Long-term yields rise again as the market prices in more Fed interest rate cuts.
Yields through December 12 are end-of-day from the US Treasury. December 13 is a current real-time quote.
Today, the yield on the 10-year note is up 8 basis points (0.08 percentage points). The yield on the 30-year long bond is up 7 basis points, and the yield on the 3-month note is flat.
Change Since September 17, 2024
- 3-Month: -62 Basis Points
- 10-Year: +75 Basis Points
- 30-Year: +66 Basis Points
30-Year Fixed Mortgage Rates
Mortgage rates are roughly following 10-year treasury yields.
Those expecting mortgage yields to decline with Fed rate cuts were mistaken. I called this behavior in advance, as did some others who understand the implications.
Understanding Spreads
Spreads (differences between long- and short-dated Treasuries) increase in rate cutting cycles. This is a normal steepening impact.
Steepening can occur with yields on the long end either rising or falling. With rate cuts, yields on the short end always decline.
A bullish steepening means rates are the long end and short end of the curve both decline, but yields on the short end drop more.
In this case, we are seeing a bearish steepening. That means yields on the long end rise with yields on the short end falling.
Widening Spread
Everyone expected the spreads to widen. A minority of us expected the long end to get hammered (yields to rise) this early in the game.
The lead chart shows instantaneously.
What Does It Mean?
- Lack of faith in the Fed to contain inflation.
- Advance warning that Trump’s tariff threats will increase prices.
- Advance warning that Trump’s newfound love of unions will increase prices.
- Advance warning that Trump’s made in America policies will increase prices.
- Advance warning that the US deficit is out of control and Republicans won’t do a damn thing to fix it
If you vote for all of the above, then you agree with me.
Related Posts
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Trump proposes 60 percent tariffs on China. Would that reduce the trade deficit? Where? How?
October 1, 2024: Trump vs Frederic Bastiat: Who Is Right About Tariffs?
Previously, I discussed tariffs and the trade deficit. This post is about Trump’s proposal to use tariffs to fund projects.
November 22, 2024: Should Anyone Care Whether Underwear Is Produced in the US or China?
This ridiculous-looking question gets to the heart of tariff discussions.
December 4, 2024: The 2024 Destruction of Small Business Employment in Pictures
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December 11, 2024: The CPI Rises 0.3 Percent in November, Rate Cut Odds Jump Anyway
Despite improvement in rent, the CPI rose another 0.3 percent in November. Here are the key numbers.
The Fed is out of its league here.
Importantly, the more Trump does what he says on Tariffs and mass deportations, and especially all of his tax cut proposals with no offsetting revenue, the worse inflation will get.
The bond market does not believe Republicans will cut the deficit or the Fed will handle things properly, and neither do I.
You are free to believe whatever you want.
In July 2024, Miran and Roubini published a White Paper that alleged the Treasury had adjusted maturity profiles of its debt issuance, over the past nine months (starting about October 2023). An impact similar to roughly $800 billion in QE.
In October 2023, Yellen complained there was no liquidity in Treasury Bonds. 10-year rates were at 5 percent. Suddenly, there was enough liquidity to reduce 10-year Treasury yields 24 percent over the next 2 months.
In 2019, Powell’s pivot of $120B per month QE, decreased 10-year Treasury yields 50 percent, in nine months. An $800B QE equivalent rate decline, from Yellen’s Treasury maturity realignment, would be a 30 percent reduction in 10-year yields. Which occurred between October 2023 and September 2024, rates fell from 5 percent to 3.6 percent.
Yellen’s intent was to lower refi rates, and put money in recent homebuyer’s pockets before the elections. There wasn’t an advantage to continue the policy closer to November and rates rebounded.
This repeats Yellen’s progressive activist monetary policy, while she was Fed Chairman. In January 2016, Yellen lowered yields on 10-year Treasuries 40 percent, before the elections. After Trump was elected, rates rebounded to previous levels.
Miran and Roubini included short rates in their supposition. But, short rates were lowered, for corporate investors, through BTFP loans. The market took off when loan rates were reduced by 1.5 percent, in belief the Fed would cut rates 6 times. The Fed now cuts FFR to replace expired 1-year BFTP loans. Inflation in 2025 makes the remaining 2 reductions difficult.
THE WORLD IS BROKE AND THEY ARE SELLING THEIR US TREASURY PIGGY BANK TO RAISE CASH AND TRYING TO STARVE OFF DEFAULTS. Rising interest rates are just a supply and demand story. Foreigners are selling treasuries causing the price to go down and interest rates to rise. Adding fuel to the fire is foreign bonds have been a better investment because the lowering foreign rates causing price increases in bonds even with currency declines. The Chinese, Germany, France are in economic crisis. If you looked at their PMI’s, these levels are comparable to depression if not recession levels. Inflation is not the problem in other countries but deflation. Normally, long term rates reflect inflation and growth expectation, but we now have a short-term factor influencing these long rates. It takes time for the crisis oversees to get to the US. We are not immune. After all it is a global economy. Don’t worry within the next year people will be lamenting that they are only getting 0.1% on their money market accounts.
The Fed does not control long term interest rates and only influences the short-term rate through overnight lending. The Fed follows the 2-year US treasury rate. With all the bluster of the Fed, the Fed follow the market with overthought and a propensity to make a bad situation worse. Witness the lack of raising rates while the 2-year edges higher bringing about worse inflation. What did that mistake cost in inflation? It is not tariffs, wages or a myriad of overthought economic factors just simple supply and demand.
There is a colloquial (some would say colonial) expression that is apropos,. Largely used in Australia, ‘Up Shit Creek without a paddle,’ the ‘urbane legend’ has it derived from the prison hulks on the Upper Thames–before prisoners were transported to Australia.
In essence, a difficult situation with no way out.’
There are factors, in addition to the MIsh Five, which are IMHO, an acknowledgement that the Fed has no solution, or lost control; and Government is mostly self-aggrandizing–a disaster wherever it turns.
Maybe if Trump put Rand Paul in charge to the State Department, and tossed the Nulands out the door, there might be a chance of fewer foreign entanglements. A ‘war’ in the Middle East will add another $10T to the debt. And Trump will go to war for Israel.
More bad news, implementing DOGE recommendations will be nigh impossible given entrenched politicians and resistance to change, generally. Only a cataclysm could produce the mindset for the kinds of changes needed to dig the USA out of technical bankruptcy and genetic idiocracy.
Grow our way out? Good luck on that with welfare killing the will to work, declining health, shoddy education,… I blame Keynesian economics–it facilitated ‘government knows what is best for YOU,’ today’s Orwellian nightmare. The welfare state is the way to mediocrity.
