Deflation is Here Again for the First Time Since 2020

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the trend continues the Federal Reserve will have to cut.

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They are behind on the cuts like always Too Late Jerome needs to stop playing politics. Me and Trump are right again

I was told tariffs would cause massive inflation

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If the trend continues the Federal Reserve will have to cut. "Inflation" is a key metric the FR tracks to set the Fed's Fund Rate.

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While the Fed has continued to slowly divest itself of COVID assets, M1 and M2 have been moving back upward for at least the last year. Normally this would be a sign of growing liquidity, but when you bring in wage growth, inflation and consumer debt (car loans, credit card debt and underscored by personal savings as a percentage of disposable income), it shows consumers are still trying to offset inflation through debt.

When we start looking at credit card delinquencies (90+ days), we see a steady climb from ~8% in Q2 2023 to Q4 2024's 11.35%, with expectations for Q1 2025 being ~ 11.5%. Next, we can look at approximate vehicle repossession rates:

2007: ~1.9 million (approximated from Cox Automotive chart trends)
2008: ~2.0 million (Great Recession peak)
2009: ~1.9 million (high due to financial crisis)
2010–2016: ~1.6–1.8 million (gradual decline post-recession)
2017: ~1.8 million
2019: 1.68 million
2020: ~1.3 million (COVID-era drop)
2021: ~1.1 million (COVID low due to stimmy checks, PPP, etc)
2022: ~1.2 million
2023: ~1.5 million
2024: ~1.73 million
2025: It's too early to tell but at this point it's likely to be ~1.75–2 million

What this all means, at least the way that I read it, is that we're in the early part of the consumer debt bubble popping. Right now the Fed's choices are:

1. Lower rates and kick inflation back up near 3% again. Real wages remaining flat means more consumer debt creation and continued growth in loan delinquencies. The Fed isn't likely to make large cuts, meaning the rise in delinquency/default risks for the credit card companies will cause card rates to go higher (most sites have the current average ranging from ~22%-28%) rather than follow the Fed's path. This feeds the debt bubble popping both through the return of the slow crawl of upward inflation as well as loan rate increases.

2. Raise rates and fast-track the recession and subsequent consumer debt bubble popping. This is the absolute least likely scenario.

3. Keep rates the same, causing inflation to continue to move downward. With jobless claims (both new and continued) slowly going down, this SHOULD indicate job growth and if that's the case then keeping rates stagnant would keep those trends going. This would stretch the debt popping bubble out a bit, at least if Unemployment and real wages remain stagnant (ideally real wages would increase as inflation drops).

Remember, you raise rates when the economy is good, you cut rates when the economy is bad. With so much of GDP growth being carried by increasing consumer debt, keeping rates stagnant seems to be the least shitty option at least until we see Unemployment start moving above 4.5-5%.