Don’t kid yourself. The talking heads at The Federal Reserve (more like Feral Reserve) are only about halfway there in terms of rate hikes. There is still over $8 trillion in monetary stimulus sloshing around the economy.
The Taylor Rule implies a target rate of 10.12% while the current target rate is just over half that rate at 5.25%. A little over halfway there and The Fed is likely to pause rate hikes.
Of course, Yellen and Powell think The Taylor Rule is a pork roll product from Trenton, New Jersey.
So much for Biden’s “miracle economy.” Challenger jobs cuts report is out for May and job cuts soared 286.7% year-over-year (YoY). As M2 Money growth crashes.
Worsening conditions in the US mortgage-backed securities market are doing little to ease fears over financial contagion as a recession looms.
MBS current-coupon yield spreads over Treasuries are near the highest level since 2008 subprime crisis, as economic and political concerns weigh on performance, Erica Adelberg, a Bloomberg Intelligence strategist, wrote in a BI Chart Book. Mortgage-related exchange traded funds are seeing outflows, even as bond funds as a whole enjoy inflows. Applications for loans are near 25-year lows as the housing market languishes.
Use the GP tool for charting and run BI to search for research, data and chart books.
The top panel shows nominal current-coupon yield spreads are back near decade highs, surpassing those seen in the fourth quarter and reaching peak levels from the pandemic panic in March 2020. The bottom panel shows option-adjusted spreads are also wide, trading near two standard deviations of the average level, though slightly more in line than nominals, Adelberg wrote.
Primary mortgage rates are approaching historic highs versus Treasuries too.
Both the secondary mortgage spread to Treasuries (white) and the primary mortgage spread to secondaries (blue) have blown wider. That has increased the total spread between 30-year-fixed consumer mortgage rates and 10-year Treasuries (pink) to near financial-crisis levels.
Elevated spreads could make it harder for borrowers to find rate relief, even if Treasuries rally and secondary mortgage spreads tighten, Adelberg wrote.
Mortgage ETFs saw marginal outflows while bond funds as a whole continued to see inflows. To monitor ETF flows:
Flows into US aggregate bond ETFs are mostly positive this year, as investor demand has improved on higher yields. Agency MBS-specific ETF flows, however, are more muted, Adelberg wrote.
Loan applications remain near all-time lows, showing no signs of life yet.
Loan applications for refinancings and purchases are near 25-year lows as housing-market activity is still depressed, and most refinancings are uneconomical at current rates, Adelberg wrote. The 30-year fixed mortgage contract rate hovers around 6.7%.
Activity in the existing-home market continues to wane.
Single-family existing-home sales in April fell 3.5% month-over-month and are down more than 20% from a year ago. Existing-home median prices continued to decline as well, seeing their largest year-over-year drop since early 2012, though this may partly reflect the mix of homes purchased. Low existing homes for sale, with many homeowners locked into low-rate mortgages, are depressing resale activity.
MBS spreads may remain under pressure until the economic and inflation outlooks become more optimistic, Adelberg wrote on May 31.
Well, Biden and McCarthy have agreed in principle to a budget revision, raise the debt ceiling and avoid a US debt default. The Uniparty strikes again! No restraint of reckless Federal spending t speak of . The big donor class wins and middle class Americans lose.
Mike Shedlock (aka, Mish) makes a good point: the US is already in recession if we look at GDI (gross domestic income) rather than GDP (gross domestic product). The US has already declined two consecutive quarters in terms of negative GDI growth.
White House and Republican negotiators tentatively narrowed differences but were still clashing Friday on key issues as the Treasury Department signaled extra time was available before a potential US default.
Treasury Secretary Janet Yellen announced the department expects to be able to make payments on US debts up until June 5 if lawmakers fail to act on the US debt ceiling. That set a more pointed date for a potential default but is also four days later than her previous comments eyeing trouble as soon as June 1.
The new so-called X-date buys negotiators for House Speaker Kevin McCarthy and President Joe Biden more time to strike a deal. The negotiating teams haven’t met in person since Wednesday but spoke late into the night Thursday and were in regular communication throughout the day Friday.
Yes, there isn’t really a crisis folks. Treasury collects tax dollars continuously so Treasury can prioritze debt payments and other disbursements. The only crisis is in the minds of the media.
Deputy Treasury Secretary Wally Adeyemo warned Friday that payments to Social Security beneficiaries, veterans and others would be delayed if there’s a default. But he said he’s gaining some confidence an agreement will be reached.
We’re making progress and our goal is to make sure that we get a deal because default is unacceptable,” Adeyemo said in an interview on CNN. “The president has committed to making sure that we have good-faith negotiations with the Republicans to reach a deal because the alternative is catastrophic for all Americans.”
The accord would also include a measure to upgrade the nation’s electric grid to accommodate sham renewable energy, a key climate goal, while speeding permits for pipelines and other fossil fuel projects that the GOP favors, people familiar with the deal said.
The deal would cut $10 billion from an $80 billion budget increase for the Internal Revenue Service that Biden won as part of his Inflation Reduction Act (big whoop). Republicans have warned of a wave of agents and audits while Democrats said the increase would pay for itself through less tax cheating.