The only good news–the rest of the world is in worse shape.
Oh, and regarding the Fed…
What we don’t know is what would happen without the Fed. For example, would markets evolve their own controls that are more effective than Fed dependency
One thing I do believe is coming, scaling back of all the foreign interventions using borrowed money to fund them.
Trump has it in his power to have a breakout of Peace or at least de-escalation around the Globe. That in turn will reduce Treasury pressure to fund all those Neocon Wars.
Blowing up money via armaments sent to other nations is never a good use of Wealth.
We’ll see if he’s MAGA or MIGA.
Reduction in War waste spending is coming. Whether by Policy direction or Hyperinflation.
Even the changeover to Fiat so as papering over all the Deficit spending, rather then the rigidness of Gold standard, is no longer doing the Job. Far too many people now see the danger Fiat poses to their own well being and they are actively doing things to protect personal economic future.
No one who has a shred of knowledge believes anything coming from a Central Bankers mouth.
“Advance warning that the US deficit is out of control and Republicans won’t do a damn thing to fix it”
Peace through strength is expensive. The hardware costs a lot of money.
“Long-term yields rise again as the market prices in more Fed interest rate cuts.”
Action begets equal and opposite reaction. I read the U.S. government had a record borrowing spree to start off the first two months of the fiscal year. On her way out the door, Yellen is now lamenting the government’s fiscal situation. Remember, the horses are already out of the corral. Too late to close the gate.
The Fed is acting as the de facto fiscal agent of the US Treasury here. The US Treasury will fund itself more cheaply with short-term issuance, while the real economy gets strangled by the resulting rise in long-term rates.
Short-term desperation move that is sure to produce an eventual disaster.
Were you saying the opposite when the Fed raised interest rates for a year and a half, starting in 2022? That the Fed was the fiscal confiscator of the US Treasury? Because if not, you’re another sucker for hubris!
Because about 20% of the current US debt is in T-bills in duration of one year or less, which is still at higher rates than long-term rates
I interpreted his comment as being forward looking, based on the rate cutting trend, three in a row as of next Wednesday.
They waited until inflation had hit 20% before making the first rate hike. The inflation was “transitory” they said. Of course they were dead wrong and to salvage any shred of credibility they had left, they had to raise rates quickly.
Ah, you’re one of those that think your own personally contrived perception of inflation is more accurate than its actual calculation.
Your comment makes more sense now. Not in a reality-based way, but more so thru a in-your-mother’s-basement and in-your-own-tin-foil-hat way.
The hubris is strong with this one! Good luck with that
You get higher real rates of interest by draining reserves while dropping the short-term administered interest rates.
You get appropriate and effective real rates of interest by letting the market of borrowers and lenders interact freely. Anything else is artificial and results in irrational behavior–eg. negative real rates for about 8 years.
Rates would be at 10% in that case, as we saw in September 2019 overnight lending rates.
I prefer starting with the opportunity cost of lending. The lender’s opportunity cost resolves to four components, real rate, inflation rate, a time premium, and risk premium. In theory, they’d be expectations.
What happens when the lender’s opportunity cost greatly exceeds the offered interest rate? See September, 2019!
The real rate is approximately the real rate of increase in the GDP. Inflation is obvious–use the CPI for short term treasuries. Long term inflation prediction is nigh impossible, and not really needed since bond can change hands numerous times in 30 years… Price adjusts to achieve the yield. BTW, the term component is the major factor behind the ‘normal’ yield curve. We also assume the Fed Bond/Bill rate is risk free–despite a slight probability of default.
Now, all of this is theory. And bad numbers for real and inflation rates don’t help. My guess is the current 10 year rate should be in excess of 7%. However, I don’t buy Treasuries. My current favorite near ‘cash’ investment are 30-day CDs, stacked with varying maturity dates, and diversified regionally.
“1. Lack of faith in the Fed to contain inflation.”
This is the only correct answer. More accurately however is that the Fed is a partisan organization that is no longer concerned with the optics of said fact. Their half point preelection rate hike was to help Kamala Harris. Their goal now is to do as much damage as possible to the economy before Trump takes over. Anyone who doesn’t see this is suffering from TDS.
Another brilliant appointee from trump.
Wow. Let us get your ‘theory’ straight.
The Fed CUT (not a hike) in September to somehow HELP Harris. But now that the Fed is predicted to do the SAME thing next week, that action is a concerted partisan effort to HURT Trump? So standard economic practice goes from totally helpful to completely harmful in 3 months?
Not to mention the fact the market has been clamoring for and predicting massive interest rate cuts for over a year now. But you’re SO sure of this partisanship that anyone not seeing your POV “is suffering from TDS.”
If this is not sarcasm, your conspiracy-fueled hubris is so deep that it’s incurable.
It strikes me as ludicrous that the self-interest of ‘the market ‘should be a factor in anything but individual decisions to invest, or borrow/lend. I’m tired of handouts, bailouts, of the Fed ‘controlling,’ yet when SHTF, it can’t get it right, and more often, gets it wrong.
Business cycles serve a purpose. They flush the weak and enable the strong. Capitalism works until government decides it knows best. The major players want more control, so they don’t have to compete.
That said, you might care to explain the Fed’s moves from 2008 to 2020. Obama needed propping up? Equally likely, he could not be allowed to fail. Partisanship? It might be staring you in the face.
Fed Chair Powell is going to continue to get spanked by the bond market for his foolish behavior. Powell is way over his head thinking he can tame inflation by easing.
Does Powell even know what he’s doing given that the US is technically bankrupt? That resistance to the US is growing stronger, and the dollar is becoming increasingly suspect, and the desirability of US bonds is fast disappearing, but continues only because other countries’ currencies/bonds are weaker.
“Continue to get spanked”?
The US is in debt for $36 TRILLION and people all over (including tons of people in the US AND around the world) are lending money to the federal government for 4.4% over a ten-year period.
If that’s getting spanked right now, I’ll take a few good licks, ma’am
Agreed!
What Does It Mean?
1Q) Lack of faith in the Fed to contain inflation?
1A) No, but rather lack of Leadership, allowing a Fed to become misguided.
2Q) Advance warning that Trump’s tariff threats will increase prices.
2A) I have only so far seen Trumps threat of a Tariff, save what American Citizens clamored for in overwhelming %’s, and that’s Borders Tightening, Illegals Self-Deporting, and the likes. Oh, and Mexico stopping the Caravans too.
3Q) Advance warning that Trump’s newfound love of unions will increase prices.
