Fed Chair Powell spoke yesterday, and rates fell in response. A) Mr. Powell said they have no intention of raising rates; and B) He said the Fed is going to start buying more Treasuries in June ($35 billion per month) – and that will put downward pressure on rates.
So great news, right? Probably not.
We have a “manipulated” employment report coming out tomorrow, and we still have the aftereffects of $11 trillion of borrowing trickling through the economy. So, many analysts are still predicting as much as another 1/2% or more in rate increases before we see rates fall.
Why I Was So Wrong About Rates Falling
In September I blogged about Why I Was So Wrong About Rates Falling In 2023. I of course was not alone, as I was just following dozens of renowned analysts who also ALL got it wrong.
I listed many things the analysts missed such as wage growth, savings drawdowns spurring spending, extra income from money market accounts, and student loan forbearances.
I missed two other huge factors that analysts frequently cite now: (1) labor hoarding; and (2) credit card spending. There have been fewer layoffs than expected despite falling demand because it is so expensive to find and train new employees; employers are hoarding labor and absorbing losses because they got burned so badly in the past. And consumers are increasing their credit card balances to maintain their spending habits.
But the biggest overall factor keeping rates high is this: Our government has borrowed $11 trillion since Q1 of 2020!
Jeff Snider posted a fascinating video about this and its effects: Oh Sh*t, The Government Just Spent $11 TRILLION.
Snider points out how that $11 trillion dwarfs any of our past spending, and how it is STILL pouring into both businesses and consumers.
BUT – it is starting to dwindle, and the “Keynesian multiplier effects” are not working = meaning that the spending is NOT turning into actual productivity and/or permanent growth in the economy.
Snider focuses on falling demand data to prove his point. TLDR: The spending binge is waning, and the economy can’t be propped up forever with spending because it is clearly not working.
Recession Is Already Here Per Danielle Dimartino Booth
In this Blockworks Podcast yesterday – The Recession Is Already Here, Argues Danielle DiMartino Booth – Danielle DiMartino Booth makes a very strong case about why we are in a recession already, based largely on employment data.
In addition, she, like Barry Habib today, points out all of the reasons why the BLS jobs reports (like the one coming out tomorrow) make no sense at all and are obviously manipulated. One of the reasons she and Habib both cite is the fact that initial and continuous jobless claims have remained exactly the same week over week – which is impossible in an economy the size of ours.
When the actual jobs market data surfaces, the Fed will react and likely lower rates. It could happen tomorrow, but it is unlikely given the amount of manipulation we have seen.
Conclusion
So, yes, I do think all the spending, inflation concerns, and low unemployment numbers will continue to push rates up, like so many analysts are predicting.
But, I also think Ms. Booth, Mr. Snider, and Mr. Habib are correct in implying that things are much worse than our government wants us to believe – and that will still result in lower rates (today’s falling rates imply that they are not alone too).
I just have no idea when. I have heard mid-summer from a lot of analysts, but we’ll see (they and I have been wrong before).
