Behind The Curve! US Headline Inflation 8.5% Is Far Ahead Of Fed Target Rate 2.5% (Eurozone Is In Similar Situation 9.1% Inflation Versus 0.75% Deposit Rate)

The Federal government reaction to the Covid outbreak in early 2020 included massive monetary stimulus, Federal government spendathons and Biden’s green energy policies have resulted in a sizzling 8.5% inflation rate (update on Monday morning).

The problem is that The Federal Reserve is far behind the inflation curve with their target rate at only 2.5%. And The Fed’s balance sheet remains near $9 TRILLION in assets held.

In Euroland, we are seeing a similar problem (Frankfurt, we have a problem!). The Eurozone inflation rate is at 9.1% while their version of The Fed Funds Target rate is only 0.75%, a large catch-up gap.

If we look at the Taylor Rule for the US using headline inflation, we see that The Fed needs to raise their target rate to … 21.72% to crush inflation.

In Euroland, the problem is similar. At 9.10% inflation, the ECB will have to raise their version of The Fed’s target rate to 16.80% to combat inflation. As if that will happen in either the US or Euroland.

On a different note, is it my imagination or does US Democrat Senate candidate from Pennsylvania John Fetterman look like the alien from the flick “Battleship”?

Fetterman is the top picture.

Here is a video of the Fetterman/Dr. Oz debate … if it ever occurs.

The Oakland Stroke? Oakland CA Leads Nation In Home Price DECLINE At -15.1% Over 3 Months (San Francisco DOWN -11.2% Over 3 Months As Fed Removes Punch Bowl)

Is the Oakland housing market having a stroke?

The US housing market is facing stress thanks to The Federal Reserve’s “war on inflation.” As The Fed starts trimming its excess ballast and M2 Money growth YoY slows to the lowest since Pre-Covid, we are seeing housing markets like San Francisco beginning to experience declines in home prices.

According to Redfin, Oakland California is leading the nation in terms of declining sales prices at -15.1% over a 3 month period. Followed by Silicon Valley and San Jose at -12.7%. San Francisco is in third place at -11.2% (I will ignore Lake Havasu AZ since it is teeny but does have one of the London Bridges) and Austin TX is in 5th place at -9.7%.

Powell and The Fed are doing “The Oakland Stroke.”

Punch Drunk? US 30yr Mortgage Rate Rises To 6.11%, Highest Since November 2008 (Fed Giveths And Fed Taketh Away … The Monetary Punch Bowl)

The mortgage and housing markets are punch drunk after excessive monetary stimulus since last 2008 and the advent of Fed QE.

As The Fed takes away the massive monetary punch bowl, mortgage rates have risen to the highest since November 2008. And with the withdrawal of monetary stimulus (raising Fed Target Rate), mortgage purchase applications have declined.

Here is a photo of The Federal Reserve fighting the housing and mortgage market.

MBA Applications Sink To Lowest Since 1999 (Purchase Applications Down 23% YoY As Fed Tightens Monetary Noose)

The monetary noose tightens on the housing and mortgage markets.

Mortgage applications decreased 0.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 2, 2022. They are now the lowest since 1999.

The Refinance Index decreased 1 percent from the previous week and was 83 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 23 percent lower than the same week one year ago.

At least the percentage of adjustable rate mortgages (ARMs) remained the same at 8.5%.

For the sake of the housing and mortgage market, somebody stop Powell and The Gang from tightening!

Slowdown! US PMI Composite Index Slumps To 44.6 As M2 Money Growth Slows (Fed Tightening Starting To Hurt)

The US Composite PMI was released this morning and it printed at 44.6.

Not surprising given that M2 Money growth has slowed as The Fed removes its monetary punch bowl.

M2 stimulus is foul-tasting for the middle class and low-wage workers thanks to inflation.

To quote Marty Stuart and Travis Tritt, “This one’s going to hurt you for a long, long time.”

What M2 Money Growth Says About US Employment Numbers (Job Creation Will Likely Slow As Fed Removes Monetary Stimulus, REAL Hourly Earnings YoY Are Declining)

Joe Biden is the king of malaprops. But his press secretary is just as bad as her boss. Recently, she said that under Biden, there were 10,000 million jobs created. Better known as 10 BILLION jobs created. Not bad, considering that the total population of the US is 333 million. THAT is a hot labor market! /sarc

But seriously, the US U-3 unemployment rate is 3.7% in August, the lowest since Donald Trump was President and BEFORE the Covid outbreak. The Covid economic shutdown saw a surge in the unemployment rate to 14.7% in April 2020 that begat a huge spike in M2 Money growth (22% YoY in May 2022 (green line). Only now is M2 Money growth returning to Trump-era growth rates.

But as The Federal Reserve removes its hefty monetary stimulus, it is unlikely that the unemployment rate will remain low.

In defense of Biden’s press secretary, the US economy saw 10.247 million jobs added under Biden (although while technically correct, even MSNBC wouldn’t give Biden credit for job creation in his first several months as President. Check that. They probably would.