3A) Trump doesn’t like EV’s on the whole. Trump appears to be giving the Democrats the go ahead and to carry that mantle. They better do it “Extremely Well” and “On Budget” and we will see “Massive Result’s” within 06/2025-08/2025, or Trump will take it back, and they will suffer a great deal for it happening, is my guess. Love of what was that again?
4Q) Advance warning that Trump’s made in America policies will increase prices.
4A) Can we quantify this supposed increase in prices. I am talking relativity, all factors, etc. Factually we do know that we will save money on “Shipping” for example, however that’s an obvious one. Relative to Reality in 01/20/2025, as the Official Start Date, Do we even know what these “Prices” are or will be, and if not, then why is it even being discussed? No actual Policies, Prices, or Official Documents, so what’s your question?
5Q) Advance warning that the US deficit is out of control and Republicans won’t do a damn thing to fix it.
5A) I think what you obviously meant to say, was: > Advance warning that the US deficit is out of control, due to the unbelievably bad policies enacted under the “Harris / Biden“ reign of terror. The Republicans will do there absolute best to fix this Democrat Self Inflicted Mess, but with roadblock after roadblock already being set, it’s going to obviously take a lot more damn time to fix it, as a direct result of the Democrat Party “Yet Again”
– If you vote for all of the above, then you agree with me.
> Well I didn’t, so I guess we disagree. I suppose in just over a month or so, we should all have a much clearer picture before our eyes… Maybe even actually know by 02/20/2025 or so?
Its also the Republicans self inflicted mess. Nearly all of the Republicans in Congress voted YES for the trillions in wasteful spending bills and Trump signed the 2.2 trillion dollars Cares act. Its totally ignorant to think and say the Republicans are not equally to blame.
– Its also the Republicans self inflicted mess.
> RINO’s Most Definitely, but they’re NOT Republicans.
– Nearly all of the Republicans in Congress voted YES for the trillions in wasteful spending bills and Trump signed the 2.2 trillion dollars Cares act. Its totally ignorant to think and say the Republicans are not equally to blame.
> You must breakdown that legislation, and understand what had to be signed and why. What was pork barrel and by who and why? What was the overall benefit they signed off on, and was it worth it if they didn’t sign off?
>> It is absolutely disingenuous to even imply that Republicans were equally to blame! Many RINO’s did and always do, but the True Republicans must work around them, until we get control back (Oh, “We Just Did”, and then you “Will See” changes (Oh, “We Already Are”) for the Much Better!
Loving 2025 before it even arrives, because so much Good will be done for Our Country! Just what the Citizen Voters of America Desired, in there overwhelming defeat of the “Status Quo” it will be Simply Beautiful!!!
Hello-A voice of reason. It’s not good Republicans and bad Democrats, it’s the system. The pols must hand out favors to get elected. It will be a cynical and sad four years.
4A… Assume Trump’s tariffs/Made in USA policies are related. Chinese widgets once cost $10. With tariffs, the price is $13. A US widget manufacturer has to build supply chains, factories etc, hire higher-priced labor, provide greater benefits etc. At what price will the US manufacturer sell widgets?
a) $10.00
b) 12.99
c) 13.00
d) $13.99
China will do what it did with Trumps 1st term. They will devalue their currency and subsidize..or increase subsidies to their manufacturers.
Will China be in a position to devalue & subsidize their manufacturing sector? I ask b/c their economy is reportedly not as robust as it was 8 yrs ago, though — admittedly — the reports are from the media that I don’t trust too much.
– Assume Trump’s tariffs/Made in USA policies are related.
> I will not assume that. I will await the “Actual Policy” and then see what “It States” and then review what that could mean, and then digest that. After that, I will await the feedback, pushback etc. because we only know the suggested policy at this point, Still. We will then have a “Revised Policy” that will be much closer to the actual final policy proposal, and then we can discuss what your looking to, but until then, as I said, we don’t even have a clue what the final proposal voted on and approved will be.
– Chinese widgets once cost $10. With tariffs, the price is $13.
> You know this how? When were they $10? Where did you get the Tariff Info from to know it will be $13?
– A US widget manufacturer has to build supply chains, factories etc, hire higher-priced labor, provide greater benefits etc. At what price will the US manufacturer sell widgets?
> Maybe they can take over one of the failed and closing EV Plants? They have Workers, Equipment, Space, No Use for it as is now. Union Members being let go, will need jobs. Union Pay is gone, What they are willing to pay is back, so they may end up even cheaper than $10, if we alter the factory to make it better, faster, cheaper and on time and budget (unlike Unions, but I digress), so who knows, but you and I certainly Don’t!
The actual dollar amounts do not matter. What matters is the impact of competition GLOBALLY given inherent costs of land, labor and capital.
My point is simple, I think. Globalization produced an efficient result for global land, labor, and capital. Shoes are no longer made in the northeast USA. To recover a now-defunct ‘shoe industry’ is not easy. There are real and substantial costs, and a vastly higher labor rate in the USA. And yes, China will react and resist… BUT AT THE END OF THE DAY, US prices have increased.
A far better approach is to address ‘preferred nation’ status, supporting other Asian countries, and eliminating China’s stranglehold.
Then, focus on making the US the global innovator in all things. Wealth has always followed innovation–if only for the few years that happen before imitation. That means a revolution in education. NOTE Singapore is way ahead. They understand. It is not about unions, tariffs etc.
” In a new interview with Time magazine for its Person of the Year edition – I’m assuming he was named Person of the Year for coming up with the word “groceries” – Trump was asked about his promise to bring down food prices.“Look, they got them up, I’d like to bring them down,” he said, blaming the Biden administration. “It’s hard to bring things down once they’re up. You know, it’s very hard.”
Yup
Prepare MAGA for more admitting that he can’t do what he promised………..
– In a new interview with Time magazine for its Person of the Year edition – Trump was asked about his promise to bring down food prices.“Look, they got them up, I’d like to bring them down,” he said, blaming the Biden administration. “It’s hard to bring things down once they’re up. You know, it’s very hard.”
> Well that’s an interesting post? So “When” exactly did Trump “Promise” this, and “When” again exactly? Trump “Did Say”:
– Groceries will be more affordable very soon.
– Cost of Food & Energy will be reduced very soon.
> Last I checked, Harris & Biden were still in office, still pushing cost on Food & Energy Higher & Higher. I actually will go out on a limb and say that “Harris/ Biden have done Zero to bring down the cost of Food & Energy”. I will go further to say “Harris / Biden continue to Increase the Cost of Food & Energy each and every day they remain in office”
>> So as “Promised” to America, Trump “Once He is IN OFFICE” will do everything in His Control to lower the cost of Food & Energy. This will obviously depend on “How Things Look” THEN & NOT NOW, as Harris & Biden are in Charge, and adding more and more cost each and every day, that they are both in office!
