Inflation & Interest Rates – They no longer work the way it did!!!!
Pushing country to recession through mindless interest rates hike is not a good method to handle inflation. It is an archaic technique which central banks adopted in past but there are too many fallacies. US market these days dives down every time it sees job market improving with numbers of initial jobless claims filing. This is utter nonsense. Market should rise – this is a definite sign of market resiliency even under duress but the fear factor is just too much with market magnets.
These inflation and job numbers strengthens the explosive bond markets which now has crossed 4% yield for 10 year bond. This unfortunately means that equity must pay a price by nosediving south. The fear is that Fed will need to crush the job market by further hiking rates and thereby forcing companies to go for more job cuts and somehow snap demand (which stubbornly remains high) to cut inflation.
Fed has now reached the point of inflection in interest rates term imo. Next rate hike of 50bps or similar will be a suicide mission as it will deepen the mortgage crisis where interest rates level is most likely going to trigger wave of default and foreclosure. The mayhem on the subprime market will be even more pronounced. Unfortunately Chairman Powell is clueless- he doesn’t know any other method and he is well and truly out of ideas.
What Fed is missing that inflation is most pronounced is in food and essential items. People have no options but to still buy them so there will never be shortage of demand. Healthcare is part of similar bucket. Demand will never fall. Price of real estate and auto have come down as demand is exiting the luxury sector so this is exactly what should be expected. So this is it. Fed should announced no more interest rates hike and deal with inflation (in essence food based inflation differently). This will cool up other sector and market should stabilize. Other good option is to sell more bonds and bring bond prices down which will settle mortgage lending south.
If Fed keeps increasing interest rates to the point a safe deposit yield becomes 5% and upward through CD deposits, the market will melt & its impact with be heard loud and clear in form of possibly depression. Biden administration probably has no one educated enough to understand basic household economy. He continues to sit on the top of the mountain unaware that a volcanic lava is about to explode on his remit.
These inflation and job numbers strengthens the explosive bond markets which now has crossed 4% yield for 10 year bond. This unfortunately means that equity must pay a price by nosediving south. The fear is that Fed will need to crush the job market by further hiking rates and thereby forcing companies to go for more job cuts and somehow snap demand (which stubbornly remains high) to cut inflation.
Fed has now reached the point of inflection in interest rates term imo. Next rate hike of 50bps or similar will be a suicide mission as it will deepen the mortgage crisis where interest rates level is most likely going to trigger wave of default and foreclosure. The mayhem on the subprime market will be even more pronounced. Unfortunately Chairman Powell is clueless- he doesn’t know any other method and he is well and truly out of ideas.
What Fed is missing that inflation is most pronounced is in food and essential items. People have no options but to still buy them so there will never be shortage of demand. Healthcare is part of similar bucket. Demand will never fall. Price of real estate and auto have come down as demand is exiting the luxury sector so this is exactly what should be expected. So this is it. Fed should announced no more interest rates hike and deal with inflation (in essence food based inflation differently). This will cool up other sector and market should stabilize. Other good option is to sell more bonds and bring bond prices down which will settle mortgage lending south.
If Fed keeps increasing interest rates to the point a safe deposit yield becomes 5% and upward through CD deposits, the market will melt & its impact with be heard loud and clear in form of possibly depression. Biden administration probably has no one educated enough to understand basic household economy. He continues to sit on the top of the mountain unaware that a volcanic lava is about to explode on his remit.
Posted: March 2nd, 2023 under mY wEbPaGe.