(Bloomberg) U.S. applications for unemployment benefits fell more than expected last week to the lowest since the pandemic started, in a broad decline across nearly all states, suggesting the labor market is improving.
Initial jobless claims in regular state programs fell by 249,000 to 1.19 million in the week ended Aug. 1, Labor Department data showed Thursday. The median forecast in a Bloomberg survey of economists called for 1.4 million.
Mortgages rates have found another record low, potentially boosting a housing market that has been a bright spot for a shaky U.S. economy.
The average for a 30-year fixed loan fell to 2.88%, the lowest in nearly 50 years of record keeping by Freddie Mac. It was the eighth time since the coronavirus started roiling financial markets that rates have dropped to a new low.
The previous record was 2.98% last month, when borrowing costs fell below 3% for the first time. The lower rates are “giving potential buyers more purchasing power and strengthening demand,” Sam Khater, chief economist at Freddie Mac, said in a statement on Thursday.
The record-low rates have propped up home prices and fueled a housing recovery in an economy battered by the pandemic.
“This is definitely helping affordability,” said Tendayi Kapfidze, chief economist at LendingTree. “It’s also attracting a lot of people into the market who otherwise might not have been so quick to act.”
But if Covid cases retreat, will The Fed stop printing?
Dr. Fauci: “OK Mr. Soros, I will combat the good news with a statement that says the virus may never be eradicated and a third wave is just around the corner.”
And on the hope of more Federal stimulus (with the usual nonsense add-ons that a politically-motivated), the Dow rose over 300 points on the addition of more sugar. Yes, fiscal and monetary stimulus acts like an enormous block of sugar, that will be followed by an enormous sugar crash requiring even more blocks of sugar (fiscal + monetary).
Of course, Pelosi (D-CA) and Mnuchin / House Republicans will play games as people suffer.
But how low can The Fed go with interest rates? Well, real interest rates have fallen for 700 years, so I doubt if rising interest rates for the long-term are in the cards.
Recent US history shows that we are still in negative 10-year Treasury yield territory.
And the US is still in a house price bubble as home price growth continues to exceed earnings growth.
Now, the earnings was YoY in above chart. But MoM is -0.9%.
Will the US economy and financial markets ever return to normal without continue fiscal and monetary stimulus?
The Federal Reserve has a dual mandate: stable inflation and low unemployment. Well, core inflation is currently at 1.2% (core PCE growth is at only 0.95%) and unemployment (thanks to Covid-19) is at 11.1%. Not quite on target.
The Taylor Rule model using an aggressive specification suggests that The Fed lower their target rate to -8.58%.
Of course, Congressional spending is out of control with mandatory spending (entitlement programs, such as Social Security, Medicare, and required interest spending on the federal debt) since the days of George HW Bush and Bill Clinton. And especially post financial crisis.
Of course, mandatory spending on Medicare is soaring out of control.
Defense outlays are projected to grow with non-defense outlays declining,
Of course, the TRUE dual mandate of The Federal Reserve is propping up the S&P 500 index and NASDAQ.
Good luck to everyone trying to cope with out of control Congressional spending and Fed money printing.
The question is … will Congress and President Trump/Biden reign in their prodigious spending after Covid-19 passes?
Here is my answer. Where are the Budget Hawks when we need them??
Yikes! According to the Federal Reserve of St Louis FRED, the velocity of M2 Money Stock (Nominal GDP / M2 Money Stock) just crashed to 1.097, the lowest in modern history.
As of today, Bankrate’s 30-year mortgage rate just hit an all-time low (thanks to The Fed’s massive reaction to Covid-19 virus economic shutdown. Note: Bloomberg has not updated its M2 Money Velocity chart which is now 1.097.
The Federal Reserve Open Market Committee (FOMC) decided to do nothing, except say that ZIRP (zero interest rate policies) are going to continue for a long time. And that MORE fiscal stimulus is needed. As long as Mayors and Governors continue their economic lockdown policies, more monetary and fiscal stimulus will be needed.
Where does The Fed go from here (given that Covid-19 seems to be growing still)? The implied Fed policy rate looks to be negative by 2021.
Gold is surging as investors figure out that our fiat currency cannot support the reckless spending in Washington DC.
Let’s see what Fed Chair Jay Powell (aka, Thurston Powell III) comes up with. Hint: Fed buying stocks and going to negative rates.
The world’s major central banks aren’t purchasing debt fast enough, leaving almost $1 trillion of new sovereign bonds looking for buyers in the months ahead. The flood of fresh debt, sold by governments to fund pandemic-rescue packages, threatens to dwarf central-bank buying and swamp markets in many countries, according to Bloomberg calculations. By contrast, most of Europe is set to benefit from the European Central Bank’s purchases and may offer the best shelter for investors worried about a potential surge in bond yields.
The Treasuries market alone could see more than $1 trillion in net bond supply in the six months through Dec. 31, and strategists are predicting sales will comprise fewer bills and more longer-dated notes.
So far, domestic buyers have supported U.S. debt. But some of the market’s most loyal investors appear to be stepping away just when they’re needed most. Pension funds typically buy Treasuries to match their long-term liabilities, yet a proxy for their purchases of longer-maturity bonds — holdings of so-called stripped Treasuries — has fallen consistently since February.
With Senator Schumer (D-NY), Nancy Pelosi (D-CA) and Presidential hopeful Joe Biden (D-DE) all screaming for trillions in spending, this will only get worse.
“It is possible, though not certain,” that the Fed will implement yield-curve control, they wrote on the Brookings Institution website, laying out testimony delivered Friday to the House Select Subcommittee on the Coronavirus Crisis.
The Fed has looked into the possibility of capping yields on short- to medium-term Treasuries though policy makers have suggested that further study is needed before deciding whether or not to go ahead.
Yellen told the committee that it would be a “catastrophe” if Congress decided not to continue enhanced unemployment insurance that is due to expire at the end of this month. “We need the spending that those unemployed workers can do,” she said.
Under the program, unemployed workers receive an extra $600 a week. Yellen said the program could be restructured to cap total insurance payments at a fixed percentage of regular income.
In their Brookings posting, Bernanke and Yellen said they expect the Fed to provide clearer guidance on its plans for short-term interest rates as a way to provide more stimulus to the economy.
“To maintain downward pressure on longer-term interest rates, the Federal Open Market Committee likely will provide forward guidance about the economic conditions it would need to see before it considers raising its overnight target rate,” the two former policy makers, both of whom now work at Brookings, wrote. “And it likely will clarify its plans for further securities purchases.”
The Fed has pledged to keep short-term interest rates effectively at zero until it is confident that the economy has weathered the pandemic shock and is on track to achieve its maximum employment and price-stability goals.
The former Fed chairs also called for more action on the fiscal front, including aid to state and local governments and a continuation of enhanced unemployment insurance.
“If the pandemic comes under better control, economic recovery should follow. However, the pace of the recovery could be slow and uneven,” they wrote. ‘’Fiscal and monetary policies must aim to speed the recovery and minimize the recession’s lasting effects.”
Here is a chart showing monetary stimulus AND fiscal stimulus (in the form of public debt).
Federal Reserve officials had “many questions” about the benefits of yield-curve control when they discussed its pros and cons during their meeting in early June.
“Many participants remarked that, as long as the committee’s forward guidance remained credible on its own, it was not clear that there would be a need for the committee to reinforce its forward guidance with the adoption of a YCT policy,” minutes published Wednesday of the June 9-10 Federal Open Market Committee meeting showed. YCT refers to yield caps or targets.
Here is today’s Treasury yield curve versus the yield curve on December 1, 2005. Looks more like wholesale panic to me.