– Prepare MAGA for more admitting that he can’t do what he promised………..
> Prepare for MORE Democrats to say things that are not based in reality, or simply “Prepare for More of the Same from Democrats” and you won’t be let down, disappointed or have expectations that others can snap there fingers, and cure all the whoas that others created overnight…
Food items with a lot of labor/energy intensive manufacturing will likely never decline unless there are significant increases in productivity– that is innovation. If prices do decline it will be because of reduced demand, relative to supply.
– Food items with a lot of labor/energy intensive manufacturing will likely never decline unless there are significant increases in productivity– that is innovation. If prices do decline it will be because of reduced demand, relative to supply.
> Don’t we add a lot of extra labor, productivity and money on “So Many Choices”? Maybe the plan is to cut that down by decreasing variations. Why do we need 50 cereals with 50 different production lines to make them, or shut down, clean, and reuse the existing one. Wouldn’t it make sense to ramp up production on say 10 choices, make 10 much higher cost and less available (they will self implode), and cut your choices from 50 to 20 in short order. So you will have decreased manufacturing cost, labor cost, machine cost, downtime, etc. So basically the things you mentioned above?
>> We have many, many ways, but we need the fortitude to do so. Trump has that, Harris / Biden, not even close…
You are short on innovation, and high on regulation. Also, this is not about political parties. It is about where the future is. Bashing your head against a Chinese brick wall is not helpful. You need to go around, over, or under the wall.
Imagine a cereal especially tailored for you. It addresses your specific dietary needs, and foibles.. It is made just for you, shipped direct every two weeks… I’m exaggerating, but the point is an individual-crafted good will have higher value to you because it meets your unique needs. Find a way to do it, and you put Kellogg out of business.
They can deny any reality, no matter how harsh. Trump will give them sh*t, and they’ll call it sausage.
The only way to get people off welfare into work is to increase wages while inflation debases the value of welfare transfer payments.
Based upon what just happened in CA. It may just be a sure way to ADD to the welfare rolls. More people unemployed is not a solution we’re looking for. There are other ways that may have an impact, or may not have an impact, but we could try all of them (in small experimental situations) I suppose, and see if one or two works? Sort of like “Paying a living wage” has recently once again been proven, not to work, so you got to try new ways.
1. (X$) Amount of Weeks Per 1, 3 and 5 Years (rolling!), and then “Removed” from that system, and to Whatever System they have now, or a new one will need to be created that actually works!
2. Get caught Cheating, Scamming, Playing, Stealing Etc. From the System, you will pay very steep penalties, and wish you didn’t, and went the correct way laid out for you.
3. Have Towns, Cities, States, Etc. Devise “Work Flow” Jobs needed by those entities. You help pay down your penalty, and stay free. 3-Strikes and your back where you were, but with an increase if agreed upon. ADD Incentives!
>> Lots and Lots of ways to approach/attack this issue, but with results firmly placed upon rewards by time, activities, behavior etc. but added on X3 perhaps as an incentive to stay with it, and get the heck out? Not sure, but I think I could easily come up with 3-10 more pretty quickly…
Wages can only (legitimately) increase if the total cost to hire is less than the total value created by the job.
Getting people off welfare begins at birth.
The fed is simply a shill for the equity market.
I agree.
Shill for the US Treasury Department.
The Fed supports its major stakeholders–big banks, big investors, big government, big pension funds, big…. That you can’t afford a mortgage or buy food is your problem.
1 and 5 if Trump came out tomorrow and reversed his stance on 2-4 rates would not drop!
And the 10y-3m uninverted today. Will we see a longer post on the status of yield inversions? If so, thanks.
Tulsi Gabbard Stands for Nothing
Some observers are hoping that Tulsi Gabbard, as Donald Trump’s pick for director of national intelligence, will be a counterweight to warmongering “neocons” in his administration. But a sober look at her record doesn’t inspire much confidence.
Source
… says the guy that never provides one. You’re just parroting.
I love experts in national intelligence. Some of my favorites (NOT) are Sullivan and Blinken. Biden’s current DNI is Avril Haines, an Obama acolyte. She’s also had business connections with Blinken (Planatir) so a Pentagon shill. Compared to her, Gabbard is fresh air.
Oops. Planatir should be Palantir
Looking at TradingEconomics.com, it looks like bills from 6M and higher, plus notes & bonds are all moving higher. For now at least, the bond market isn’t buying what the Fed is selling. And yet FedWatch is predicting a 95% chance of a rate cut next week. Is this the tail wagging the dog or what?
The first 3 months of 2025 are going to be spectacular at how hard the Fed works to deny the inflationary reality. Maybe they know something we don’t like the jobs market is really on the cusp of rolling over whereby Mish’s unemployment graphs show continued claims zooming past 2M?
Monetary policy generally takes 1-2 years for the full effects to be felt in the economy. If the Fed is cutting now, it’s thinking about where unemployment and inflation will be in mid-2026. It’s not a conspiracy.
The Fed may have to change course again after Trump gets in and starts making actual policy changes that will move the real economy later.
While it is true that inflation expectations have increased by about 10 basis points, over that timeframe, the real impact has been on the expected real rate of return after factoring out inflation expectations.
In the currency markets, the dollar has been crushing everything. The Chinese Yuan, however, has maintained its rough peg of 7.2 to the dollar. To keep their currency from deflating against the dollar, I am guessing they are selling treasuries bigly. As the Yen gets closer to 160 to the dollar, Xi may just decide to say “whatever” and devalue the Yuan. This would also negate the Trump tariffs on China’s domestic manufacturing.
Additionally, the Treasury has been playing games by issuing longer dated maturities than normal like the $22 billion in 30 year bonds it sold just this week.
Prima facie, increasing long-term rates have a lot to do with the acceleration of the “fiscal dysentery” that is the Federal deficit. Obiden seems to be stepping on the accelerator on the way out the door (some of it to fly more illegals into the country on jets). Apparently spending for the last 2 months is faster than what was already producing $1,000,000,000,000 addition Federal debt every 100 days.
But of course, Mish isn’t wrong to assess that no one thinks anyone is likely to dent the incontinent spending of Leviathan.
Gold should be the benefactor of what lies ahead.
Not if the rise in rates reflects an emerging, genuine scarcity of credit-carrying appetite.
Gold is a global issue. With a credit crunch, which seems to be bearing down, gold will likely be the global safe haven. Reserve banks are buying.
