The US Treasury 10Y-2Y yield curve steepened after Biden’s inauguration as President, a sign of economic optimism. Then reality began to dawn when inflation began to surge (blue line). Then The Fed stepped in to combat inflation by signaling an increase in their target rate (green line). The result? The 10Y-2Y Treasury curve is inverted at -4.85 BPS, generally an indicator of an impending recession.
But never fear! The Feral Reserve is expected to reverse its rate increases by March 2023.
So, it looks like The Fed will be returning to its “low rider” rate policies in early 2023.
Take the US U-3 unemployment rate. The Biden Administration is proud of the unemployment rate of 3.6%. But if you look at the chart of unemployment relative to The Fed’s balance sheet expansion due to Covid lockdowns, there is still almost $9 trillion of Fed stimulus outstanding.
Of course, the lockdowns were pure economy killers, so opening the economies again led to the unemployment rate falling to 3.6% which is still higher than before the Covid outbreak. But The Federal Reserve has been painfully slow at shrinking its balance sheet, leaving almost $9 trillion in monetary stimulus outstanding.
Take average hourly earnings growth. The media is all smiles as US wage growth declined to 5.1%, much higher than pre-Covid.
Then we have inflation, at 40-years highs thanks to massive Fed stimulus (and Federal spending).
And if we deduct inflation from average hourly wage growth, we see REAL wage growth declining at a -3.25% YoY clip.
Lastly, we have the US Dollar. Nothing has been the same since the financial crisis of 2008 and the entrance of The Federal Reserve distorting the economy and prices. Not to mention the US Dollar.
The Fed leaving its monetary stimulus out in force for so long is a major policy error. So what happens when The Fed actually gets serious about withdrawing the monetary stimulus (likely after the midterm elections)?
Well, this is one way to get inflation under control … crash the economy. And inflation fears growing, we are seeing mortgage rates declining and mortgage applications increasing.
Mortgage applications decreased 5.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 1, 2022. This week’s results include a holiday adjustment to account for early closings the Friday before Independence Day.
The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 17 percent lower than the same week one year ago.
The Refinance Index decreased 8 percent from the previous week and was 78 percent lower than the same week one year ago.
Hey, I thought Mayor Pete Buttigieg, the US Transportation Secretary, was supposed to unclog the supply-chain crisis! Instead, we get heartaches on heartaches as diesel prices rise 118% under Biden AND now the bottle-necks may get a lot worse.
A US Supreme Court decision that could force California’s 70,000 truck owner-operators to stop driving is set to create another choke point in already-stressed West Coast logistics networks, a truckers’ organization said.
“Gasoline has been poured on the fire that is our ongoing supply-chain crisis,” the California Trucking Association said in a statement following the Supreme Court’s decision to deny a judicial review of a decision of a lower court, a process known as certiorari.
“In addition to the direct impact on California’s 70,000 owner-operators who have seven days to cease long-standing independent businesses, the impact of taking tens of thousands of truck drivers off the road will have devastating repercussions on an already fragile supply chain, increasing costs and worsening runaway inflation,” the CTA said.
The association asked the Supreme Court for a review of a case challenging California’s Assembly Bill 5, a law that sets out three tests to determine whether a worker is an employee entitled to job benefits or an independent contractor who isn’t. The trucking industry relies on contractors, and has fought to be exempt from state regulations for years because of federal law.
With few exceptions, the relationship between independent truckers and their carriers, brokers and shippers will be governed by the tests.
As if US consumers aren’t getting crushed by rising prices already. In response to the Covid outbreak, The Fed slammed its foot on the money accelerator along with Federal government stimulus. Throw in Biden’s anti-drilling executive orders, and we have a nightmare.
Consumer confidence is already crumbling under inflation and rising energy prices.
As The Fed raises rates in their attempt to wrangle inflation, we are seeing an about-face in the US housing market.
The pandemic-related Fed monetary stimulypto begat a housing boom that is careening to a halt as the fastest-rising mortgage rates in at least half a century upend affordability for homebuyers, catching many sellers wrong-footed with prices that are too high. It’s an astonishing turnaround. Just a few months ago, house hunters felt pushed to make offers within days, waive inspections and bid way above asking. Now they can sleep on it and maybe even shop for a better deal.
It doesn’t mean real estate is heading for a crash on the order of 2008. But when a market reaches these heights, even a drop toward normalcy will feel steep. And of course, a recession could make everything worse.
Dallas, Phoenix AZ and Las Vegas NV are leading in the price-slashing derby.
Crypto markets have slumped, adding to a decline that has wiped away some $2 trillion of market value and left market participants uneasy heading into the long Fourth of July weekend.
Bitcoin has fallen below $20,000 as the US Dollar strengthens.
At least Dogecoin is up today.
Enjoy your expensive 4th of July weekend! As long as you don’t eat much due to expensive food prices or drive anywhere due to high gasoline prices.
And government bonds on course for worst year since 1865 and President Abraham Lincoln (then President Andrew Johnson).
Which is bad news for Biden and Democrats after Q1’s bad GDP report of -1.6% “growth”, we now see the Atlanta Fed’s real-time GDP report for Q2 at -2.1%.
No, not the Claus von Bülow kind of reversal of fortune where has was accused of killing his wife. But this murder is coming from The Federal Reserve hiking interest rates even when they know that doing so could lead to a recession. And Biden’s anti-fossil fuel energy policies.
And investors in the Fed Funds Futures market see The Fed changing its rate-hiking ways in February 2023.
Inflation is what is killing the US economy and millions of households. Financially speaking.
And Biden’s approval ratings are sinking faster than The Titanic. In other words, he’s just killing us.
And then we have turbulence in the housing market as Fed intentions are driving up mortgage rate which helped listings with price reductions at 98.2% YoY.
Biden’s energy policies plus The Fed’s war on inflation will result in an economic reversal of fortune.
Confounded Interest - Anthony B. Sanders 
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