According to the BLS, US core inflation is 6.3% and headline inflation is 8.3% YoY. But everything I consume seems to be going up at a much faster rate?
Under Biden, regular gasoline price is UP 55%, CRB Foodstuffs UP 47%, rents UP 12.5% YoY and electricity is UP 957%.
And as The Fed continues to signal monetary tightening, the spread between 30Y FNCL Par Coupon and the 10-year Treasury yield keeps growing.
In case you watched the Buffalo Bills play the Miami Dolphins yesterday, you may remember this punt by the Dolphins. It almost perfectly represents what The Federal Reserve and Biden Administration are doing to the American middle class and low-wage workers.
And I thought the Washington Commanders QB Carson Wentz getting sacked nine times in a game against his former team was bad!
We start the week with another chapter of “The Worst Bond Bubble Burst Since 1949.” This time its the US Treasury 10yr-2yr yield curve inverted to its lowest level since 2000.
Then across the pond, the UK sovereign yield curve is also inverted. But this curve is only inverted to 2008 levels of The Great Recession. The UK 2-year sovereign yield is up over 50 basis points this morning.
Then we have the US Dollar Swaps curve (green line), steeply UPWARD sloping until 6 months, then declining. The same goes for the US Treasury Actives curve (blue line), except that is it steeply upward sloping out to 1 year then begins declining.
And then we have the Bankrate 30-year mortgage rate rising to 6.59%, up 129% since Biden was sworn-in as President.
Also declining since Powell unleashed his monetary Panzers on the economy and financial markets are 1) agency MBS and 2) S&P 500 index.
The stock market’s value is down $7.6 trillion since Biden took office.
When I saw Carson Wentz of the Washington Commanders getting sacked 9 times, I thought maybe Prince Harry was playing instead. Or maybe Meghan Markle.
Price Harry is on the left, Commanders QB Carson Wentz is on the right.
First, let’s look at the S&P 500 index since August 24, 2020 (white line) and compare that to just before The Great Recession 04/15/06 – 05/17/08. They look pretty similar.
Second, let’s look at returns on long-term US Treasuries (10yr+, white line) and US mortgage-backed securities (gold line) since The Fed undertook “Operation Crush Inflation!” (green line).
I saw The President’s press secretary fielding questions about the declining stock returns and impending recession. She responded “But the labor market is strong!” Well, Ms. Karine Jean-Pierre, I am sure President’s Biden economic advisor Jared Bernstein told you unemployment was at a very low level just prior to 1) The Great Recession and 2) The Great Covid-shutdown Recession). So, claiming that the US employment market is strong economy ignores that unemployment will surge if the economy slows … which is what The Fed is trying to do.
There is a rush to hedge the downside with The Fed tightening the monetary noose.
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.
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.
As inflation rages thanks to Biden’s energy policies and insane Federal spending, The Federal Reserve is trying to cool inflation (or Bidenflation).
As The Fed tightens, the 30-year mortgage rate has risen to 14 year highs. And home prices are still hot, hot, hot (though slowing). But consumer sentiment for housing remains in the doldrums (UMich Buying Conditions For Houses).
The good news? Atlanta Fed’s GDPNow real-time GDP tracker shows the US economy at positive growth of 0.521%. Ok, that is kind of lousy given the massive Fed stimulus and Federal spending since Covid.
M2 money velocity demonstrates the lousy return of Fed/Federal government “investment”.Near the lowest level in US history.
So, The Fed will have to destroy the US economy to save us from Bidenflation (bad energy policies and out-of-control Federal spending).
And more good news! The NASDAQ composite index is down only -1% today!
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.
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.
The US economy is slowing as inflation ravages consumers. US Regular Gasoline prices, for example, are up 104% under President Biden which helps to slow the economy.
US personal consumption expenditures fell to +0.2% MoM in May as “inflation” or real personal consumption expenditures PRICES rose +6.3% YoY as The Fed’s balance sheet (aka, Master Blaster!) remains.
As I mentioned above, US regular gasoline prices are UP 103% under President Biden, diesel prices (the cost of shipping goods to markets like … food is up 119% under Biden while CRB foodstuffs is up 55% under China Joe.
Now we have mortgage rates in the US falling for the first time in four weeks. The average for a 30-year loan was 5.7%, down from 5.81% last week, Freddie Mac said in a statement Thursday.
This year’s Fourth of July celebration is going to cost 18% more than last year’s celebration.
Lastly, the Atlanta Fed GDPNow real time tracker for Q2 is showing … -1% GDP “growth.”
No problemo, says James “Bully” Bullard, President of the St Louis Federal Reserve. Bullard said that US recession fears are overblown with consumers “healthy.”
Really Jim?
Inflation is so bad they REAL average hourly earnings growth keeps falling and is now -3.34% YoY.
Apparently, real GDP growth of ZERO doesn’t bother Bullard either.
Confounded Interest - Anthony B. Sanders 
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