Renters in the US are getting clobbered by inflation.
The US Zillow Rent Index All Homes YoY + CPI YoY is one measure of renter misery.
The classic misery index (CPI YoY + U-3 unemployment rate) is 10.80%.
Then there is inflation in food prices, gasoline, heating oil, natural gas, etc.
While Biden is releasing the Strategic Petroleum Reserves (SPR) in order to mitigate the problem that he created by terminating the energy pipelines and oil/natural gas drilling permits in the name of “Going Green!” But on the announcement of tapping the SPR, crude oil futures actually rose.
President Biden nominated Jerome Powell for a second term as Fed Chair and nominated Lael Brainard as Deputy Chair to replace Richard Clarida. The US House of Overlords (aka, the US Senate) will hold hearings on the nominees (with Elizabeth Warren opposing Powell and supporting Brainard’s nomination).
Treasury yields jumped and U.S. index futures signaled a continued selloff in technology shares as traders pruned bets for a dovish-for-longer Federal Reserve after the renomination of Jerome Powell as its chair.
Contracts on the Nasdaq 100 Index fell 0.3% after Monday’s last-hour selloff in technology stocks. The subgroup was the worst performer in Europe Tuesday, sending the region’s benchmark to a three-week low. A currency crisis deepened in Turkey, with the lira weakening past 13 per U.S. dollar. Zoom Video Communications Inc. lost 9% in premarket trading on slowing growth.
Investors are reducing expectations for a deeper dovish stance by the Fed after Powell was selected for a second term. The chair himself sought to strike a balance in his policy approach saying the central bank would use tools at its disposal to support the economy as well as to prevent inflation from becoming entrenched.
Fed rate hike premium is added after Powell confirmed as next Fed Chair:
Change in Fed’s interest-rate target implied by overnight index swaps and eurodollar futures.
Fed Bank of Atlanta President Raphael Bostic said Monday the U.S. central bank may need to speed up the removal of monetary stimulus and allow for an earlier-than-planned increase in interest rates.
Translation: Markets are pricing in MORE hawkish Powell over uber-dove Brainard. The 10-year Treasury yield has risen from 1.52% to 1.65%
And the 10Y-3M Treasury curve has risen from 83 basis points at the beginning of 2021 to 160 basis points today. I will this the Biden Inflation Effect (BIE).
Let’s see if Powell & Company deliver on removing the excessive stimulus from the market, particularly with midterm elections approaching.
Welcome to The Fed’s Gilded Age … for housing! The gilded age refers to the thin-veneer of gold covering up problems in the late 1800s.
Today’s gilded age is largely fueled by The Federal Reserve’s uber-easy monetary policies combined with absurd Federal government policies. The result? Thanks to inflation, REAL home prices are growing at 14.6% YoY while REAL hourly earnings are declining (-0.41% YoY).
Redfin predicts a more balanced housing market in 2022. Part of their rationale is that they predict mortgage rates will rise to 3.6%. This growth in the mortgage rate is predicted to slow home price growth to 3.2% from double digit growth currently.
While this scenario is plausible, it will require a change in direction of the 10-year Treasury yield which has been declining since 1981. 5.39% YoY inflation may encourage The Fed to raise rates.
Today’s REAL 30-year mortgage rate is -3.08% while the REAL 10-year Treasury yield is -4.67%. It will require a reduction in inflation AND an increase in the nominal rate to get to 3.6%.
With the Freddie Mac 30-year survey rate at 3.10, will a 50 basis point increase in mortgage rates send the market crashing? Not likely.
After all, the US economy is under the thumb of The Federal Reserve.
The Marty Stuart/Travis Tritt song “This One’s Gonna Hurt You (For A Long, Long Time)” seems appropriate for the plight of the middle and lower income classes in the face of high inflation. How do you spell the combination of President Biden’s policies and The Fed’s inaction on inflation? T-R-O-U-B-L-E … for the middle and lower income classes.
Over the past year, since the election of Joe Biden, the household consumption bundle (food, rent, heating, gasoline) have all risen dramatically in terms of prices. Food is up 33%, heating oil is up 89%, regular gasoline is up 61%, and effective apartment rents are up 33%.
Meanwhile, the 1% are sitting high on a mountain top obvious to the pain caused by The Federal Reserve and Biden Administration. Here is the growth in wealth by the 1% since the housing bubble burst and financial crisis compared with the bottom 50%.
A problem facing renters is the rapid growth of home prices particularly since the COVID epidemic. At least M2 Money has “slowed” to 12.80% YoY while home prices are raging at almost 20% YoY. But hopefully home price growth will slow with declining M2 growth.
Compendium of Fed Chair Jerome Powell and President Biden on vacation.
Is the US at full employment? That is, is the US at REALISTIC full employment? And if the US is at realistic full employment, why is The Federal Reserve keeping rates at 25 basis points??
Let’s start with the “quits” data. An estimated 3% of American workers quit their jobs in September, the Bureau of Labor Statistics reported last week.1That’s the highest percentage since the BLS started keeping track two decades ago.
Front-line and low-wage workers are leaving at rates higher than historical norms while higher-paid office workers aren’t. College-educated workers haven’t been quitting or dropping out of the workforce at higher rates than before the pandemic, but less-educated workers have.