IT angers me greatly that the Fed is cutting. Inflation for real people has not come down.
And its the most important thing.
The Fed (besides that it needs to go) continues to act like its job is to prop up the stock market.
This is not its job. It should be indifferent to the stock market and massively concerned with the main street economy where real things are made.
There’s no need, or indication to drop interest rates. This has been the problem for 25 years… pushing up asset prices, destroying the value of saving and creating speculation sans investment.
The feds job is to keep govt debt servicing contained
What about the fact that the unemployment rate has increased from 3.4 to 4.2%? Are you concerned at all with “the main street” employees that have lost their job over the past year? What about the others that the Fed is afraid of losing their jobs and livelihoods. The Fed has at least two mandates, not just fighting inflation.
Not with our inflationary depression. I’d prefer higher unemployment
More people on the dole…. socialist.
It’s first duty is to fight inflation, to maintain “stable” prices. The latter came later and is squishy at best. Still, inflation impacts every American, both employed and unemployed. Unemployment impacts, well, only the unemployed. You see the difference? Every. Transaction. Every. Business. Every. Consumer. It’s why there’s been so much disruption since the massive inflation in the last 3 years, because every last bloody thing that turns in this economy is impacted by inflation/inflation expectations. The Fed is, once again, gonna FA&FO but the irony….if the SHTF they get cover to finally crater rates, get made whole a a bunch of stuff they hold and won’t be harmed in the least. And a good ol crisis allows them to do even more of their shenanegans.
Still, the balance of economic conditions is still squarely in the inflationary camp vs the economic-downturn/employment camp. Rates should not be lowered so, expect them to be lowered as the market has said.
One other comment on the difference between unemployment and inflation, having experienced both. When there’s inflation, there’s no escape, no respite, no hiding placle, and no way to avoid it. At least for the first 6 months in most states there is a bit of unemployment insurance to offset some of the sting and, despite unemployment rising a bit, finding a job is a binary resolver of the issue for the unemployment. I have no mechanism to avoid paying signficantly more for everything without going further out on the risk curve in an all-time-high market.
Let’s use their approach to inflation–let’s assume the recent creep up in unemployment as “transitory” and let that number get a bit worse, if that’s where it’s headed, for about 9 more months, about as long as they let the inflation burn red effing hot before they take action.
I suspect most folks on this blog want no part of their own asset prices to decline one little penny and are just fine with inflation everywhere so long as they hold assets. A large number of folks, far more than those recently impacted by a job loss, just bear the brunt of the Inflation.
Remember the Japanese were extremely happy for decades of no inflation, it allows for managing your life without uncertainty. Job losses are catastrophic for those impacted by everyone is working through the inflation now. I’m definitely not a fan.
You’re spreading falsehoods, or at least displaying your bias/ignorance.
The Fed does not have a primary inflation-fighting mandate. Congress made it clear within actual legislation that the Fed’s job is to maintain “stable prices”, “maximum employment” as well as “moderate long-term interest rates”.
And if you’re more concerned with inflation (2.7% YOY), that’s your own selfish POV perspective and you’re entitled to it.
But regardless of what you think, the Fed is also concerned with unemployment. And it does not just affect that one unemployed person as you say. When they lose their job and their income, they spend less (and cause higher government budget deficits) and it’s likely others will therefore lose their jobs as well which can cause a hard-to-stop spiral (remember the Great Recession). So the Fed worries about this for us (by Congressional mandate) because people like you are primarily concerned about their daily grocery bill being a bit higher, and not the neighbor-you-don’t-know that is drowning from job loss
I think the Fed is very much at fault for the falling employment due indeed to their suppression of rates. Artificially low rates stimulate the wrong kinds of growth, a big example being real estate speculation gigs like operating short term rentals, a lot of work from home jobs, and the delivery gig work. Jobs related to asset speculation take away workers needed to for stable long term viable production. So the Feds methods are going against their own mandate. If we didnt have the Fed, and let the free market spur production, we’d be a lot better off because theyre an enormous waste of resources thats not making anything better, but the opposite.
It doesn’t matter what the Fed is concerned with. Business cycles still happen regardless. It can be argued that the Fed’s meddling in the ‘Great Recession’ actually set in motion a far greater problem. Next up, The Great Debt Implosion.
Re “ the inflationary camp vs the economic-downturn/employment camp”
Those are not mutually exclusive. See for instance 1976-1983.
Lowering short term interest rates won’t help the unemployed, and it isn’t doing anything for consumer interest rates. Credit card rates are ignoring the Fed’s rate changes – maybe because credit quality is deteriorating. And mortgage rates are anchored to the 10-year which is rising not falling.
I don’t know what “consumer interest rates” you’re looking at, but they aren’t the right ones that show the reality of the Fed’s effects.
Since the Fed dropped the Fed funds rate 75bp since September:
My money market rate has dropped 0.75% making me want to save less;
My HELOC rate has decreased 0.75% making me willing to borrow and spend more;
I bought a new car in September at 2% interest (offer was much higher when I checked in April);
and my wife is test-driving a new car this weekend advertised at 0% interest.
If you don’t think these decreasing interest rates affect additional purchases and production (and thus the potential for the unemployed to find a new job), you haven’t read much economic or consumer purchasing theory. So I won’t be able to explain it any better than this
3.5% unemployment used to be considered too low. There is always a certain amount of turnover plus seasonal shutdowns and such. 4.5% was once considered full employment.
Does anyone have a neighbor or family member to lose their job?
Yes, some of us have. And I think it’s hard seeing someone that is working hard and has lost their job through no fault of their own (just generally less spending overall, for example) struggle to provide for their family. But it appears a lot of people here don’t really care too much
Sustained 4.2% unemployment is unicorn level. That is a “new” phenomenon. Not enough slack in the labor market causes inflation. The less slack, the higher the inflation. It behaves like a spring that governs the economy, cf Hooke’s Law.
Perverse behavior of central banks trying desperately to be relevant in a world that no longer requires them. They meddle and play with models they can’t even hope to make work properly because we simply don’t have the computing power to understand the input drivers. Same problem with climate but we are forced to follow the soothsayers I suppose rather simply because of inertia. The Chicago School has FAILED! We need better brains that understand that the 21st century is not the 20th century and the old economic models won’t work because our collective society doesn’t march to that drum anymore. In the meantime the Fed and its 20 thousand or so employees get to play god. Here is a thought….In the beginning of the computer revolution Boeing had thousands of aeronautical engineers with slide rules running around designing aircraft. After a little more than two decades that number had been whittled down to a fraction of its former self. If economics were like engineering the same thing would happen to the Druid discipline of economic prognostication. It isn’t so instead of efficiency our answer is we need more priests to obfuscate the truth that they know absolutely nothing about what drives the economy. Sort of silly isn’t it?
