BLS Redefines Inflation; Goldman Ex-Apple Card? Credit Goes British?
- Jul 20
- 5 min read
July 19, 2026 | In this issue of The Institutional Risk Analyst, we provide some additional thoughts on bank earnings below for our Premium Service subscribers. But we cannot fail to comment on the fact that the Bureau of Labor Statistics (BLS) has decided to alter how it measures several components of a price gauge watched by Fed, reports Matt Grossman of the Wall Street Journal.
As we noted some time back, whenever the pseudo conversation in Washington regarding inflation (a/k/a “affordability”) becomes difficult, the BLS and/or the Fed moves the goalposts. Just as nobody in Washington wants to talk about the budget deficit or the impending collapse of Social Security, the conversation about inflation is totally contrived and false.
The real question we ask, of course, is how can the FOMC even talk credibly about a 2% inflation target when the Treasury is running a fiscal deficit of 6% of GDP?
A budget deficit contributes to inflation primarily by increasing aggregate demand, which occurs when the government injects more money into the economy through spending than it removes through taxation. Excess demand pushes up prices for goods and services, especially if the economy is operating near its full employment and production capacity.
Rather than raising interest rates, Federal Reserve Board Chairman Kevin Warsh should borrow a page from our old friend Fed Chairman Arthur Burns and demand that the Congress reduce the budget deficit in the name of addressing affordability. The Fed could then reduce the size of its balance sheet in a market awash with excess cash and benefit from a little long-delayed deflation.
If the Congress started to cut the budget deficit, interest rates would fall precipitously as the supply of Treasury collateral became insufficient to meet the demand from domestic and foreign investors. Remember, a chief demand for Treasury debt is for collateral in short-term dollar financing transactions (a/k/a "swaps"). Years of budget deficits and quantitative easing would put enormous downward pressure on interest rates, unlocking a significant economic boom and reversing years of inflationary fiscal and monetary policy.
Goldman Sachs Ex-Apple Card
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