Misery! PCE Deflator Rises To 6.8% YoY, Highest In 40 Years As Rents, Food, Gasoline Explode In Price (Taylor Rule Suggests Fed O/N Rate Of 17.78%)

The US economy is like the Stephen King story “Misery.” Except that it is Joe Biden breaking the legs of the consumer with his inflationary policies instead of Kathy Bates breaking James Caan’s legs to prevent him from leaving.

US inflation, based on June’s Personal Consumption Expenditures (PCE) deflator, rose to its highest level since 1982. The PCE Deflator YoY rose to 6.8% while the core PCE deflator (less food and energy, the two things more households care about) rose to 4.8% YoY in June.

In order to fight inflation, The Federal Reserve is going to have to raise their target rate to … 17.78% based on 6.80% PCE deflator YoY. We are currently at 2.50%.

The US Misery Index remains elevated.

Based on the PCE Deflator YoY and U-3 unemployment, the misery index remains elevated compared to before Covid and The Fed’s/Federal government hyper-stimulypto to counter the Covid economic shutdowns. We never fully recovered.

S&P 500 2023 EPS expectations falling off a cliff (orange line).

Here is a video of President Joe Biden trying to help US consumers struggling with inflation.

Consumer Sentiment Remains Very Depressed (University of Michigan Sentiment Index Rises Slightly To A Depressed 51.5 While Buying Conditions For Housing Rose Slightly To A Depressed 47.0)

“A recession is two quarters in a row of negative growth.” — President Clinton, Dec. 19, 2000

My former colleague at Deutsche Bank, Joe Carson, said recently that the US economy is not in a recession, but corporate profits are in a recession. While I cling to the traditional definition of recession (two consecutive quarters of negative real GDP growth), there is another component of the US economy that is in recession: consumer sentiment.

The University of Michigan Consumer Sentiment Index rose slightly in the latest release, but remains depressed at 51.5. University of Michigan Buying Conditions for House also rose to 47.0, also a depressed reading.

While unemployment remains low, the price of gasoline is crushing the wallets of American households helping to cause a recession in consumer sentiment.

Biden feebly attempts to explain why 2 consecutive quarters of negative real GDP growth (better known as contraction) is NOT a recession.

Slipped Into Darkness! The US Economy Slumps Into Recession (GDP Price Growth Worse Than Expected) Stagflation Alert!!

Slipped into darkness!

Despite what the talking heads in Washington DC say, the US economy has officially slipped into recession.

US Real GDP for Q2 slumped -0.9% QoQ, the second straight quarter negative GDP growth. Also, known as RECESSION.

The GDP price index rose more than expected (+8.7% versus the expected +8.0%).

The Federal Reserve is not a friend of mine.

Stagflation???

Alarm! US New Home Sales Plunge -17.4% YoY As Fed Tightens Noose And Recession Alarms Sound (Median Prices Fall -9.47% YoY)

Alarm!

US new home sales plunged -17.4% YoY and down -8.1% MoM in June.

The unsettling bit is the median price of new home sales declining -9.47% YoY.

The midwest was the big gainer in new home sales in June.

Too Much Fed Stimulus! Case-Shiller National Home Price Index Soars At 19.75% YoY In May Thanks To “Slowhand” Powell And The Never-Shrinking Balance Sheet (Red States Soaring Faster Than Blue States)

The housing market is suffering from Too Much Fed Stimulus!

The May Case-Shiller home price indices are out and they’re a doozy. The national home price index rose 19.75% YoY. Why? You can thank The Fed’s “slowhand” approach to withdrawing the Covid-related stimulypto.

Where are home prices booming? Everywhere.

Miami, Tampa, Dallas and Phoenix (red states) are growing at over 30% YoY. Boston, Chicago, Cleveland, Detroit, Minneapolis, New York, Portland and Washington DC (blue states) are all growing at over 10% YoY. Cleveland is a blue city in a mostly red state while San Diego is a red city in an almost blue state.

