Slowing! US Personal Consumption Expenditures Drop To 0.2% MoM In May As PCE Deflator Hits 6.3% YoY (US Mortgage Rates Slip to 5.7%, the First Decline in Four Weeks)

The US economy is slowing as inflation ravages consumers. US Regular Gasoline prices, for example, are up 104% under President Biden which helps to slow the economy.

US personal consumption expenditures fell to +0.2% MoM in May as “inflation” or real personal consumption expenditures PRICES rose +6.3% YoY as The Fed’s balance sheet (aka, Master Blaster!) remains.

As I mentioned above, US regular gasoline prices are UP 103% under President Biden, diesel prices (the cost of shipping goods to markets like … food is up 119% under Biden while CRB foodstuffs is up 55% under China Joe.

Now we have mortgage rates in the US falling for the first time in four weeks. The average for a 30-year loan was 5.7%, down from 5.81% last week, Freddie Mac said in a statement Thursday.

This year’s Fourth of July celebration is going to cost 18% more than last year’s celebration.

Lastly, the Atlanta Fed GDPNow real time tracker for Q2 is showing … -1% GDP “growth.”

So, yes, the US economy is slowing.

Fed Is ‘Just at the Beginning’ of Raising US Rates, Mester Says, MBA Mortgage Purchase Applications Drop -21% WoW As Rates Rise (Mester Channels The Carpenters)

Cleveland Fed’s Mester is channeling The Carpenter’s song “We’ve only just begun … to raise rates.”

Financial markets are anticipating what Mester is saying: rapidly rising interest rates. But as you can see from the following chart, gasoline prices (orange line) are driving rising US prices. So it is doubtful that monetary tightening will slow price increases. But Mester and company can only control monetary stimulus.

Mortgage rates have soared as The Fed attempts to crush inflation. And mortgage purchase applications fell -21% WoW in the most recent Mortgage Bankers Association survey.

The Refinance Index increased 2 percent from the previous week and was 80 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 0.1 percent from one week earlier. The unadjusted Purchase Index decreased 21 percent compared with the previous week and was 24 percent lower than the same week one year ago.

It almost seems like Mester is following the Taylor Rule (not really). But using CPI YoY, the Taylor Rule is saying that The Fed Funds Target Rate should be … 22.10%. It is only 1.75% after years of excessive stimulus following the banking crisis of 2008/2009. And Yellen who seemingly never met a rate hike that she liked.

If we use core PCE as our measure of inflation, the Taylor Rule is still high at 13.25%, a whopping 11.50 spread over the current target rate.

Will The Fed drive up rates and risk a recession ala Paul Volcker? Are we sitting on top of the world or about to get fried?

Bear in mind that gasoline prices are up 104% under the Biden Administration and mortgage rates are up 105%.

The Thrill Is Gone! Richmond Fed Index Plummets To Covid-era Levels (Conference Board’s Consumer Confidence Falls Below 100) As Fed Withdraws Stimulus

It took a while and trillions in fiscal and monetary stimulus to recover from Covid-era economic lockdowns, but now that the monetary stimulus is being withdrawn, the economy is stalling.

If you look at the chart below, you can see that “The Thrill Is Gone” from monetary and fiscal stimulus.

And The Conference Board’s Consumer Confidence Index fell below 100 as M2 Money Stock YoY returns to pre-Covid levels.

You are gonna have to face it, we’re addicted to gov (stimulus).

Blitzkrieg Bop! ECB to Activate First Line of Defense in Bond Market July 1 (Lagarde Calls For Monetary Maginot Line) WIRP Forecasts US Rate Hikes Until March 2023, Then Declining Rates

The ECB is planning on a Blitzkrieg Bop, monetary style.

When Lagarde talks about the first line of defense, all I can picture is The Maginot Line in France, a failed defensive line that was easily bypassed by the German Wehrmacht (army).

The European Central Bank will activate the bond-purchasing firepower it’s earmarked as a first line of defense against a possible debt-market crisis on Friday, according to President Christine Lagarde.

Applying “flexibility” to how reinvestments from the ECB’s 1.7 trillion-euro ($1.8 trillion) pandemic bond-buying portfolio are allocated is aimed at curbing unwarranted turmoil in government bonds as interest rates are lifted from record lows to curb unprecedented inflation.

Net buying under a separate asset-purchase program is also set to end on Friday.

In other words, Euro-area inflation has exploded in 2021, just like the USA.

But the US also has an inflation problem caused in part by Covid and the government’s reaction to Covid: economic shutdown and massive Federal monetary and fiscal stimulus. The stimulus is still in play.

The bond market is already anticipating an about-face by The Federal Reserve (implied overnight rate peaking at the March 2023 FOMC meeting, then receding.

Again, nothing has been the same since the Covid outbreak of 2020 and Fed monetary blitz. Here is the US Dollar Swaps curve before Covid (yellow line) and today’s Fed-enhanced curve (green).

Mortgage rates in the US have climbed to 6% then backed-off slightly. The good ole Back-off Boogaloo as The Fed attempts to unwind its monetary stimulypto.

