Jacob, i think the Fed is hardly tight at this point, as even the understated BSL version of inflation has risen by more than the Fed funds rate since both have troughed. furthermore, the pace of economic growth has been blistering lately, seemingly unperturbed by the rise in rates so far. WS has jumped on the traditionally volatile durable goods number as evidence of an economic slowdown...well, that is scant evidence at best. furthermore an economic slowdown does not automatically guarantee a lessening of inflationary pressures, as economic growth in other parts of the world exerts demand pull pressures on commodities that in turn are partly subject to supply constraints. also the labor market, which is the Fed's pet indicator, is a lagging indicator with lots of inherent inertia. wage pressures have only recently begun to rise, and no immediate reason comes to mind why that should change in the near future.
the theory about the end of the rate increases being near is so far an ingenious bit of WS propaganda, as a reason to rally stocks is desperately sought.
if i remember correctly, ever since rate hike number one took effect, WS 'analysts' were assuring us it would be the 'last one'.
the stock market in terms of the S&P is higher NOW than it was when the tightening cycle began.
in other words, stocks do not yet reflect the higher rate environment. the same can be said for credit demand, as the 'real' rate is no disincentive for borrowers at all.
the main effect of the changed environment has been on credit spreads and junk bonds, the former have widened to panic levels, and the latter are bidless.
evidence of a lessening of the 'wealth effect' is more or less zero so far, as the consumer sentiment numbers are back at record highs.
confidence that the recent swoon in the NAZ is a temporary aberration is obviously quite high. if the Fed stops raising rates too soon, it risks a rapid re-inflation of the bubble and a return to the exact same dilemma that led to the rate hikes in the first place.
the latest ECRI future inflation gauge report showed the FIG to be at an 11-year high. it is not named 'future' inflation gauge for nothing...as long as it rises, higher inflation in the future can be expected.
the slowdown in existing home sales is btw. mainly due to the shrinking supply, not a moderation in demand. pricing remains extremely firm, with localized real estate bubbles in certain regions.
regards,
hb |