Is the stock market NOT the barometer of the main street economy?
Theoretically, the stock market is a close correlate of GDP. It should be the barometer; however, by manipulating interest rates, yields, and risk premia, the Fed created its own nightmare.
Except that now, financial engineering *is* the US economy, after 40 years in the making.
GREAT! Have them keep rising! The price of housing has to come down!
That’s either going to happen via higher for WAY longer than anyone expects, or
Recession
I’m fine with a recession. I’m a HS math teacher, and my job is about as recession proof as they come. And while my TLT position will lose some value, my annual interest income will rise nicely. And then when the recession arrives & the Fed is forced to buy tons of long-term bonds to control yield, I’ll sell off my positions & make 30%.
And it’s about time we see higher interest rates which will get everyone’s attention as interest expense explodes towards $1.5T in the next few years.
I’ve heard someone wants to do away with the department of education… so things might not be as secure as you think. If they manage to do 1/3 of what they’ve promised, nobody will be secure in the ensuing upheaval.
Will still need HS math teachers…..whether or not a Dept. of Ed.
If they shut the Dept. down, its work will just have to be done by another Fed. dept.
The “Department of Education” was concocted in under Carter in the late ’70’s and opened for business in 1980.
It has overseen the worst decline in education in our country’s history.
Prior to its rule, the US ranked near the very top in world literacy.
Since its inception, US students’ math and science scores have done nothing but slide steadily downward, now ranking near the very bottom in industrialized country rankings.
And to accomplish this feat, it costs the US Taxpayer $238 billion dollars (2024 Budget).
But, more importantly, the future prospects for the children of this country are being sacrificed on the alter of Government Greed and Control. THAT IS PURE EVIL.
And, force-fed an indoctrination of socialism, racism, marxism and hatred of their nation and its Founders.
This has to stop.
Government does nothing better or more economically efficient than the private sector.
Good analysis. Not sure about the Dept. of Ed being responsible for all.
The decline in US math & science grades is a complex subject. One factor could be the end of the Cold War.
Highly agree except for at least one thing. I think the govts setting aside and handling the national and state parks, to preserve some natural treasures of our nation has gone pretty well. Could you imagine if private enterprise went in and set up a bunch of tacky dirty operations in those places? Would be a real shame.
Hilarious! Most idiotic post of the day.
IFFFF they get rid of 1/3 or all of the DoE, the federal dollars for the most part that support school operations are going to keep flowing as block grants.
FYI – my salary is paid by local sales & property taxes as well as state income taxes. Eliminating the entire DoE isn’t going to affect those sources of revenue that support my job. The Feds aren’t going to cut spending on lunches or special education, neither of which have anything to do with me teaching general / honors mathematics.
We’ve got about 3,200 students at my school with a growing population. There are 22 math teachers in my department, and I’m about #6 from the top in terms of seniority. My job is recession proof, trust me.
All that happened in the GR was a 5% pay cut, then 10%, then back to 5%. And the pay cut was in the form of a furlough. When you only work 188 days a year, getting 5-10 unpaid vacation days is no big deal. I doubt a single FTE HS math teacher was let go in my county.
Fortunately, I only have 5 more years to go, then I’ll retire after 22 years @ 63.5 and start drawing my $3,500 a month pension that rises 3% every year. I’ll take SS @ 65’ish and gross at least $2,700 a month with a paid off house in early 2025.
$74K+ a year before I start taking $10-15K a year RMDs sounds about right.
Unlike Illinois, my state’s teacher retirement system is funded @ 90%+.
I agree though. I hope there are lots of persons pushed out of the federal work force via retirements, voluntary & involuntary severance, primarily for those not pulling their weight. Hopefully, there will be tons of construction jobs available once deportations pick up. Tell those under 40 DoE employees to go pick up a shovel.
Change is a coming. We’ll see how successful or unsuccessful Trump is. Time will tell.
Good for you in your job choice. I guess it’s good and even OK you are on the local dole and not one of the federal employees Trump wants to get rid of so badly. But as long as someone else is getting the ax, it’s OK, right?
Yes, I’m a very good teacher, making a difference in the lives of our future. I’m light years more important than the tens of thousands of federal employees who are just collecting a paycheck.
FYI – I don’t want the entire DoE to be trashed. I do think there’s need for a much smaller Federal group that helps states coordinate their needs. But like most federal institutions, the DoE has grown way too large and out-of-date.
I would expect some of the federal employees would be absorbed into the state systems that they help. The one thing I do want to end is any sort of federal curriculum requirements.
Last, my main hope is that Trump goes after & successfully cuts the waste, fraud & abuse across all levels of government & programs. Will that mean some job losses? Yes, of course, it will, but my hope is that the private sector grows, resulting in a slow transition of the jobs on the payroll reports from being G-jobs towards private sector jobs.
Personally, I sing my kids’ teachers’ praises all the time, so thanks for your work.
But somehow you think you’re different and “light years more important” than so many federal employees. But you’re going to retire at age 63 with 22 years of teaching experience and collect $42,000 a year right away with annual COLAs.
It’s VERY possible you will collect more years of retirement pay than work pay, all paid for by local and state taxpayers. Do you realize how many people on this site think you’re a large part of the problem? And yet you think you’re different and all those ‘others’ are the leeches that need to be torn off and discarded.
You don’t even seem to recognize your hubris. But don’t worry too much about it, a lot of people here don’t see their hubris either
When these protected class pensioners collect more income in retirement than when they were working, that system cannot endure.
And, collect that pension for nearly as many (or more) years than they actually worked, does that seem like good fiscal policy?
It is a Ponzi, pure and simple.
Yes, it takes time for the poor and middle class Social Security pensioners to catch on but when enough of them have awakened, the call for reform will be impossible to ignore.
That awakening has begun and the proof is the mass’ desire to lop millions of unnecessary and also overpaid heads at the Federal Level.
State and local to follow…
I specifically said that I’m light years more important than those federal employees who are just collecting a paycheck. What part of that makes you think that I believe I’m more important than good, honest, productive federal employees? That’s clearly not what I was saying.
Again, I don’t want good hard-working people who are adding value to ensuring our federal government is doing the people’s work to lose their jobs. Like I said, I don’t think entire DoE needs to be eliminated, but I assure you that there’s a lot of fat that be eliminated through early retirements, attrition, etc.
