Fed keeps pumping out money, food prices keep pumping up, but typical Americans have less to pump in

As I glanced at the markets today, I noticed they opened way down on concerns over COVID-19 having a next level of breakouts in the Southern half of America, starting more than 750 points in the hole. But throughout the day it started climbing back, and then around 2 pm Eastern, there was a sudden jump of 380 points.

So what was that about?

The Federal Reserve said Monday that it will begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only exchange-traded funds.

The central bank also spelled out for the first time how it plans to implement its buying strategy, saying it would follow a diversified market index of U.S. corporate bonds created expressly for the facility. The Fed built the index internally, and a spokesman couldn’t immediately say whether its details would be made public.

“This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity and other criteria,” the Fed said in a statement. “This indexing approach will complement the facility’s current purchases of exchange-traded funds.”

In other words, a continued bailout of the debts that companies have been taking on and are struggling to pay back. And you know how Wall Street loves their bailouts.

So here's even more money getting pumped into corporations and the financial markets, which also keeps interest rates artificially low (the 10-year Treasury note is still only fetching 0.75%). The danger of this situation would be that inflation would start to run rampant due to so much more money floating around with little else being created.

But inflation generally hasn't happened yet, with some key exceptions. We saw that in the last week's reports from the Bureau of Labor Statistics. First, it mentioned that overall prices for consumers went down for the third straight month in May.

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in May on a seasonally adjusted basis after falling 0.8 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 0.1 percent before seasonal adjustment.

Declines in the indexes for motor vehicle insurance, energy, and apparel more than offset increases in food and shelter indexes to result in the monthly decrease in the seasonally adjusted all items index. The gasoline index declined 3.5 percent in May, leading to a 1.8-percent decline in the energy index. The food index, in contrast, increased 0.7 percent in May as the index for food at home rose 1.0 percent.

The index for all items less food and energy fell 0.1 percent in May, its third consecutive monthly decline. This is the first time this index has ever declined in three consecutive months. Along with motor vehicle insurance and apparel, the indexes for airline fares and used cars and trucks declined in May. The indexes for shelter, recreation, medical care, household furnishings and operations, and new vehicles all increased.

But just like our economy in general, the changes in prices are very different depending on what line of business you're in. Food had its largest 1-month increase in prices in nearly 40 years in April, and it went up another 0.7% in May, overall food bought at grocery stores is up nearly 5% in the last 12 months, and meats, poultry, fish and eggs are up 10% in the last year. Meanwhile, energy and clothes prices have crashed.

Widening it out, you can see that if you take out food and shelter prices, we're in a notable deflation over the last 3 months, and to a lesser extent over the last year. But if you take out energy or look at the cost of services, prices have been flat for 3 months, and are a rising at a relatively normal pace.

On the producer side, we saw the first increase in goods prices since January, reflecting a large increase in food prices of 6% and energy going up 4.5%. On the flip side, you can see that the chart shows the prices that businesses are getting for services are going down, which reflects intermediary sellers having a snapback after a couple of months of sizable increases.

Hopefully this means that some of the irregularities of farmers getting low prices while food prices go up at the store are starting to sort out.

However, we're already seeing the prices at the gas pump continue to rise, and that will combine with the higher food prices to crunch consumers in America now and in the near future. And with nearly 20 million more people out of work compared to February, it leads us to ask how the economy can keep growing and maintaining their standard of living if prices of staples keep rising. So is the typical American going to be helped by this extra money getting pumped into companies and stocks, but only to allow these companies to keep paying bills, and not to necessarily make more products.

Interestingly, a Federal Reserve Governor said today that it is the job of Congress to step up to do their part in making sure that everyday people get their own stimulus in order to have the economy recover.

NEW: San Francisco Fed President Mary Daly urges Congress to do major public spending on health, education & digital tech:

"We can’t wait 10 years for an economic recovery to reach everyone."

"Inclusive growth is faster growth – and it will pay for itself in the long run." pic.twitter.com/5KHc7S8ETW

— Heather Long (@byHeatherLong) June 15, 2020

But that's a pretty hopeful statement, especially since Trump/GOP is trying to pretend that the economy is going to be fine, with economic advisor Larry Coke-blow claiming that "businesses are coming back" and that workers shouldn't continue to receive enhanced unemployment benefits. Sorry Larry, but the economy is not fine. If it was, the Fed wouldn't be throwing money out to buy a bunch of private company bonds, and we wouldn't be seeing prices crash in some sectors and zoom up in others.

I can't think many Americans are going to accept double-digit unemployment while debt-ridden corporations keep getting bailed out and prices go up for the next few months. And I can't think demand on Main Street is going to go up in such a situation. I'm not trusting a lot of things I see in the financial markets these days, and I wonder what happens when the music stops and people have to deal with real money instead of the funny money from the Fed.