The Federal Reserve has repeatedly stated that they want the labor market to collapse, and that they will be satisfied only when the unemployment rate is much higher than it is today. That’s why they consistently forecast job-loss recessions with their high unemployment rate forecasts, and some Fed members talk of sending short-term rates much higher. I recently talked about cnbc,
Even though the headline inflation report came in below estimates, the 10-year yield didn’t react much today. As I am writing this article, it is trading at 3.42%.
While 10-year yields, mortgage rates, and inflation look about right for my 2023 forecast, let’s not forget the real prize the Federal Reserve has: They want you to lose your job and that’s why they predict job-losses. Live Recession with high unemployment rate.
Even though the Fed said they are tracking core personal consumption expenditure (PCE) data over the three, six and 12-month time frames and their forecast suggests the data should improve no matter what . The Fed has been so scared since the 1970s that this fear is more important than anything else.
Even when they say that there is a 12-18 month lag in rate hikes, which means that the full impact of these aggressive rate hikes will not hit the economy until they wait for that lag. have been They talk about more rate hikes, and keeping rates in place for longer because they believe this is the most effective way to beat inflation – more labor supply through job losses By making Which is why they still don’t care that housing is in a recession.
Let’s look inside the data in this CPI report and find some good things to discuss.
From BLS: The consumer price index (CPI-U) for all urban consumers rose 0.1 percent on a seasonally adjusted basis in March after rising 0.4 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the past 12 months, the index for all commodities before seasonal adjustments increased by 5.0 percent.
As we can see in the chart below, year-over-year inflation growth peaked a while ago, and will continue to rise above recent peaks until oil, food, and rent rise again. It’s hard to push.
One of the reasons we didn’t see breakaway inflation during the housing bubble years is that rent inflation was back then. This hasn’t happened recently, and 44.4% of CPI is sheltered inflation. We all know the shelter gap in the CPI data; This is something I covered on CNBC last September. I asserted that by January and February, we will see the growth rate of shelter inflation coming down, but it will take time to hit the CPI data.
We are getting to the point where the year-over-year comp and gap inflation growth rate will start to catch up with the decline and current market reality, which means the inflation thesis of the 1970s will take another blow .
We could not stop the inflation of the 1970s, because at that time the inflation of rents was rising rapidly; I mean, it was massive before, and salary increases were scorching even then. As you can see below, if Shelter Inflation were to begin their reality tour for the next 12 months, it would be hard to dance to disco music again.
Plus, as in previous jobs reports, year-over-year wage growth has been falling, all with a still-tight labor market.
It’s hard to get the inflation of the 1970s unless wage growth, energy, food and shelter all increase very much at once, which isn’t happening. Energy inflation is falling as year-over-year comps are challenging. The Russian invasion caused energy prices to skyrocket.
We had higher oil prices from November 2010 to September 2014 without a breakdown of CPI inflation because sheltered inflation and wage growth came back then. The chart below shows the period I discussed with oil prices, while the core CPI was very normal.
Even though the CPI inflation data came in lower than expected on Wednesday, we did not see any significant downside in the 10-year yield. Mortgage pricing got a little better this morning, after the previous two days of pretty bad pricing.
With the 10-year yield still trading in the 2023 forecast range of 3.21%-4.25%, the bond market has done remarkably well in line with my view that everyone is waiting for the labor market to break out, especially From the Federal Reserve, before us another aggressive move in the 10-year yield.
We all know that shelter inflation will ease over the next 12 months, making it mathematically impossible for another spike in inflation to occur. The housing market needs bond yields to go down and the spread between the 10-year yield and the 30-year mortgage rate needs to improve to gain more traction.
Purchase application data also came out on Wednesday and was positive 8% week over week, meaning that there has been more positive purchase application data than negative so far in 2023.
Now, imagine a housing market with mortgage rates in the low 5% range, not the mid 6% range. This will change a lot of dynamics in the housing market and put the sector on a more solid footing. However, till then, we will be tracking all economic data on a day and a week basis.