Be that as it may, my being a HS math teacher doesn’t make me part of the problem. That’s laughable. I left high paying IT position 18 years ago and took a 40%+ pay cut for the job security of being a teacher. And I certainly don’t want there to be a recession, but we all know there’s one headed or way at some point in time. I just have the good fortune of not having any real angst over it.
Be that as it may, government in general has to shrink & be more efficient, and in time that will mean fewer teachers. I’m fully expect AI will eventually create hardship in the teaching ranks.
Cheers!
No, I get it and already know about your type of self-rationalization. There’s economic/sociological studies out there about you double-dippers. Work in a ‘regular’ job at least 10 years to contribute to the Social Security system so you will get decades of Social Security payments from federal taxpayers. And then get a ‘secondary’ job as teacher/officer/etc. so you also receive local/state pension payments as well for decades.
It’s legal, and a personal choice you’re allowed to take advantage of. But when you get on a blogsite like this one, and then COMPLAIN about all the people just ‘showing up’ for a paycheck (when you will get dual retirement paychecks paid for decades for by regular people), it makes some people want to vomit.
It might be different if you said “thank you” to everyone here for your tax dollar support. But instead, you post for a fourth straight time within this one narrow thread alone to rationalize your own self-interested take. And try to backtrack on your previous critiques of others?
Severe hubris, anyone?
Using generally accepted accounting guidelines, 27 of the 50 states are bankrupt, with public employee legacy expenses being called out as the most egregious cause in most of those 27 states.
When a state must borrow to pay retirement benefits while allowing infrastructure to rot, its days are numbered.
JayW,
Congrats on a successful career and educating yourself early about the economic reality and living your life accordingly. One thing I want to make a point of: I’m one of the federal civilian employees that have become cannon fodder in popular conversation. I have a master’s degree in meteorology and work in the space program ensuring that our rocket launches are safe & successful. It is a demanding job–I’m essentially on-call but not get classed as such, have no routinely scheduled days off, and have almost no forward visibility with my schedule, being on-console the day of launch providing “GO/NO GO decisions” as well as providing weather support for all activities leading up to launch. And as we know, launches scrub or get rescheduled all the time, usually within the hour prior to launch. As such, I work most weekends, some holidays, many overnight shifts mixed in with day shifts, but have very limited ability to plan for “days off.” At Cape Canaveral/KSC, the number of orbital launches has climbed from 17 in 2019 to 88 so far in 2024, all done with the same number of meteorologists in my small unit. This is a GS-13 job paying about $135K a year, and even after 24+ years, my pension will be lower than what yours will be. Very few people would have the mathematical/analytical ability to handle what I do, and even fewer could mentally tolerate an ever-changing daily schedule like what I work–certainly not a telework, 8 to 4 type of job. Federal FERS employees’ pension and healthcare benefits are almost universally beneath those of county/state/city employees–a fact few are aware of. Yes, there are plenty of lazy, unproductive employees in federal service, but those exist everywhere. The individuals I work with/have worked with are generally exceptionally intelligent and passionate about their work, and they do produce for the benefit of our space industry, country, and mankind.
“Yes, there are plenty of lazy, unproductive employees in federal service, but those exist everywhere.”
Agreed! And in no way do I want hard working persons like yourself to lose their jobs. I made absolutely no mention of that. I believe my words were “collecting a paycheck” which clearly falls under the category of waste, fraud & abuse.
That’s what needs to be eliminated.
Well, at least you’re impressed with yourself, if nobody else is.
Far from it. I’m simply very glad that I made my career move ~ 18 years ago.
I’m sure you don’t want Trump meddling with the state & local governments that employ you.
I have zero concerns about Trump meddling in my state and or local school agency.
If there is anything like that number of humans teaching math in 5 years, I’ll be surprised.
5 years is a bit fast, but yes I agree. Teaching will become less & less important, as will the value of education in general.
There’s this CA company called Artisan that cooked up a storm earlier this week, when they plastered an AI only job market campaign ad that portends the end of human work.
It’s hard to say how fast it all will progress, but once AI really gains traction, it’s going to take off & have a massive effect on the labor market.
My guess is that the ramp up / honeymoon period lasts about 5-7 more years. By the early 2030’s, we’ll start to see a very vocal backlash against companies’ deployment of AI.
The backlash against healthcare that spilled over with the murder of the UHC exec is just the beginning. There’s an enormous amount of social unrest headed our way.
Those that remain will be struggling to teach arithmetic to high schoolers.
Good thing I’ll be retired by then, by AI’s impact on teaching isn’t going to be that fast. But, I do believe that within 5 years there’s going to be a massive public outcry that’s going to force everyone to slow down with the adoption of AI at least in terms of eliminating human work, but that’s inevitable and has nothing to do with me or teaching.
If you can wait until age 70, you’ll get more SS.
Like most people, there’s a point at which it doesn’t make sense to wait too much longer. 62 was early retirement back in the day. Nowadays, that’s shifted to 65. I’d bet over the next 10 years, less than 7% of people will work until they’re 67 and probably only 2-3% will work until 70 which is OLD.
I worked until 70 – yes, it is “old” in an educational setting.
In your 60’s, you never know what’s going to happen – you could find yourself forced out at work, or your pension plan could get flattened in a market crash.
The pension and medical benefit legacy costs of City, State and Federal employees is so overburdened that its future is not certain.
For guidance, look at Illinois, California, NY and other states that have promised too much while having too few to pay in to support that system..
States CANNOT print money.
They can borrow (sell bonds).
But the costs associated with that borrowing become onerous and cause taxpayers and businesses to flee to better environments.
The Ponzi fails..
My state’s TRS is extremely well funded and will remain that way for many years to come. None of us can perfectly plan for that big market crash we’re all expecting. When it happens, we’re all going to have big problems to deal with. The social unrest will be huge.
The FOMC is now officially outed as a bevy of idiots.
“…Advance warning that the US deficit is out of control and Republicans won’t do a damn thing to fix it…”
I agree, and they will surely make it worse.
… while they steal anything not nailed down.
I do not agree that Trump’s tariff threats will increase prices(See Mish’s point #2). Rather, prices will fall as other countries reduce tariffs to head off Trump’s threats. Further, lower global tariffs will reduce prices throughout the world and will spur additional economic activity.
As I said, you are free to believe what you want, but all the historical evidence says you are wrong.
BTW, prices may drop for other reasons such as recession finally hits.
That’s entirely dependent on who you believe. There’s lots of research that shows importers & exporters will eat some of the tariff before passing prices along to the consumer.
And again for the millionth time, what we’ve been doing since China joined the WTO in 2001 ain’t working. It’s time for a different approach. You’re officially on record that America needs to increase our domestic production of strategic goods. Tariffs will help make this happen.