What is taking shape would be far more limited than the opening offer from Republicans, who called for raising the debt ceiling through next March in exchange for 10 years of spending caps. House conservatives were already balking Thursday at the notion of a small deal, with the House Freedom Caucus sending a letter to McCarthy demanding he hold firm.
Treasury’s cash balance is at a low point and The Administration threatens Social Security recipients and veterans of delayed payments … while Biden goes on vacation for Memorial Day weekend to honor veterans??
Of course, Yellen know that all The Fed has to do to increase M2 Money growth again.
Meanwhile, bankrupties among large companies are highest since 2010.
In the mortgage market, current coupon nominal spreads 9Agency MBS 30Y coupon over Treasuries) are soaring.
Meanwhile, to honor US veterans, Biden goes on Memorial Day weekend and threaten veterans with delays in veteran benefits. Sigh.
Is Joe Biden REALLY Reverend Kane from Poltergeist II??
So much for Treasury Secretary Janet Yellen’s proclamtion that inflation is transitory and would subside to under 2%. April’s core inflation (PCE Deflator) rose to 4.7% YoY. Despite M2 Money growth crashing to -4.6% YoY.
Today’s Fed Funds Futures data is pointing to another rate hike or two.
With Core PCE at 4.7%, the Taylor Rule suggested Fed Funds Target rate is now 10.57%. So, The Fed is only about half way there.
Damn it, Janet, people are suffering from the ravages of inflation and you laugh.
Biden has a line on you! And it isn’t good. More like we are fish being caught and eaten by Washington DC bureaucrats.
Another example of Biden’s dismal economy. US pending home sales plunged -22.6% YoY in April. Even worse, REAL weekly wage growth has been negative for 23 straight months!
What happened to Biden? He used to be a “reasonable” Senator (reasonable for a racist Democrat, that is), willing to negotiate with the opposition on budgetary issues and the debt ceiling. Now we have “Progressive Joe” who is acting like crazy Progressive Congresswoman Pramila Jayapal from Seattle. {Aka, Seattle’s Worst!} But his newly found Progressive identiy is leading down a terrible path. Rating agencies are putting the US of credit watch because of Biden’s newly found Progressive back bone. (Progressive means progressing towards full blown Communism).
Ratings company warns on worsening political partisanship
US AAA ratings on review with negative implications at DBRS
The tension around the US debt-limit negotiations ratcheted up after Fitch Ratings warned the nation’s AAA rating was under threat from a political standoff that’s preventing a deal.
Fitch may downgrade its assessment to reflect the increased partisanship that is hindering a resolution despite the fast-approaching so-called X date, it said, referring to the point at which Washington runs out of cash. It moved the US to “rating watch negative” under its classification. Meantime, DBRS Morningstar placed the US ratings of AAA under review “with negative implications.”
Markets have been showing increasing nervousness over the standoff, with Treasury-bill yields slated to mature early next month surging past 7%, while the S&P 500 Index has declined for two days. Economists project a US default could trigger a recession, with widespread job losses and a surge in borrowing costs.
Fitch’s warning “underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy,” said Lily Adams, a spokesperson from Treasury.
Biden’s childish refusal to reduce his insanely huge budget (crammed with pork for large donors and Progressives) is causing ripples to be felt overseas. Look look at the Japanese Yen.
Pramila Jayapal, Joe Biden’s intellectual soulmate.
I have gotten a flood of emails and text messages asking about what happens if Biden defaults on the US debt. In short, Biden has made a career out of spending money, as has Speaker McCarthy. They both have an incentive to raise the debt ceiling, but whether it is cuts to Biden’s insane budget (higher than Covid-era spending) and wants to raise taxes on the middle class to pay for it. McCarthy wants a trimmed budget (aka, back to pre-Covid spending levels) and NOT raises taxes. They will eventually agree somewhere in the middle (US Congress member Pramila Jayapal will be outraged, but then again, she is ALWAYS outraged like Senator Elizabeth Warren) and AOC.
The Federal Reserve has taken a brief respite from fighting inflation that they helped cause. But with $188 TRILLION in unfunded entitlements promised by politicians, The Fed will undoubtedly start buying assets again (aka, QEInfinity) and the debt ceiling will keep being raised. In essence, the DC merry-go-round is broken and politicians will keep pushing it around until it collapses.
For the moment, The Federal Reserve is reducing M2 Money (green line). With it, the US Dollar (blue line) has declined. Gold (white line fever) is on the rise along with The Fed’s effective funds rate.
WTI crude is up over 1% this AM. And gold is up 2.29%. Heating oil is up 3.56%.
Face it, I have no confidence in Treasury Secretary Janet Yellen, one of the biggest propronents of MMT (modern monetary theory or borrow and spend without consequences). Yellen is NOT making lose my blues.
Remember when former Fed Chair and current Treasury Secretary Janet Yellen said that inflation was transitory? As usual, Yellen was wrong. Look at April’s new home sales. Up 4.1% since March even through M2 Money growth has collapsed.
The Taylor Rule, based on Core CPI of 5.25% (persistent, not transitory inflation Janet) suggest a Fed target rate of 11.78%. The Fed is at 5.25% and likely to pause rate hikes and maybe even lower rates again.
Confounded Interest - Anthony B. Sanders 
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