Lifeforce? US Debt Load At 123% Of GDP As M2 Money Velocity Nears All-time Low (Will The Fed Sound The Alarm?)

The Federal Reserve’s Open Market Committee (FOMC) will announce their latest round of rate increases on Wednesday, September 21st, at 2pm EST. Will the members of the FOMC discuss the fact that the US debt load is now at a whopping 123% of GDP?? Or will the FOMC only discuss inflation in its deliberations?

The Fed is expected to raise the upper-bound of their target rate to 3.25%, a 75 basis point increase in a futile attempt to cool inflation. Yet the rampant spending by Biden, Pelosi and Schumer (3 of the 4 Horsemen of the Economic Apocalypse) has raised the Federal Debt to GDP ratio to 123%. Even more disturbing, M2 Money Velocity (GDP/M2 Money) is near the all-time low. Meaning that rampant Federal spending is doing little to increase GDP.

Now for the worse news! Federal debt held by the public is expected to rise to 185% of GDP in 2052.

I feel like I am watching the movie “Lifeforce” where The Fed tries to breath life into an economy without killing it.

Fed Tilts Toward Third 75 Basis-Point Hike on Stubborn Inflation (Fed’s Target Rate Expected To Hit 4.395% By March ’23 Then Fall, Mortgage Rates Rising)

Inflation is stubborn because “goin’ green!” by 1) restricting US fossil fuel production and exploration and 2) Biden/Congress endless spending splurge since Covid. So, The Federal Reserve has a tough problem: cooling inflation while US energy prices are up 54% under Biden. And those higher energy prices have percolated through the entire economy in terms of food prices and heating prices.

Where do we sit? The US Treasury 10yr-2yr yield curve remains inverted (a sign of impending recession). Mortgage rates are the highest in 14 years as The Fed tightens.

If we look at Fed Funds Futures data, we can see that traders expect The Fed’s target rate to rise to 4.395% by March 2023’s FOMC meeting. Then traders expect The Fed to take their enormous foot off the tightening pedal.

Yes, inflation is crushing the middle class and low-wage workers. Average hourly earnings YoY after we subtract inflation are negative.

Taylor Rule? Currently, the Taylor Rule based on Core inflation of 4.56% YoY suggests a Fed target rate of 9.14%. Since traders anticipate the target rate to peak at 4.395%, The Fed will almost be halfway towards cooling inflation.

The problem is … Fed Chair Powell and Treasury Secretary Yellen don’t like rules limiting their “power.” Powell and Yellen think the Taylor Rule is a New Jersey ham product.

Weekend Update! Goldman Cuts US Growth Forecast for 2023 After Rate Path Change, FedEx Drops -44 Pts, US Treasury Yield Curve Further Inverts To -42.3 BPS (As Biden Drains The Strategic Petroleum Reserve)

Its a beautiful morning here in Columbus Ohio! Unfortunately, things are not so beautiful for the US economy.

Let’s begin with the US Treasury 10yr-2yr yield curve slope. Historically, the yield curve inverts prior to a recession. As of this sunny morning, the US Treasury yield curve is inverted and sinking further into inversion. Notice that headline inflation (blue line) has increased declined slightly after hitting 40-year highs as The Federal Reserve begins SLOWLY trimming their balance sheet (orange line). The green line is the expectation of Fed rate hikes by the December 2022 FOMC meeting indicating further monetary tightening.

Goldman Sachs Group Inc. cut its US economic growth estimates for 2023 after recently boosting its predictions for Federal Reserve interest rate hikes.

US gross domestic product will increase 1.1% in 2023, economists including Jan Hatzius wrote in a note Friday, compared with a forecast of 1.5% previously. The projection for 2022 was left unchanged at 0%.

Goldman raised its federal funds rate forecast by 75 basis points over the last two weeks for a terminal rate forecast of 4% to 4.25% by the end of 2022.

Then we have Federal Express which plunged -43.85 points on Friday. I use this an example on how inflation begat Fed tightening that begat an economic slowdown.

The Biden Administration is cheering the “Inflation Reduction Act” and the recent decline in the rate of inflation to a gut-wrenching 8.3% YoY. Bear in mind that since Biden was sworn-in as President, WTI Crude Oil is UP 75%, gasoline prices UP 54%, food prices are UP 48% and the Strategic Petroleum Reserve is DOWN -32%.

Then we have Gold and Bitcoin relative to the INVERSE of the US Dollar since Biden was installed as President.

But I still get to look out my window and see a beautiful day in the neighborhood.

