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.
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?
Although mortgage rates have been rising quite fast, The Fed’s balance sheet is only being reduced quite slowly, leading to a continuation of the hot, hot, hot housing market.
But the expectation of Fed rate hikes is causing mortgage rates to soar and borrowers are trying to get buy housing before The Fed chokes off rates.
Mortgage applications increased 4.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 17, 2022.
The seasonally adjusted Purchase Index increased 8 percent from one week earlier. The unadjusted Purchase Index increased 6 percent compared with the previous week and was 10 percent lower than the same week one year ago.
The Refinance Index decreased 3 percent from the previous week and was 77 percent lower than the same week one year ago.
So, the housing market remains hot, hot, hot but not mortgage refi applications. But Powell and Company will likely choke-off purchase applications as well.
Today, WTI crude oil futures broke through the $110 barrier.
The WTI Crude crack spread, the differential between the price of crude oil and petroleum products extracted from it, is up 535% under President “I HATE OIL!” Biden and diesel fuel is up 121%.
WTI crude is up 1% today.
“Crack? I thought crack was something that Hunter did!” – Joe Biden
Rising energy prices, rising home prices, rising mortgage rates, declining hope.
But as The Federal Reserve begins to withdraw it Covid stimulus, existing home sales declined -3.39% in May from April.
But like Covid itself, The Fed’s outrageous monetary stimulus is still in place, helping caused median home prices to rise 14.8% YoY. And inventory for sale is rising, but still remains low.
Jointly, Treasury Secretary Yellen and Fed Chair Powell are “Mr Freeze.”
Even since the housing bubble burst and ensuing financial crisis on 2007-2008, The Federal Reserve under Ben “The Savior!” Bernanke, Janet Yellen and Jerome Powell let their zero/low interest rate policies be too low for too long that anyone with common sense knew would lead to serious problems when The Fed was forced (this time by inflation) to end the massive OVER monetary stimulus. We are now living through The Great Reset of the US economy.
Since Biden was sworn-in as President (or El Presidente) in January 2021, 30-year mortgage rates are up 108% to 6%, regular gasoline prices are up 108% to $5 a gallon nationally. Inflation is up to 8.6% YoY.
Bernanke, Yellen and Powell did not follow any rule per se, just a “seat of the pants” panic button approach. Using the Mankiw specification of the Taylor Rule model, the Fed Funds target rate should be 13.25% based on CORE PCE. Notice starting in 2014, The TR suggested target rate started to be higher than the actual Fed target rate. And since the Covid monetary blast of 2020, the gap between the Taylor Rule and Fed target rate (red area) has grown to near the highest level in history. Even now Mohamed A. El-Erian, Chief Economic Advisor at Allianz, is starting to admit that The Fed’s ZIRP policies are beginning to hurt.
But if we use total inflation rather than core inflation, the measure that picks up the actual pain that Americans are feeling from rising gasoline prices and mortgage rate, we get a Fed Target rate of 22.10%. Since The Fed’s current target rate is only 1.75%, The Fed has “Room To Move.”
And in a painful. bad way.
Bernanke, Yellen and Powell must think that The Taylor Rule is the New Jersey ham pork roll.
Sometimes I wonder if The Federal Reserve Board of Governors pays attention to economic news. For example, the Atlanta Fed’s GDPNow forecast for Q2 was released today at -0.002%. So what does The Fed do? They raised their target rate by 75 basis points to 1.75%.
Apparently, The Fed has chosen to fight inflation rather than help the economy.
I just read that President Biden has never been more optimistic about the US economy than he is now.
Well, today’s closing bell is not optimistic and is downright bearish.
The US Treasury 10-year yield rose … ANOTHER … 11.3 basis points as rumors circulate that The Fed might actually raise their target rate by 75 basis points.
And the venerable Dow (DJIA) is down -152 points today.
Markets are anticipating an increase of The Fed Funds target rate from 1% to 1.568%, less than the rumored 75 basis point increase being bandied about.
If Biden is wildly optimistic about the economy, then he needs to get out of The White House and talk to average Americans and not people like Robert De Niro.
Confounded Interest - Anthony B. Sanders 
You must be logged in to post a comment.