Jerome “Slowhand” Powell is not shrinking The Fed’s balance sheet.

US Treasury Secretary Yellen Says Signs of US Recession Aren’t in Sight for Now (As Yield Curve And Atlanta Fed GDPNow Tracker SCREAM Recession)

Just remember, the US economy had strong employment figures just prior to the 2008 Great Recession and financial crisis, so US Treasury Secretary Yellen, Biden’s economic cheerleader Bernstein and Obama’s economic cheerleader Sperling are all relying on a bad indicator of economic health to justify that the US economy is in great shape.

(Bloomberg) — Treasury Secretary Janet Yellen expressed confidence in the Federal Reserve’s fight against inflation and said she doesn’t see any sign that the US economy is in a broad recession.

“We’re likely to see some slowing of job creation,” Yellen said on NBC’s “Meet the Press” on Sunday. “I don’t think that that’s a recession. A recession is broad-based weakness in the economy. We’re not seeing that now.”

With US consumer prices rising at the fastest rate in four decades, a growing number of analysts say it will take a recession and higher joblessness to ease price pressures significantly. The Federal Reserve raised rates in June by the most since 1994 and is expected to approve another 75 basis-point hike this week.

Inflation is “way too high,” Yellen said, while renewing the Biden administration’s argument that it’s also high in many other advanced economies.

“The Fed is charged with putting in place policies that will bring inflation down,” said Yellen, a former Fed chair. “And I expect them to be successful.” 

Dammit, Janet. All of Biden’s anti-fossil fuel orders are still in place and Biden/Pelosi/Schumer are still trying to pass the highly-inflationary Build Back (Inflation) Better bill. And The Fed still has not shrunk it massive balance sheet yet.

But Janet, the US Treasury 10Y-2Y yield curve remains inverted (historically ahead of a recession) while the Atlanta Fed GDPNow Q2 tracker is at -1.6% which would make the second quarter in a row of negative real GDP growth in a row (historically a definition of recession).

My preferred 10Y-2Y chart shows the yield curve more inverted than even prior to The Great Recession!

But in Yellen’s defense, The Fed’s preferred yield curve (implied yield on 3-month T-Bills in 18 month – 3 month T-Bill yield) is still positive, though crashing like a paralyzed falcon.

So, the Biden administration is sticking to the strong labor market story. But what the Biden Administration (and Yellen) fail to acknowledge is 1) unemployment is a lagged indicator of a recession (unemployment was low prior to the 2008 GREAT recession, then exploded and 2) there is still a tremendous amount of monetary stimulus outstanding that The Fed has taken away … yet.

Essentially, the Biden Administration is panicking over the coming mid-year election and will say anything at this point to stay in power. So, I would probably ignore anything said by Biden, Yellen and their talking heads before the midterms elections. But when Biden’s economic advisor says that the US economy is strong, I want to ask him how having NEGATIVE wage growth is a good thing,

Let’s see if Yellen is correct and The Fed’s Fireball will tame inflation. Frankly, I think the global slowdown is the only thing that will tame inflation.

Inflation And The Fed Ahead of Wednesday’s FOMC Meeting (Will Fed 75 BPS Increase Tame Inflation With Inverted Yield Curve? Or Will Biden/Congress Raise Taxes To Fight Inflation?)

Hold on, The Fed is coming! To raise their target rate by 75 basis points at Wednesday’s FOMC meeting. Will this stem the tide of rising inflation?

Under Biden, we have seen regular gasoline prices rise 82% despite recent declines. Diesel fuel is up 121% and foodstuffs are up 46%. And house rents keep rising at a staggering 14.75% YoY. The recent declines is more due to the global economic slowdown and central bank rate increases than anything Washington DC is doing.

(Bloomberg) Investors are skeptical that the Federal Reserve can tame the worst inflation in four decades without driving the economy into a recession.

