Rough Seas Ahead?

Some say that prices at the producer / wholesale level are a leading indicator. Some don't really look at them all that much. I am in the former camp. For if producer prices move higher, it makes sense that at least some of those higher prices would be passed on to the consumer. Either that, or profit margins get squeezed. There is no "good" outcome when producer prices rise, unless of course, you are the Federal government and happen to be keeping the whole operation afloat through exponentially increasing deficit spending. How long can that go on? It feels like forever that we have been asking that question, probably because we sort of have.

Now, with the US federal government off to the worst two month start to any fiscal year in its long 248-year history, we must again go there. Just two months into fiscal 2025 (The federal fiscal year runs October through September), the US government is already $624.3B in the hole. Federal debt stands at 123.4% of GDP. As recently as the year 2000, that ratio stood at 55%. Forty years ago, that ratio was in the mid-30% 's. It happened rather quickly. One irresponsible presidential administration after another. One reckless, mindless congress after another. Now the Federal Reserve Bank is put in the awkward position

Where the US likely is at this point is referred to as "fiscal dominance". which is where the government's fiscal needs unintentionally, or maybe intentionally strip the central bank of its independence. The result is a forced fiscal reliance upon monetary policy to keep borrowing costs in check in order to help manage the federal debt-load and federal debt service expenditures, often at the expense of price stability.