Ironsides Macro

Ironsides Macroeconomics LLC. Macroeconomic & public policy strategy I'm not joking. This is my job. Podcast:

[Ironsides Macro @barryknapp]

Monday Morning Briefer Brief, by @barryknapp https://t.co/1djM4sO8yQ
Treasury Secretary Bessent should reduce issuance of 20s and 30s and increase supply in the belly of the curve. He hinted at this on CNBC Thursday.

[Ironsides Macro @barryknapp]

@RudyHavenstein @beardedmiguel Hopefully they are forced to sell their stake in Chelsea first. Bring back Chelski!

[Ironsides Macro @barryknapp]

@dougcliggott @tomkeene Shock treatment, labor share of income plunged to all-time lows but are you sure this is the solution?

[Ironsides Macro @barryknapp]

@Geiger_Capital @jakejakeny Accidental tourist

[Ironsides Macro @barryknapp]

@KeyserSozeThree Would be more credible if you weren’t an anonymous account.

[Ironsides Macro @barryknapp]

@jlhaggerty1 In Secretary Bessent's interview with @SaraEisen one of his final comments was if he was a corporate Treasurer he'd be issuing in the belly due to AI productivity driven disinflation - this is what we asserted he is likely to do with @KellyCNBC and in our earlier comment

[Ironsides Macro @barryknapp]

'An operation twist,' says Ironsides Macroeconomics’ Barry Knapp of Treasury's announcement https://t.co/OqkogfIjAV

[Ironsides Macro @barryknapp]

Yes - a related point I made on CNBC yesterday is the assumption that the buybacks will be funded with more TBill issuance is likely incorrect, in the intermediate term - the bank capital changes will increase bank demand in the belly of the curve (3s-7s), I suggested to @KellyCNBC @SecScottBessent should drop the 20-year and increase issuance in the belly

[Ironsides Macro @barryknapp]

@JoKiddo Good feedback for a former Brioni and Zenga suit guy during my Lehman/Barclays days now wearing Peter Millar sports jackets. Taking your comments into consideration!

[Ironsides Macro @barryknapp]

CNBC at 1 eastern with @KellyCNBC to discuss the bond market or whatever the incomparable Kelly wants

[Ironsides Macro @barryknapp]

@Groupanda_com The note got into this in more detail, the 4 minute video required taking some explanatory shortcuts

[Ironsides Macro @barryknapp]

Monday Morning Briefer Brief, by @barryknapp https://t.co/Qr4ss0yHcP
AI Duration, Fed Reform and the Long End. The flawed target, benchmark and model. Bank equities are pointing to more constructive monetary policy in the US and Japan.

[Ironsides Macro @barryknapp]

@Groupanda_com Agreed, but MP is part of the steeper curve.

[Ironsides Macro @barryknapp]

@AntoineGara Sell Chelsea

[Ironsides Macro @barryknapp]

@middatyildiz @novogratz @SecYellen @BlackRock @lloydblankfein Well stated

[Ironsides Macro @barryknapp]

@EricBalchunas I think they were messing with you

[Ironsides Macro @barryknapp]

@TonyNashNerd They tied policy to a mast that hasn't been the trend rate of inflation since the early '60s, other than the '10s, initially due to debt deleveraging & later in the cycle due to Chinese excess goods manufacturing capacity. Another crisis measure that never got unwound.

[Ironsides Macro @barryknapp]

@TonyNashNerd Bernanke's obsession with Great Depression deflation and two years (2010 & 2011) of the median PCED at 1.57% look like the catalyst for the January 2012 enactment of the 2% target to demonstrate the FOMC's commitment to combat deflation

[Ironsides Macro @barryknapp]

Thoughtful analysis

[Tony Nash @TonyNashNerd]

Why are you so mad about inflation, bro?

Look. I know a lot of people are still furious about prices. They see the grocery bill, the restaurant check, the fuel pump, and they want someone’s head on a stick, preferably the Fed’s. Charts circulate showing food prices up 30% since early 2021 and the outrage machine kicks into high gear. “Inflation is still killing us!” “Raise rates harder!” “Protect the consumer!”

I get the frustration. Prices are higher than they were five years ago. But the rage is mostly aimed at the wrong target, at the wrong time, and for the wrong reasons. The big monetary-and-fiscal inflation shock already happened. What we’re living with now is largely the hangover from supply constraints that policy rates cannot fix. And the people demanding tighter money right now are fighting the last war while ignoring the one in front of us.

The data, not the vibe
Start with the numbers instead of the feelings. Cumulative food-at-home prices are up roughly 27% from January 2021 through mid-2026. Food away from home is higher still, around 32%. Overall CPI sits 27% higher over the same stretch. Those are real, painful level shifts. This is real pain for households.

