Please stop spending money. I know it helps your careers… but it really hurts the rest of us.
That was the letter I wrote to Congress, but they ignored me – again.
It was unfortunate too because the $1.7 trillion spending bill Congress just passed is just one of the reasons rates have shot up so much over the past week and a half.
Investors are trying to digest the full impact of the bill, particularly as it relates to continued inflationary pressures, and rates moved higher as a result.
There are three other factors that also pushed rates up: (1) The Bank of Japan increased one of its benchmark yields by 0.25%, which ostensibly put pressure on other central banks to raise their yields; (2) China loosened up its COVID lockdowns and re-opened its economy – which will ostensibly increase demand for everything, especially energy, and push prices higher and heat up the world economy; and (3) the Fed’s “narrative,” or constant talk about the need to keep rates higher (this is a point Jeff Snider makes often).
So – Will The Upward Trend In Rates Last And Will Rates Fall Again?
Many macro observers I follow like Brent Johnson and Jeff Snider think the Bank of Japan’s move is largely meaningless – and will have no long-term effect on rates.
With respect to China, its massive COVID outbreak is proving to be a significant drag on the positive impacts of re-opening and on the economy overall.
With respect to the Fed’s narrative, it never lasts, per Snider, and the markets always do what the markets are gonna do, irrespective of the Fed.
With respect to the $1.7 trillion spending bill, the word is still out. BUT – as both Barry Habib and Jeff Snider have pointed out this week, there are major signs of economic weakness throughout the economy (inventory builds, declining manufacturing, chip surpluses, and climbing unemployment claims) that will likely offset the near-term effects of the spending bill.
Habib also reminds us today that declining inflation reports will also bring rates down again.
So, even though I can find numerous other pundits who still think inflation will persist and rates will remain higher throughout 2023, I remain firmly entrenched in the falling rate camp.
This is because the macro observers who are in the falling rate camp (Snider, Habib, Rickards, etc.) have been way more accurate with their predictions than the observers in the rising rate camp.
Rates will still bounce up and down and timing is still in question, but I’d still bet dollars to donuts that rates will be much lower by June at the latest.
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