The quits rate in professional and business services was just 0.4 percentage points higher in September than before the pandemic in February 2020. In financial activities it was unchanged. In the information sector, made up of telecommunications, publishing, broadcasting, motion pictures, software and most internet companies, the quits rate was down 0.3 percentage points.
The biggest increases in quit rates were in sectors such as leisure and hospitality where office workers are few, working remotely seldom an option and wages low. Within manufacturing, the quits-rate increase has been much bigger in lower-paying nondurable goods (of which food manufacturing is the biggest part) than in higher-paying durable goods.
In particular, fast food restaurants are offering above minimum wage salaries to attract workers. Burger King was even offering college tuition (not to University of Chicago, but to the local community college).
Labor force participation crashed with COVID and has struggled to recover, despite the staggering monetary stimulus. If this a sign that the US is at full employment (or very difficult to entice workers to enter and stay in the labor force)?
US housing starts for October were less than expected. A 1.5% increase MoM was expected, but housing starts actually fell -0.7% MoM.
5+ unit (multifamily) starts were up 6.82% MoM. 1-unit single family detached units were down -3.89% MoM. Permits to build were up 4% MoM.
On a YoY basis, 1-unit start declined -10.6% as M2 Money growth continues to fall.
And 1-unit housing starts have fallen with the rapid decline in home buying sentiment.
1-unit starts have slowed to pre-COVID levels, thanks in part to The Federal Reserve’s money printing bonanza which may never end.
As housing sentiment crashes (due to rapid home price growth), we are seeing the demand for multi-family housing rise. 5+ unit (multifamily) starts were up 6.82% MoM in October.
Highlights for Children has a popular segment called “What’s Wrong With This Picture?”
I give you my economics version of “What’s Wrong With This Picture?” It features The Federal Reserve’s M2 Money year–over-year compared with Real Average Weekly Earnings year-over-year.
Yes, M2 Money growth has “slowed” to 12.8% YoY while US Real Average Weekly Earnings YoY is now -1.6%. In other words, while M2 Money is still growing at a rapid pace, real weekly earnings growth is NEGATIVE.
The Fed continues to pump money into a bottle-necked economy while The Federal government pays people NOT to work.
The US Senate has a plan to fix the problem: Biden has nominated Saule Omarova, a dingbat law professor from Cornell (alma matter for The Office’s Andy Bernard), who proposes the following:
(1) Moving all bank deposits from commercial banks to so-called FedAccounts at the Federal Reserve;
(2) Allowing the Fed, in “extreme and rare circumstances, when the Fed is unable to control inflation by raising interest rates,” to confiscate deposits from these FedAccounts in order to tighten monetary policy;
And Ohio Senator Sherrod Brown (D-of course) thinks there is NO MORAL HAZARD PROBLEM with The Fed confiscating bank deposits for its own use?????
If I was attending Omarova’s confirmation hearing, my verdict would be ..
Nothing has been the same since the housing bubble of the 2000s, the resulting banking meltdown and the takeover of the economy by The Federal Reserve.
And since the 2000s housing bubble and financial crisis, The Federal Reserve has taken control of the economy resulting in M2 Money Velocity crashing to historic lows.
Wu-Xia employs an approximation that makes a nonlinear term structure model extremely tractable for analysis of an economy operating near the zero lower bound for interest rates. It can be used to summarize the macroeconomic effects of unconventional monetary policy (ZIRP + QE). The Shadow Rate is now -1.7021%.
And you wonder why we have inflation and house prices going into orbit?
With inflation also going into orbit, we see that breakeven 10 year inflation rate rising above the 5Y5Y (nominal forward 5 years minus US inflation-linked bonds forward 5 years). In other words, the US has abnormally high inflation and is expected to grow and NOT be transitory.
The Shadow knows … that the US is hyperstimulated. And inflation isn’t going away anytime soon.
Combine vaccine mandates that lower the workforce and the flood of economic and monetary stimulus by the geniuses in Washington DC, and we have a Thanksgiving problem.
Supplies of food and household items are 4% to 11% lower than normal as of Oct. 31, according to data from market-research firm IRI. That figure isn’t far from the bare shelves of March 2020, when supplies were down 13%.
For grocery shoppers this holiday season, it means that someone with 20 items on their list would be out of luck on two of them.
Although U.S. supermarket operators started purchasing holiday items early, aiming to avoid shortages, many holiday essentials are already in short supply.
Turkeys are very low in stock. By the end of October turkeys were over 60% out of stock—lower than the same time last year by more than 30 percentage points. A spokesperson for Butterball LLC, one of the largest U.S. turkey processors, said the company has been experiencing similar labor and supply challenges as other organizations and industries.
Even if you can find a turkey, prices on foodstuffs in general are up 36% from last year.
And to get to the grandparents’ house of Thanksgiving, gasoline prices (regular) are up 24.5% from last year.
Biden could lower inflation by 1) stop mandating vaccines, 2) stop shutting off energy pipelines and oil exploration, 3) stop spending trillions of dollars other than Social Security, Medicare and defense.
Frankly, Thanksgiving has gotten so expensive due to Biden’s Reign of Error that I am thinking of alternatives to turkey. Like a Jersey Mike’s turkey and provolone sub.
Confounded Interest - Anthony B. Sanders 
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