remain hopeful that the home buyer market will approve.

"The back-and-forth in monthly home sales activity, driven by mild fluctuations in mortgage rates, shows how sensitive home buyers are to affordability conditions,” said NAR Chief Economist Lawrence Yun. “However, job gains—more than half a million since the beginning of the year—will continue to provide support for the housing market.”

But so much is similar to the housing bubble and bust. Trump’s Big Beautiful Tax Bill and Iran war is raising the costs of everything as did Bush’s tax cuts and war on terror.

Are we seeing a housing revival with the slight uptick in existing home sales? Hope springs eternal, as the saying goes. Sales have hovered around 4 million residential units since the busted housing bubble and 2008-09 Great Recession. There has never been enough supply to satisfy the demand of an increasing population since then because the busted housing bubble restricted new home building for almost 10 years, and 30-year fixed rate mortgages have hovered above 6 percent ever since, per the FRED graph.

Higher interest rates are raising construction costs. Trump’s tariffs on steel, copper, lumber and other materials are lifting construction prices and interrupting some jobs. This is while immigration enforcement is worsening worker shortages and delaying projects.

I said last week,

“We get so many things thrown at us in the construction industry,” said Tony Rader, the chief relationship officer at National Roofing Partners, a commercial roofing company in Coppell, Texas. “It just seems like every time we turn around, we’ve got something else to fight.”

The bottom line is too many resources have been diverted to funding wars, not peaceful enterprises since then, leaving little room for more housing construction, or curing our homeless problem.

When will that change?

Harlan Green © 2026

Follow Harlan Green on: https://twitter.com/HarlanGreen

No Relief From Inflation

 Popular Economics Weekly

 “From the same month one year ago, the PCE price index for May increased 4.1 percent. Excluding food and energy, the PCE price index increased 3.4 percent from one year ago.”

 

BEA.gov

The Personal Consumption Expenditure Index (PCE), the Federal Reserve’s preferred inflation gauge that covers the widest spectrum of price changes, showed no relief in May. In fact, the PCE graph above showed inflation’s steady climb since Trump’s April 2025 Liberation Day (illegal) tariff hikes levied on the rest of the world that must now be repaid.

Refunding the tariffs to importers won’t reduce inflation because the higher import costs were passed on to consumers and producers. It becomes a chain reaction as those costs work through the economy. There are also the distributors, for instance, as well as the retailers and manufacturers’ profits that go into the chain.

The 4.1% annual inflation rate means inflation is now out of control for wholesale prices that go into the finished products as well. This is while Kevin Warsh, the new Fed Chairman, has said he is committed to bringing inflation back down to 2%.

When and how can it be done? We will be living with the likelihood the Fed may have to raise interest rates sometime this year. The Ukraine and Iran wars are creating more product shortages on top of the supply chain shortages caused by the tariffs.

The Ukraine war could be over if Trump had taken Ukraine’s side in the conflict instead of Putin’s. And how will he handle the Iranians who have the U.S. over a barrel (of more than oil) because he must bring down the price of oil-based products as well?

The U.S. economy is growing at 2% in the latest first quarter revision because consumers have kept shopping, but with a terrific toll on their personal savings rate (down to just 3%).

The financial markets have added to the frenzy because of the A.I. spending to expand data centers. There’s more than a little irrational exuberance prevailing, I said last week.

Their actions have raised consumer prices to such a level that they may not come down for years. We know this because the wholesale Producer Price Index (PPI), that measures the price of raw materials going into the finished products rose a whopping 1.1% in May, seasonally adjusted, also the largest rise in more than three years that must work its way through the product chain.

No, inflation is here to stay for a while, producing an immense asset bubble as the U.S. economy advances into the next stage of our industrial revolution. Economists have another term to describe it—creative destruction—that economist John Kenneth Galbraith said was,

“the cyclical process by which the system eliminates the people and institutions which are mentally too vulnerable for useful economic service. Unfortunately the process has larger and less benign effects, including the possibility of painful recession or depression.”

We are in this inflationary mess because of executive actions made on impulse rather than research by a President and advisors who are completely ignorant of  basic economic theory, who has said he likes the inflation and no longer cares about the economy.

