Raging US inflation is resulting in Federal Reserve monetary tightening, causing the 30-year US mortgage rate to hit it highest level since November 2008 (the beginning of Fed Quantitative Easing). Bankrate’s 30-year mortgage rate just hit 6.28%, the highest rate in 14 years.
The Biden Administration will be remembered for crippling inflation, the highest in 40 years AND the highest mortgage rate in 14 years.
And with Fed chatter about hiking rates, Dr T (me) predicts pain for the mortgage market.
According to the Committee for a Responsible Budget (what a misnomer for insane-spending Congress and the Biden Administration), the Biden Administration has just approved $4.8 TRILLION in new Federal borrowing, leading to an increase in the budget deficit of another $4.8 TRILLION.
With a Democrat majority in The House, and VP Harris with the tie-breaker in the Senate, it is hardly surprising that Democrats have gone on a legendary spending spree which has helped drive inflation to 40 year highs.
Particularly since Fed monetary policy and “green” spending has resulted in a seismic shift in wealth towards the 1% under Obama and Biden.
The Philadelphia Fed Business Outlook fell almost -10% in September as The Federal Reserve tightens monetary policy.
On a related note, the share of total net worth held by the bottom 50% in the US (red line) was always higher than the share of total net worth held by the top 1% (blue line) … until The Federal Reserve began QE in late 2008. Under Obama, the top 1% surpassed the bottom 50% in terms of share of total net worth. it equalized under Trump and before Covid. Then the massive QE (and surge in Federal spending) to battle Covid seemingly made the rich even richer and the bottom 50% even poorer. This is Biden’s America … massive Federal subsidies to the wealthy, crumbs for the bottom 50%.
US mortgage applications dropped to the lowest level since 1997. I wonder if President Biden will invite boring crooner James Taylor back to the White House to sing about the collapsing mortgage market? Perhaps he can sing “Shower The People” and change the lyrics to “Shower ON The People.”
Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 9, 2022. This week’s results include an adjustment for the observance of Labor Day. The Refinance Index decreased 4 percent from the previous week and was 83 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 0.2 percent from one week earlier. The unadjusted Purchase Index decreased 12 percent compared with the previous week and was 29 percent lower than the same week one year ago.
The Bankrate 30-year mortgage rate is now at the highest level since 2008 at the advent of Fed’s QE.
REAL average hourly earnings growth remain in the toilet at -3.06% YoY.
Fuel oil used to heat homes rose 68.8% YoY. Food at home rose 13.5% YoY while rent (shelter) rose “only” 6.2% YoY. Wow, renters are REALLY getting the short-end of the stick from The Fed and the Biden Administration!!
New vehicles are UP 10.1% YoY. Good luck buying those “cheap” electric cars that Mayor Pete Buttigieg trumpets! And wait for the bill when the battery needs to be replaced!!!
The Federal government reaction to the Covid outbreak in early 2020 included massive monetary stimulus, Federal government spendathons and Biden’s green energy policies have resulted in a sizzling 8.5% inflation rate (update on Monday morning).
The problem is that The Federal Reserve is far behind the inflation curve with their target rate at only 2.5%. And The Fed’s balance sheet remains near $9 TRILLION in assets held.
In Euroland, we are seeing a similar problem (Frankfurt, we have a problem!). The Eurozone inflation rate is at 9.1% while their version of The Fed Funds Target rate is only 0.75%, a large catch-up gap.
If we look at the Taylor Rule for the US using headline inflation, we see that The Fed needs to raise their target rate to … 21.72% to crush inflation.
In Euroland, the problem is similar. At 9.10% inflation, the ECB will have to raise their version of The Fed’s target rate to 16.80% to combat inflation. As if that will happen in either the US or Euroland.
On a different note, is it my imagination or does US Democrat Senate candidate from Pennsylvania John Fetterman look like the alien from the flick “Battleship”?
Joe Biden is the king of malaprops. But his press secretary is just as bad as her boss. Recently, she said that under Biden, there were 10,000 million jobs created. Better known as 10 BILLION jobs created. Not bad, considering that the total population of the US is 333 million. THAT is a hot labor market! /sarc
But seriously, the US U-3 unemployment rate is 3.7% in August, the lowest since Donald Trump was President and BEFORE the Covid outbreak. The Covid economic shutdown saw a surge in the unemployment rate to 14.7% in April 2020 that begat a huge spike in M2 Money growth (22% YoY in May 2022 (green line). Only now is M2 Money growth returning to Trump-era growth rates.
But as The Federal Reserve removes its hefty monetary stimulus, it is unlikely that the unemployment rate will remain low.
In defense of Biden’s press secretary, the US economy saw 10.247 million jobs added under Biden (although while technically correct, even MSNBC wouldn’t give Biden credit for job creation in his first several months as President. Check that. They probably would.
April 2020 saw a decline in US jobs of -20.493 million jobs thanks to the Covid economic shutdowns. BUT with the M2 Money surge, we saw +12.1 million jobs added between May and November 2020 under Trump. Then the US elected China Joe (or Beijing Biden) as President.
The economic shutdowns due to Covid were an economic disaster for millions. But the surge in M2 Money (supporting the various Federal spending programs and inflation) explains the surge in jobs added, not economic wizardry of Biden.
For some reason, Biden and his press secretary failed to mention that inflation is so bad that REAL average hourly earnings YoY are declining at a 3% pace.
And not surprisingly, job growth has accrued to big corporations and not small businesses.
Thanks to Federal Reserve increases in their target rate, the 30-year mortgage rate has risen above 6%.
What drives me crazy about The Fed is their failure to removed monetary stimulus following the financial crisis of 2008 when they dropped their target rate to 25 basis points (0.25%) and began assets purchases (orange line). The Fed raises their target rate only once during Obama’s Presidency but then raised rates 8 times after Trump was elected President.
Now we are seeing The Fed NOT shrinking their balance sheet in a meaningful way. However M2 Money growth YoY (green line) has slowed to 5.2%.
While it is a good thing that The Fed is FINALLY reducing some of the monetary stimulus in place since 2008, the bad thing is that mortgage rates are rising rapidly.
The Fed’s quantheads are predicted to resume easing in March 2023.
Confounded Interest - Anthony B. Sanders 
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