Pain! US Mortgage Rate Rises To 6.28%, Highest Since November 2008 As Raging Inflation Results In Fed Tightening

Raging US inflation is resulting in Federal Reserve monetary tightening, causing the 30-year US mortgage rate to hit it highest level since November 2008 (the beginning of Fed Quantitative Easing). Bankrate’s 30-year mortgage rate just hit 6.28%, the highest rate in 14 years.

The Biden Administration will be remembered for crippling inflation, the highest in 40 years AND the highest mortgage rate in 14 years.

And with Fed chatter about hiking rates, Dr T (me) predicts pain for the mortgage market.

Philly Fed Business Outlook Plunges -10% In September As Fed Tightens Rates (It’s NOT Always Sunny In Philadelphia)

It’s NOT always sunny in Philadelphia.

The Philadelphia Fed Business Outlook fell almost -10% in September as The Federal Reserve tightens monetary policy.

On a related note, the share of total net worth held by the bottom 50% in the US (red line) was always higher than the share of total net worth held by the top 1% (blue line) … until The Federal Reserve began QE in late 2008. Under Obama, the top 1% surpassed the bottom 50% in terms of share of total net worth. it equalized under Trump and before Covid. Then the massive QE (and surge in Federal spending) to battle Covid seemingly made the rich even richer and the bottom 50% even poorer. This is Biden’s America … massive Federal subsidies to the wealthy, crumbs for the bottom 50%.

Green energy anyone??

US Mortgage Applications Fall To Lowest Level Since 1997 As Fed Tightens The Monetary Noose (Purchase Apps DOWN -29% YoY, Refi Apps DOWN -83% YoY)

US mortgage applications dropped to the lowest level since 1997. I wonder if President Biden will invite boring crooner James Taylor back to the White House to sing about the collapsing mortgage market? Perhaps he can sing “Shower The People” and change the lyrics to “Shower ON The People.”

Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 9, 2022. This week’s results include an adjustment for the observance of Labor Day.

The Refinance Index decreased 4 percent from the previous week and was 83 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 0.2 percent from one week earlier. The unadjusted Purchase Index decreased 12 percent compared with the previous week and was 29 percent lower than the same week one year ago.

The Bankrate 30-year mortgage rate is now at the highest level since 2008 at the advent of Fed’s QE.

Yes, The Fed has been slow as a sloth in shrinking its balance sheet.

NASAQ Index Plunges 4% On Fed’s Inability To Cool Inflation (Gimme Some Quantitative Tightening!)

That’s the way The Fed likes it!

On today’s inflation report for August, it is clear that The Fed has failed to cool off US inflation, meaning that MOAR QT is on the way.

The NASDAQ composite index plunged -3.85% after The Fed’s failure was released.

The Dow was down “just” -2.70% today. But things are red all over in Europe where they too are failing to tame inflation.

The Fed is probably singing “Give me some quantitative tightening!”

The likelihood of further rate increases just rose to over 4% for the December FOMC meeting.

Jay and The Statists At The Fed!

Pain is coming!

(Cheap) Bottle Of Wine? US August Inflation Report Worse Than Expected (Headline Inflation = 8.3% YoY, Core Inflation = 6.3% YoY, REAL Hourly Wages = -3.06% YoY) As Fed Slow To Withdraw Monetary Stimulus

After the August US inflation report, I am going to have to start drinking cheap bottles of wine to cope with red hot inflation.

The August inflation report from the BLS shows that headline inflation is still hot, hot, hot at 8.2% YoY. Core inflation rose to 6.3%.

REAL average hourly earnings growth remain in the toilet at -3.06% YoY.

Fuel oil used to heat homes rose 68.8% YoY. Food at home rose 13.5% YoY while rent (shelter) rose “only” 6.2% YoY. Wow, renters are REALLY getting the short-end of the stick from The Fed and the Biden Administration!!

New vehicles are UP 10.1% YoY. Good luck buying those “cheap” electric cars that Mayor Pete Buttigieg trumpets! And wait for the bill when the battery needs to be replaced!!!

Sundown? Freddie Mac 30Y Mortgage Rate Highest Since Financial Crisis And Advent Of Fed Quantitative Easing (CORE US Inflation For August Expected To Rise To 6.1% YoY)

Is it sundown for housing and mortgage markets with Fed quantitative tightening (QT)?

Freddie Mac’s 30-year mortgage commitment rate just rose to its highest level since … The Fed initiated Quantitative Easing (aka, fanatical money printing) during the financial crisis.

The good news? The US inflation report is likely to show a slowing of the inflation rate to around 8% YoY and -0.1% MoM. Why? Gasoline prices are cooling thanks to the global economic slowdown.

While gasoline and food prices are falling, CORE US inflation, the inflation rate excluding food and energy, is expected to rise to around 6.1% YoY and +0.30% for August.

But watch out as winter approaches!

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.