April 2020 saw a decline in US jobs of -20.493 million jobs thanks to the Covid economic shutdowns. BUT with the M2 Money surge, we saw +12.1 million jobs added between May and November 2020 under Trump. Then the US elected China Joe (or Beijing Biden) as President.

The economic shutdowns due to Covid were an economic disaster for millions. But the surge in M2 Money (supporting the various Federal spending programs and inflation) explains the surge in jobs added, not economic wizardry of Biden.

For some reason, Biden and his press secretary failed to mention that inflation is so bad that REAL average hourly earnings YoY are declining at a 3% pace.

And not surprisingly, job growth has accrued to big corporations and not small businesses.

No Escape From Biggest Bond Loss in Decades as Fed Keeps Hiking (Agency MBS Facing Big Losses As Well As Mortgage Rates Keep Rising)

US pension funds seem to have no where to run, and no where to hide. They just need to keep on running as The Federal Reserve tightens.

(Bloomberg) Investors who might be looking for the world’s biggest bond market to rally back soon from its worst losses in decades appear doomed to disappointment.

The US employment report on Friday illustrated the momentum of the economy in face of the Federal Reserve’s escalating effort to cool it down, with businesses rapidly adding jobs, pay rising and more Americans entering the workforce. While Treasury yields slipped as the figures showed a slight easing of wage pressures and an uptick in the jobless rate, the overall picture reinforced speculation the Fed is poised to keep raising interest rates — and hold them there — until the inflation surge recedes.

Swaps traders are pricing in a slightly better-than-even chance that the central bank will continue lifting its benchmark rate by three-quarters of a percentage point on Sept. 21 and tighten policy until it hits about 3.8%. That suggests more downside potential for bond prices because the 10-year Treasury yield has topped out at or above the Fed’s peak rate during previous monetary-policy tightening cycles. That yield is at about 3.19% now.

Then we have Bankrate’s 30-year mortgage rate soaring on Fed intervention expectations.

Inflation? US inflation is near its highest in 40 years and the USDollar Plain Vanilla Swap was at 0.50 when Biden first took office as President and is now 3.371 (quite an increase!).

Here is an interesting chart of FNCL 2% Agency MBS.

US Mortgage Rate Rises Above 6% As Fed Slow To Withdraw Stimulus (Drives Me Crazy!)

The Federal Reserve drives me crazy!

Thanks to Federal Reserve increases in their target rate, the 30-year mortgage rate has risen above 6%.

What drives me crazy about The Fed is their failure to removed monetary stimulus following the financial crisis of 2008 when they dropped their target rate to 25 basis points (0.25%) and began assets purchases (orange line). The Fed raises their target rate only once during Obama’s Presidency but then raised rates 8 times after Trump was elected President.

Now we are seeing The Fed NOT shrinking their balance sheet in a meaningful way. However M2 Money growth YoY (green line) has slowed to 5.2%.

While it is a good thing that The Fed is FINALLY reducing some of the monetary stimulus in place since 2008, the bad thing is that mortgage rates are rising rapidly.

The Fed’s quantheads are predicted to resume easing in March 2023.

August Jobs Growth Slows To 315k Added, REAL Wage Growth Continues To Decline -3.3% YoY, Multiple Jobholders Increases (Fed Will Interpret At Green Light To Further Raise Interest Rates)

The August jobs report is out. 315k jobs were added, which was considerably higher than the ADP jobs added report of 132k. Hmm.

Be that as it may, US Average Hourly Earnings YoY remained at 5.2%. That’s a shame since the last inflation report had US inflation at 8.5%. That translates to REAL Average Hourly Earnings YoY of … -3.3%.

Labor force participation rose to 62.4%.

This is a decent jobs report and will likely lead The Fed to continue raising rates, particularly when The Fed sees that multiple jobholders has increased to cope with inflation.

US Jobs Data Have Potential to Push Fed Toward Third Jumbo Hike (Remember That ADP Jobs Added In August Was Only 132k)

When we look at tomorrow’s US jobs report, it is important to acknowledge that 1) The Federal Reserve has not yet removed the Covid stimulus (green line) and 2) the ADP payroll jobs added was only 132k in August while non-farm payrolls jobs added in July was 528k. That is quite a spread!

(Bloomberg) The hotly anticipated US jobs report has the potential to tip the scales toward a third jumbo-sized hike in interest rates later this month after a wave of data that point to a resilient consumer and high labor demand.

Friday’s report is one of the last marquee releases Fed officials will have in hand before the mid-September policy meeting to help them decipher a complex economic and inflationary puzzle.

Forecasts call for a healthy, yet more moderate 298,000 gain in August payrolls and for the unemployment rate to hold steady at 3.5%, matching the lowest in five decades. Solid wage growth is also expected amid a persistent mismatch between labor demand and supply.

Such figures, in conjunction with a blowout July employment print, improving consumer sentiment figures and a surprise pickup in job openings, could be enough to push the Fed to raise borrowing costs by 75 basis points, extending the steepest interest-rate hikes in a generation to curb an inflation surge.

As of this morning, Fed Funds futures data is still pointing to The Fed Funds Target rate rising from 2.50% to around 4% by the March FOMC meeting. That is still a large jump of another 150 basis points anticipated.