Who will be the winners and losers in the A.I. economy to come at a speed that will upend the lives and jobs of the next generations?

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Stagflation Isn't Going Away

Financial FAQs

“The number of job openings was unchanged at 6.9 million in March, the U.S. Bureau of Labor Statistics reported today. Over the month, hires increased to 5.6 million while total separations changed little at 5.4 million. Within separations, both quits (3.2 million) and layoffs and discharges (1.9 million) were little changed.’ BLS.gov

FREDjolts

The FRED graph of the JOLTS report (U.S. Job Openings and Labor Turnover Survey) shows the sharp decline in the number of job openings from its high of 12 million openings in 2022 at the end of the COVID-19 pandemic. This is another sign of stagnating growth. And though stocks continue to rally to new highs, interest rates are also rising, a sign of higher inflation.

Now combine no new job growth with rising inflation and we have further signs of stagflation, the combination that stopped economic growth for most of the 1970s. It has hovered around 7 million job openings during Trump’s second term because of Donald Trump’s almost single-minded job-killing policies.

It’s not just the illegal on-again, off-again tariffs that disrupt supply chains, but the immigration sweeps taking tens of thousands of workers out of their jobs and off the streets. And most of them pay taxes that would help in reducing our record federal debt.

Cap that with all the DOGE job cuts that have eviscerated the Labor Department responsible for enforcing OSHA worker safety laws and union wage negotiations. Millions have also lost their insurance coverage because Republicans blocked renewal of subsidies that made it affordable to ordinary non-seniors.

Job formation is now at a standstill because of Trump’s anti-labor antics. It’s mostly pure greed that motivates Republicans these days who have cut social services to the bone to pay for their tax cuts.

And there is plenty of time for stagflation to worsen as a semi-permanent feature of Trumponomics, his version of Reagonomics trickle-down economic policies, since Trump has three more years.

Inflation doesn’t disappear when economic growth picks up that is inflating stock prices. All the AI investing will ultimately increase productivity in factories that make cheaper products and need fewer workers. But who will buy its products with fewer employed workers, hence consumers, to buy its products?

Nobel Laureate economist Paul Krugman has pointed out the damage Republican economic policies have done to the health and welfare of Americans and American workers, as well that lessens their productivity because more sick days means time lost from the workplace.

“There is a strong correlation between right-wing politics and increased mortality — stronger than many of the statistical associations that guide public health policy. Deep red states like Alabama and West Virginia have life expectancy comparable to, say, Kazakhstan.”

I’ve written in the past about the dumbing down of the Republican electorate that is causing this; its refusal to rely on scientific knowledge, or support vaccines and publicly funded healthcare.

“We’re seeing the forces that keep U.S. life expectancy far below that in other rich countries, that cause Texans (for instance) to die younger than residents of Massachusetts, go into overdrive at a national level.”

This will cause the death of more Americans, further shrinking our available supply of workers. It’s already happened—just 15,000 new jobs per month were created in 2025. Professor Krugman warns the carnage will continue while inflation is soaring because of his many missteps.

“The consequences will be grim,” he warns.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Fitrst Quarter Economic Growth Improves

 Financial FAQs

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2026 (January, February, and March), according to the advance estimate released today by the U.S. Bureau of Economic Analysis. In the fourth quarter of 2025, real GDP increased 0.5 percent.

BEA.gov

“The U.S. economy has just powered through shock after shock,” was Fed Chair Powell’s summation of the state of the U.S. economy at his last press conference as Federal Reserve Chairmen.

First quarter 2026 real (inflation adjusted) GDP growth picked up +2.0% in the government’s first estimate, following +0.5% growth in Q4 2025, thanks to the $billions being spent in AI energy center build outs.

Kevin Warsh will take over as the new Fed Chairman in May, so there is speculation that he will push for easier monetary policy as President Trump’s pick for the new Fed Chairman by lowering the Fed’s interest rates and a more hands off management style.

Trump badly needs easy credit to maintain growth because of his economic mismanagement. A barely functioning government is either tied up in congress with the various shutdowns (last fall and current DHS funding), while illegal tariffs have choked supply chains.