The French Maginot Line, easily bypassed by German tanks. The Federal Reserve is the US’s Maginot Line. The Yellenot Line??

Alarm! Fed’s Bullard Says US Recession Fears Overblown With Consumers Healthy (My Response In One Chart: REAL Average Wage Growth At -3.34% YoY, Real GDP Growth At … 0%)

Alarm!

No problemo, says James “Bully” Bullard, President of the St Louis Federal Reserve. Bullard said that US recession fears are overblown with consumers “healthy.”

Really Jim?

Inflation is so bad they REAL average hourly earnings growth keeps falling and is now -3.34% YoY.

Apparently, real GDP growth of ZERO doesn’t bother Bullard either.

Apparently, we are still Under The Thumb of The Federal Reserve.

Weekend Update! Fed Quantitative Frightening, Growing Recession Likelihood, Mortgage Rates And Gasoline Prices Drop Slightly (Out Of Time?)

The US economy is out of time.

As a recession approaches, we are seeing the WIRP implied Fed o/n rate (green line) declining. And with The Fed chickening-out, we saw a surge in equities (NASDAQ composite index in blue).

Gasoline prices are falling too (orange line), but due to rising global economic slowdown. But notice that The Fed’s balance sheet (yellow line) is still growing despite repeated signals that Covid stimulus would be removed (I call this Quantitative Frightening).

As I mentioned above, The Fed has stopped trimming their balance sheet despite signals to the market of getting rid of the Covid stimulus. As Billy Preston sang, “Nothing From Nothing.”

The Atlanta Fed GDPNow Q2 forecast is for … 0% GDP growth despite the massive monetary stimulus and fiscal stimulus from Biden/Pelosi/Schumer.

And yes, the S&P 500 has officially entered a bear market under the leadership of Joe “The Bear” Biden.

So, Biden’s economic agenda (read, just spend more money and inflation declines?) is failing. Hence, The Fed is backing off a bit helping to drive up stock prices.

US markets are addicted to gov.

Four Horsemen! US Consumer Sentiment Plunges To Lowest Level In History (Home Buying Sentiment Falls To Lowest Since 1982) As Inflation And Home Price Growth Rage

What a legacy for Biden/Pelosi/Schumer/Powell, the four horsemen of the inflation apocalypse.

As inflation soars, the University of Michigan Consumer Sentiment index plunged to its lowest level in history.

None of the contributions to consumer sentiment are positive.

The good news? The University of Michigan Buying Conditions for housing only fell to its lowest level since 1982.

Speaking of housing, more than 8 million Americans are late on rent as prices increase.

The four horsemen of the inflation apocalypse.

The DC Stomp! New Home Sales Decline -5.9% YoY, Median Price Rises +42% YoY As Fed Stimulypto Still In Place

The kids running Washington DC are not as sharp as pistols (which they want to take away) when they do the DC stomp.

Thanks to massive Fed monetary stimulus still stalking the housing market, US new home sales rose +10.7% MoM (from April to May), but were down -5.9% YoY (from May 2021 to May 2022) as mortgage rates rose.

Median price of new home sales rose 42% since May 2021, thanks to Fed stimulypto. And Federal government stimulus spending.

Yes, like the predators from the movies, The Fed’s balance sheet is still stalking markets.

Fed Chair Jerome Powell.

Sign Of The Times! US Gasoline Prices Decline To $4.94, Diesel Prices Rise To $5.80 As Recession Fears Mount (Reverse Repos At Fed Hit All-time High)

The talk of a gasoline tax “holiday” out of Washington DC is pure Kabuki theater. It is purely a sign of the times with Biden still trying to blame Putin for rising gasoline prices and inflation and ignoring his anti-fossil fuel policies that helped drive energy prices AND inflation through the roof.

Daily regular gasoline prices have dipped below $5.00 to $4.94 while diesel fuel, the lifeline of the shipping industry, rose slightly to $5.80. I guess the folks shipping food and other goods don’t get a holiday.

Note that the implied Fed target rate has fallen a bit as the probability of a recession increases.

And why are banks stashing so much money at The Fed in the form of reverse repos? Fear of recession, perhaps?

The Biden Administration is settling all kinds of records, and none are good.

Slippin’ Into Darkness! US Mortgage Rates Decline Slightly As Recession Probability Spikes (Will Fed U-turn From Inflation Fighting To Recession Fighting?)

Slippin’ Into Darkness!

Despite what Biden and his muppets say, there is a good chance that the US will slip into recession over the next 24 months. And with that, we are seeing a slight drop in US mortgage rates.

Inflation is surging, and The Fed seems intent on “inflation fighting” but may have to pause that fight the impending recession. This is called a “U-turn” although Powell didn’t mention that is his testimony yesterday.

According to Mortgage News Daily, the 30-year fixed dropped below 6% to 5.88%.

Europe is signaling their u-turn to recession fighting as 10-year sovereign yield have dropped over 10 basis points this morning. Australia and New Zealand are dropping hard as well.

Here is the Federal Reserve’s open market committee deciding on the direction of interest rates … inflation fighting or recession fighting?