The economy is going down hard.
This is the forecast of the bond market at least. Something we watched over the last year is only confirming many suspicions people have.
By now it is evident to everyone the Fed is on the wrong path. Yes it is true that the CPI is still raging. However, this can reverse course very quickly.
Powell and company are trying to engineer a soft landing. This is off the table at this point. It looks like we are going to smash into the ground on this one.
Of course, that is the case most of the time with the Central Bank. Rarely are they able to engineer a soft landing.
The Yield Curve Is Screaming
We are seeing some truly scary things in the bond market. Some of the major metrics being watched are flashing signs of peril.
Let us start with the yields. How are we doing with inversion?
Here are the number from CNBC
To start look at the 10 year rate as denoted by the red box. Now compare that with everything in the blue box. Notice how those numbers are higher?
This means that bonds from 6 months though 7 years have better yields than the 10 year. That is backwards. Money should not cost less to borrow over a shorter period of time. Yet that is exactly what we are seeing.
These are what is plotted on the yield curve.
Here is what CNBC also has for us:
We have two issues here:
The middle of the curve, from last month to today flattened out. This reflects the numbers we just looked at.
The front end (left) of the curve went up yet the long end (right) has actually declined over the last month. We see the short end (left) more susceptible to what the Fed is doing, so this makes sense. But the long end (right) actually dropping rates is the exact opposite of what you would think should happen.
This, once again, reaffirms that the Fed is not in control of interest rates. It is the market.
Getting back to the curve, the challenge is things were sick a month ago. Now they are very sick.
Here is the shape of what a healthy yield curve should look like. Notice a difference?
Alan Greenspan's Favorite Indicator
The former Fed Chair was very open about what his preferred metric was. He believed that this indicator always foretold of recession. It was one of the few that he monitored religiously.
What was that he paid so much attention to?
It was the 3/30. When that inverted, recession was always the result.
Harkening back to the top chart, the both the 3 and 30 years are noted with the red arrows. They are inverted.
The 3 year is at 3.168% versus 3.117% on the 30 year. This is backwards but then, again, so is all of this.
Another point that is very interesting is that present Fed Chair Powell stated the 3/30 spread is very important to him also.
We will see what he does. It is likely the Fed will raise rates at their next Fed meeting later this month. The only question is how much. With such a high print on the CPI, since the Fed is solely focused upon that, we might see 75 basis points.
As stated repeatedly, by now, it is pure foolishness. The bond market is telling us the economy is very sick. We had negative GDP in the US during the first quarter with many expecting the second to be equally as bad. The EU is in the toilet, Japan falling off a cliff, and China locked down in their major cities for part of the quarter.
And yet the Fed keeps listening the inflation narrative while forging ahead with its intent to reduce demand.
For those who don't speak central banker, that means kill the economy.
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