That’s bad news for Americans, who face the prospect of a downturn as their bills for food, rent and fuel swell. But to bond investors hit by deep losses this year, it may mean any further pain will be short-lived, as a recession will spark the US central bank to cut rates next year. That’s according to the results of the latest MLIV Pulse survey. 

Over 60% of 1,343 respondents in the survey said there’s a low or zero probability that the US central bank can rein in consumer-price pressures without causing an economic contraction. The survey was conducted July 18-22 and included retail and professional investors.

US inflation may be close to a peak, but it’s very likely to stay above 8% through year-end. Bloomberg Economics’ model assigns zero probability to a drop below 4% in 2023. Taken together with increasing recession risks, the Fed faces a tough balancing act as it attempts to bring stubborn price pressures under control without tipping the economy into contraction.

Of course, The Federal Reserve doesn’t really consider energy or food inflation, which are typically higher than core inflation. But going into Wednesday’s meeting, we see the US Treasury 10Y-2Y curve remains inverted (a signal of impending recession) and the Atlanta Fed GDPNow Q2 tracker at -1.6% after a negative Q1 reading.

Will raising the target rate (or ACTUALLY shrinking their balance sheet) reduce inflation? We shall see, but it has got to be better than Lawrence Summer’s suggestion to reduce inflation: raise taxes. Wait a minute, Larry. Inflation was caused by 1) overstimulus by The Fed combined with 2) massive Covid spending by Biden, Pelosi, Schumer and 3) Biden’s anti-fossil fuel policies. So instead of suggesting a decrease in Federal spending, Summer’s wants to give MORE of your money to Biden and Congress to spend. What an unbelievable nitwit.

Here is a picture of Larry Summers, Jay Powell and Janet Yellen attending the FOMC meeting in Washington DC.

NOT Beautiful! US Mortgage Rates Decline Slightly To 5.73% As Fed Raises Rates And Recession Probability Increases (30Y Rate UP 99% Under Biden)

Everything is NOT beautiful for the mortgage market. In fact, the 30-year mortgage rate is up 99% since Biden took office as President.

Mortgage rates are rising in part thanks to The Federal Reserve trying to control inflation (caused by Biden’s energy policies and spending). But mortgage rates are down slightly today.

Bear in mind that REAL wage growth is negative, thanks to Bidenflation.

Joe Biden’s policies are a real heartbreaker for millions of Americans. And Jill Biden is the living, loving baby sitter.

Goin’ Down! US Housing Starts Drop -6.3% YoY In June Thanks To Fed Tightening (1-Unit Starts Dropped -8% MoM, Multifamily Starts Soared 15% MoM)

The US is goin’ down. At least in terms of housing supply growth.

The US is short on supply of housing for a myriad of reasons (high costs, Not-in-my-backyard (NIMBY) local zoning laws, etc), but The Fed’s cranking up interest rates isn’t helping.

US housing starts, a measure of supply, declined -6.3% YoY in June as The Fed cranked up rates.

1-unit (aka, single family detached) starts dropped -8.05% MoM in June while 5+ unit (aka, multifamily) starts rose 15% MoM.

1-unit permits dropped -8% MoM in June while 5+ unit starts were up 13% MoM.

The reason? REAL weekly earnings growth declined -4.4% YoY in June thanks to Bidenflation.

I hope you are enjoying Biden’s anti-fossil fuel agenda since it is killing us.

Feeling Bad! US Homebuilder Confidence Plunges With Fed Tightening (30-year Mortgage Rates UP 89% Under Biden)

We are going down this road, feeling bad.

As The Fed Reserve prepares to raise their target rate in a week by 75 basis points to 2.50%, the NAHB Home Builder’s confidence index plunged.

The 30-year mortgage rate is up 89% under Biden as his green energy fiasco is helping drive inflation to its highest level in 40 years leading The Fed to tighten its monetary policies.

Meanwhile, Jerome Powell and The Fed are doing The Fed Rate Shake.