Meanwhile, to Powell’s consternation, economic growth is picking up “through shock after shock”, from the Great Recession, COVID-19 pandemic, the 37-day fall government shutdown, tariffs, and the various wars that have caused energy prices to skyrocket.

The AI build out was predicted to boost growth, consumers continued to hold up their end, and government spent more on the Ukraine and Iran wars. The Defense Department reported the Iran war has already cost $25 billion in just the first two months.

And the financial markets continue to rally to new highs, so we are seeing some irrational exuberance, despite the game of chicken by Iran and Trump over the Hormuz Strait blockade. It’s obvious market investors continue to believe that Trump with his TACO policies will find a way to extricate American out of his latest war sooner rather than later.

But it also means $4 plus gas prices and soaring inflation for months to come. Even if the Iran war is settled sooner, predictions are that Middle East energy production won’t be restored to previous levels for at least one year.

The real problem is the Trump administration’s economic mistakes have taken us back to a Cold War economy—more military spending, fewer government social services, while endangering the good faith and credit of the U.S. federal government as the debt continues to balloon.

Something has to give, in other words. The financial markets won’t rally forever on the AI investment bubble, and consumers won’t keep shopping until they drop without an ensuing downturn.

The question is when on so many fronts. When will the wars end? When will enough consumers realize prices won’t come down and elect a congress that will control Trump’s extravagance and greed before he bankrupts the American economy?

When will it be one shock too many that drives us into another recession?

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

What, Another Great Recession?

 Financial FAQs

 “The conflict with Iran has already put fresh stress on the U.S. economy, as businesses are reporting rising prices, fewer orders and a decline in employment. A survey of service-oriented companies — the sector that employs most Americans — fell to an 11-month low of 51.1 in March from 51.7 in the prior month, S&P Global said Tuesday.” MarketWatch

FREDpayrolls

Maybe we shouldn’t be looking at the 1970’s era of stagflation for the kind of economic damage from the Iran War and closing of the Strait of Hormuz to oil shipments. There is a short-term spike in oil prices, though oil from other sources than the Gulf can eventually make up the difference in supplies.

The war’s damage may take longer to materialize but look more like the Great Recession, which we shouldn’t forget was a worldwide recession that occurred in 2008-09, the worst since the Great Depression of the 1930s.

We shouldn’t forget that the Great Recession Bush/Cheney and their oil barons ultimately spawned with the ill-planned invasions of Iraq and Afghanistan was based on lies about the weapons of mass destruction that Saddam Hussein didn’t have.

And now Trump and his Robber Barons are taking the Gilded Age dreams of William Mckinley one step further with lies that Iran is preparing nuclear weapons to justify the ill-prepared war with Iran while aliening the allies that would help them succeed.

This is even though Trump’s just-resigned Counterterrorism czar Joe Kent said Iran posed no imminent threat with nuclear weapons.

The Great Recession was caused by more than the Bush wars on terror, of course. It was caused by putting too many regulation-cutting foxes in the Bush/Cheney hen house that literally resulted in the failure of nonbank banks like Bear Stearns and Lehman Brothers to fail.

Trump is following the same playbook by gutting the government’s regulatory agencies that could prevent the blatant fraud occurring with the Trump administration’s Bitcoin investments that have no regulations or backing with assets.

This time negative GDP growth could come from the faltering labor market, which is frozen in place with almost no net new job creation at all in 2015 as highlighted in the above FRED graph. Fed Chair Powell remarked at his latest press conference that they were torn over whether to cut interest rates or raise them because Trump’s immigrant deportations were causing a labor shortage.

Economic growth ground to a halt as well in 2008, even when Fed Chair Greenspan anxiously began to cut interest rates to prevent the near failure of our banking system.

Powell’s Fed Governors also predicted overall GDP growth of 2.4 percent in 2026, even though Q4 2025 Real GDP growth slowed from 1.4 to just 0.7 percent. So I don’t understand the Fed’s optimism over economic growth.

And history has shown that no job growth will ultimately lead to no economic growth,

The frightening truth is that both Republican administrations have made bad decisions for the same wrong reasons.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen