🟪 Friday Painless Charts

This is the week we found out what Jerome Powell really thinks of inflation and the economy.

"One must choose in life between boredom and suffering."   — Madame de Staël Friday Painless Charts   This is the week we found out what Jerome Powell really thinks of inflation and the economy.   For that, we can thank a pair of Russian comedians who duped Powell into a prank call, the transcript of which was subsequently released as if it were the latest FOMC minutes.   Unlike the carefully scripted FOMC meetings, however, Powell had no reason to believe his comments would be made public, so he was able to let his hair down a little: "We don't know of any painless way for inflation to come down," he confessed to the pranksters.   OK, fine: As tapped-phone revelations go, it's not exactly the Nixon White House tapes — or even a Bart Simpson call to Moe.    But it did strike a slightly more punitive tone than Powell's oft-stated intention to engineer a painless soft landing for the economy.   The tapes suggest he may not have entirely believed his own rhetoric — which is fine, because no one else did, either.   But, per this morning's data, inflation is indeed coming down (albeit slowly). And, so far, it's been pretty painless — as evidenced by the boring markets of late.   So, are we in for the soft landing that not even Powell really thought was possible?   Or is our boredom soon to be replaced by suffering?   Let's check the charts to find out.   The Atlanta Fed's first cut at Q2 GDP is a not-too-hot, not-too-cold 1.7%: In his call with the pranksters, Powell put equal odds on recession and "very slow growth." With Q1 GDP reported this week at 1.1% and Q2 seen at 1.7%, we may now find ourselves in that slow-growth sweet spot: Fast enough to avoid recession, slow enough to cool inflation.   The economy has room for error: Declining inventories were a huge drag on Q1 GDP — one of the largest on record, per this chart from Twitter's @conorsen. A rebound in inventories could add 2 or 3% to GDP in coming quarters, which represents a large buffer against any negative economic shocks. Recession is looking less and less likely for 2023.   If this were a stock, I'd buy it: Manufacturing looks like it's having a technical breakout with Chicago PMI jumping to 48.6 in April, from 43.8 in March of 2023 — possibly because manufacturers have a lot of inventory to rebuild.   Could things get too hot again? This morning's PCE data (the Fed's preferred metric for inflation) showed inflation easing, but slowly. The sluggish pace is mostly due to the housing component (above), which rose 9.1% YoY. That's set to fall, and as it does it will offset any rebound in other components — just as the inventory rebuild will offset any coming weaknesses in GDP. Not-too-hot, not-too-cold.   What banking crisis? Small banks are already lending again, with loans and leases up 0.2% week-on-week and 11% year-on-year. If the quick failure of Silicon Valley Bank didn't phase them, the slow-motion failure of First Republic Banks probably won't either.   Consumers are also unphased: On the same morning that personal spending was reported up 1.9%, the personal savings rate (above) was reported to have risen from 2.7% to 5.1%. When consumers are both spending more and saving more … well, things must be pretty good!   Even Congress is being constructive, albeit accidentally: The looming debt ceiling has forced the Treasury to batten down the hatches, and that will be a drag on activity — perhaps a well-timed one? — until the impasse in Congress is resolved.  If it's resolved? The debt ceiling has always been lifted before, but the market is unusually worried about it this time around: Three-month Treasury bills were yielding as much as 1.8% percentage points more than their one-month equivalents this week — the largest differential on record.   But, hey, the market can't stay blissfully boring forever, can it?   Have a great weekend, long-suffering readers. — Byron Gilliam Top Stories Mastercard Doubling Down on Crypto, Blockchain Efforts With New Offering — Read  Correlation or Fake Alert? Bitcoin Price Swings on Bank News — Read  Venmo Crypto Transfers Coming in May — Read  UK Government Wants to Change Tax Laws to Better Suit DeFi — Read  Stablecoins Are Simply Better at Moving Money Around — Read  Q&A: How Does Stardust Help Web3 Game Studios Avoid the Pokemon Go Problem? — Read  We're Hosting Maximizing Returns and Minimizing Risk: Safer Yields with On-Chain Exotic Structured Products Date: Thursday, May 4th Register Daily Insights Written by Byron Gilliam Produced by Francisco Caeiro Follow Blockworks on Twitter, LinkedIn, YouTube, Telegram and Instagram. Was this email forwarded to you? Sign up for free to join over 180,000 investors who read Blockworks newsletter daily.  Update your email subscription preferences here. Copyright ©2022 Blockworks. All rights reserved.