“I do not agree that Trump’s tariff threats will increase prices(See Mish’s point #2). Rather, prices will fall as other countries reduce tariffs to head off Trump’s threats.”
Really? Let’s see what some of the recent responses to Trump’s tariff threats are.
Some Canadian politicians are threatening to place export taxes on energy exports to the US. Some have even suggested shutting down energy exports to the US completely. I wonder what that would do to prices?
Did you know that Canada is the largest supplier of energy to the U.S.? In 2021, Canada supplied the U.S. with 61% of its crude oil imports. And in 2020, Canada supplied the U.S. with 98% of its natural gas imports, 93% of its electricity imports, and 28% of its uranium purchases, helping power millions of homes, businesses and cities from coast to coast.
Twenty five percent of all oil refined in the US is from Canada. And we can’t replace it with shale oil, because US refineries are not designed for shale oil, so we export our shale oil. All 25 refineries in the Midwest rely exclusively on Canadian oil.
I agree with everything you said, but something has to be done to close down our north & south borders.
There are other politicians in Canada calling for the US & Canada to renegotiate or pull out of the USMCA. I kind of like that idea.
I agree that we don’t need to get into a trade way with Canada, Mexico or even China. But Trump has to do somethings to change some very big structural problems we’ve got. And more fair trade & producing more strategic goods here in the US is a big part of the solution.
They will probably increase prices, but it could be worse. War, depression and financial destruction are also possible. Of course, those things would lower prices.
The Fed shouldn’t have cut in September. These are all policy mistakes.
What if the goal is to make a recession happen on Trump’s watch?
Its possible Mish. Nothing would shock me
I mean, Trump appointed JPow in the first place, though. It would be quite the “e tu, Brutus?” moment if he was deliberately trying to cause a recession for Trump (in advance of the election, no less…)
Trump appointed Chris Wray. And many others who all had their daggers out.
“Only the best people”
Correction. To force *inflation* to occur a year down the road. I called out what a huge mistake a September cut would be, months ago. They didn’t cut because they should, but because they had the economic environment that gave them plausible “cover” to cut. In other words, they didn’t cut because they should, but while they could. Net result, temporarily lower interest payments for the Treasury in exchange for exacerbating inflation.
Also, it was probably an attempt to boost Harris – even though it was too little, too late.
Exacerbating inflation?
The current Fed funds rate (which is the shortest of terms – being for overnight loans by banks) is still well above the inflation rate. And that impacts T-bill rates which are all also above current inflation rates. Most economists would still consider that restrictive.
Long Treasury yields are a better proxy for actual inflation. Short term rates are manipulated. And everyone knows that long Treasury yields grossly understate actual inflation, when using pre – 1983 CPI measurement methodologies. Today’s CPI inflation is roughly 7.5% using pre – 1983 methodology. The 2yr Treasury yield is the current ‘widely accepted’ estimate for real inflation using today’s methodology, and even that (low) estimate is currently at 4.25%.
How is cutting rates going to cause a recession at least in the near-term?
I’d say there’s better than a 50/50 chance that there will be a recession during the later part of Trump’s final hurrah.
Everyone knows the Fed is cutting rates in large part to try to push down short-term rates as we watch a tsunami of debt roll over by the end of 2025.
Most of this debt is at extremely low rates which will spike unless the Fed is able to push down rates. Their primary way of doing that is via cutting the FFR. My hope is that inflation does continue to move higher, but that’s not going to guarantee recession in 2025.
Trump probably has about 18-24 months to work whatever magic he “might” be able to make happen, before we see the consumer finally roll over and pull back significantly in spending which would lurch us into a recession.
Mish, this makes no sense.
The Fed cutting rates makes borrowing cheaper and people more likely to spend, causing inflation if anything (maybe eventually), NOT a recession. Plus the Fed started lowering rates before Trump was elected.
What makes no sense?
If the Fed is cutting when it shouldn’t (or faster than it should), then the expected reaction should be a revolt on the long end.
This is what I called in advance.
Cool. I look forward to revolt on the long end. I hope it helps crater CRE. Those investors need to get whack-a-moled, so the sector can take its lumps and figure out a way to move forward.
Juicy yields are great for income investors. And when the big nasty recession comes, boy look out, those prices are going through the roof, baby!
Be that as it may, I do think we’re within about 5 years or so of higher yields becoming a serious issue for Uncle Sam’s credit worthiness, so I’m not sure I want to have a big exposure of treasuries around 2030.
What makes no sense is responding to Midnight about the Fed erroneously cutting rates “to make a recession happen on Trump’s watch”. The Fed cuts rates to try to avert a recession, not to cause one.
If the long end revolts, it will be due to Trump’s other policies screwing up inflation and the deficit (#2-5 above on your list which I totally agree with).
Plus, I would think you would be glad the Fed is cutting rates. You’ve been arguing the economy has been in a recession for months. The Fed cutting rates backs up your opinion of a slowing economy.
He’s been calling a recession for at least 12 months.
IF the long end revolts? I think he’s already demonstrating that the revolt HAS OCCURRED and IS OCCURRING. Also I think if we look at their track record of lowering rates AND avoiding recession it’s pretty dismal. They raise too late to avoid inflation, lower too late to avoid recession. Other than that they are bang on rock stars!
It’s easy to check historical bond yields and it’s obvious you have not. A 4.4% ten-year-bond yield is a revolt? In 1981, that went up to 15.9%. THAT is a revolt, and we’re a factor of 3.5x below that.
I think Mish is right that the long-term yields are going to go up. But I definitely don’t think the Fed dropping overnight rates a few quarter-point cuts will be the primary reason. But we are NOT currently in a bond revolt; we’re still far from that, unfortunately
lol you didn’t check your history very carefully.
Go back and see what was the short rate in 1981 when the 10-year was at 15.9%.
The revolt isn’t in the magnitude of the rate, but in the divergence in trend direction between short & long terms. The Fed wants rates falling but they aren’t.
Mish is right to be asking why, and there could be multiple true explanations, valid for different market participants.
I think what he means by a revolt is more of a large bond auction tail where the demand really starts to wane due to REAL concern about the debt.
Re “ The Fed cuts rates to try to avert a recession”
That’s what they claim. Has it ever actually worked?
You’re right and I was wrong.
The Fed has been commissioned by Congress to be able to change money supply targets and short-term interest rates for over a century to target “maximum employment” because every Congress member and economist during this time has known it was a complete scam and recessions are only made worse by its policies.
Thanks for the correction LOL
Surely not? A two-year plan to the mid-terms then retake the House and Senate, and lock Trump up in impeachments.