But the rate of change has decelerated sharply. Over the most recent twelve months, headline CPI is running about 3.4% and core CPI closer to 2.5%. That is not 2021-2022. The explosive phase - when stimulus checks, ultra-low rates, and reopening demand slammed into broken supply chains - peaked years ago. Prices rose fast then. They are rising much more slowly now. The cumulative damage is locked in, but the ongoing monthly pain is not the same phenomenon. Complaining that the price level is elevated is different from claiming we are still in an accelerating inflation spiral driven by excess demand.

Two different inflation eras
The 2021-2022 episode was classic demand-side overheating layered on top of supply chaos. Fiscal transfers were enormous. Monetary policy stayed extremely accommodative for too long. Velocity recovered as people spent the money. At the same time, ports clogged, semiconductors vanished, and labor markets tightened abruptly. The result was broad-based price pressure that the Fed eventually had to confront with aggressive rate hikes.

Many of the same voices now demanding tighter policy were, at the time, explicitly urging policymakers to “run it hot.” Full employment was the priority. A little extra inflation was portrayed as a feature, not a bug. Fine. That was a legitimate policy choice with trade-offs. What is not legitimate is pretending those choices never happened and that today’s residual price pressure is purely the fault of a still-too-loose Fed.

By 2023-2024 the demand-side impulse had faded. What remained, and what continues to dominate in several categories, is supply. Oil markets remain tight relative to demand because of underinvestment, geopolitical risk, and production discipline by major producers. Cattle cycles are long. Herd rebuilds take years after droughts and high feed costs. Certain food and industrial inputs still carry backlog effects or structural capacity constraints. These are not problems solved by another 25 or 50 basis points of restriction. Higher rates raise the cost of capital for the very investments that expand supply: new drilling, refining capacity, ranch expansion, logistics modernization.

When inflation is primarily supply-constrained, the Phillips-curve logic that tighter money cools demand and thereby cools prices works poorly. You simply get slower growth and still-elevated relative prices in the constrained sectors. That is roughly the position we occupy now in energy and several agricultural markets.

The consumer already adapted
The performative concern for “the consumer” is particularly hollow. Consumers were hit hard in 2021-2022. Real purchasing power took a sharp temporary hit. They responded the way households always do. They traded down, delayed big purchases, shifted toward private label, cut discretionary categories, and adjusted budgets. Those behavioral changes are visible in the data on unit volumes, discount-store share, and restaurant traffic mixes. The adjustment already occurred.

Acting as if today’s moderated inflation rate is still delivering the same acute shock is ahistorical. The murder happened a couple of years ago. The survivors have rearranged their lives. Continuing to invoke consumer suffering as justification for keeping policy tight primarily serves political theater and the preferences of creditors and asset holders who benefit from higher real rates. It does little for the median household that has already rewritten its spending patterns.

What actually helps now
If the binding constraints are supply-side shortages and backlogs in oil, beef, and similar categories, the constructive response is to improve the incentive to expand capacity and to keep aggregate demand from collapsing while that expansion occurs. Chronically restrictive policy does the opposite. It raises the hurdle rate for long-cycle investment and risks a sharper slowdown that further discourages supply growth.

That does not mean dramatic rate cuts or a return to quantitative easing. It means a measured reduction in the policy rate, enough of a nudge to signal that financial conditions are moving toward neutral-to-accommodative rather than remaining deliberately tight. Lower rates support credit creation and raise the velocity of money relative to a continued high-rate regime. Higher velocity, in a non-overheating economy, helps transactions and investment without automatically reigniting the 2021-style demand boom.

The goal is not to juice nominal demand back to the levels that produced the earlier inflation. It is to stop actively suppressing the financing of new supply while the economy operates near potential with residual bottlenecks. Markets respond to the direction of policy as much as the level. A clear signal that the tightening cycle is over and that modest easing is appropriate can shift expectations, lower term premiums in relevant sectors, and encourage the capital spending that eventually eases those bottlenecks.

Accountability and forward focus
People have every right to be angry about the cumulative rise in the cost of living. That anger should be directed first at the policy mix of 2020-2022 that produced the largest jump, and at the chorus that celebrated running the economy hot. It should also be directed at the structural and regulatory barriers that keep energy and agricultural supply inelastic. What it should not be directed at is the modest residual inflation of the past year as if it were still evidence of excess demand requiring further restraint.

Demanding higher rates today because food and energy prices remain elevated from earlier shocks is like demanding a bigger bandage because the scar from the old wound is still visible. The wound is largely closed. The useful work now is reducing the cost of capital for the producers who can expand capacity, maintaining enough monetary accommodation to keep velocity from collapsing, and refusing to pretend that the inflation story of 2026 is the same as the story of 2021.

The crowd that cheered “run it hot” does not get to rewrite history when the bill arrives. And the crowd that still wants tighter money to punish yesterday’s inflation is aiming at the wrong target. A modest policy pivot toward easier conditions is not radical. It is the recognition that the dominant inflation problem has changed, that consumers already adjusted, and that the remaining constraints are better addressed by encouraging supply than by continuing to suppress demand.

[Ironsides Macro @barryknapp]

@Neil_Irwin No it does not