As the late Albert Collins once sang, he has a “Cold, Cold Feeling.”
Or feeling hot, hot, hot, depending on which measure you are looking at.
Take NAIRU, the natural rate of unemployment for the USA (white line). Historically, when the U-3 unemployment rate (orange line) falls below the natural rate of unemployment, the economy is growing “hot, hot,hot” and The Fed raises their target rate. Check out the green boxes.
What is happening now? The U-3 employment rate has fallen below the natural rate on unemployment (see pink box). But this time around, The Fed began raising their target interest rate BEFORE this happened.
The Fed is raising rates as US Average Hourly Earnings All Employees Total Private Yearly Percent Change SA exceeds 3% for the first time since 2009.
While wage growth is relatively hot, hot, hot, housing is getting that cold, cold feeling.
How about corporate debt growth (blue line)? Cold.
Getting cold enough?
Of course, the business media touts the headline “Existing Home Sales Rise 1.4% in October After 3.4% Decline in September.” Winning!
But on a YoY basis, existing home sales fell 5.1% in October, the 8th straight month of declining existing home sales growth. Higher home prices and higher interest rates?
Photobomb!! Fed Chair Jerome Powell discussing rate hike freeze with former Fed Chair Janet Yellen as the Fed Open Market Committee listens.
Did the Dow Smart Money Flow index signal the recent decline in the tech sector? Follow the smart money!!
The large Central Bank monsters are fighting. Instead of Godzilla versus Mothra, it is it The Fed versus European Central Bank (ECB).
As the US Federal Reserve continues to “nornalization” interest rates with increasing Fed Fund rate and balance sheet tightening (QT), Europe (or EMEA to be precise) is going in the opposite direction. There were 16 nations with negative 2 year soverign yields a short while ago, but now the number has grown to 18 (including France and Germany).
While on this side of the pond, tech-heavy NASDAQ has dumped 13% since its recent peak.
With a growing economy in the USA, and worries in Europe over Brexit and Italy’s budget fight with the EU (Greece’s GDP growth YoY is higher than France, Germany, UK and Italy).
the ECB is going in the opposite direction of the US Fed.
Here is a photo of Fed Chair Jerome Powell announcing a Fed rate hike in December.