Consumer Confidence plunged at the sharpest pace in 3.5 years. Inflation was the big worry but the bond market believes otherwise.
US Consumer Confidence Drops at Sharpest Pace in 3-1/2 Years
Earlier today, I commented US Consumer Confidence Drops at Sharpest Pace in 3-1/2 Years
Consumers are concerned over inflation. Recession should be the bigger fear.
Conference Board Key Comments
- “Average 12-month inflation expectations surged from 5.2% to 6% in February. This increase likely reflected a mix of factors, including sticky inflation but also the recent jump in prices of key household staples like eggs and the expected impact of tariffs. References to inflation and prices in general continue to rank high in write-in responses, but the focus shifted towards other topics. There was a sharp increase in the mentions of trade and tariffs, back to a level unseen since 2019. Most notably, comments on the current Administration and its policies dominated the responses.”
- “For the first time since June 2024, the Expectations Index was below the threshold of 80 that usually signals a recession ahead.”
The first comment is meaningless, the second may not be.
Bond Market Reaction
- Yield on the 30-year long bond fell from 4.66 percent to 4.55 percent.
- Yield on the 10-year note fell from 4.40 percent to 4.30 percent matching the 3-month T-Bill yield.
- The Yield on the 5-year and 2-year notes inverted sharply (yielding less) than the 3-month T-Bill yield
US Treasury Yields Daily
Trump’s Policies
- Tariffs: Recessionary and Inflationary
- Deportations: Recessionary and disinflationary
- Border Shutdown: Recessionary and disinflationary
- Layoffs: Recessionary and disinflationary
- Student Loan Repayments: Recessionary and disinflationary
Related Posts
February 4, 2025: Job Openings Drop by 556,000 in December, Quits Show Job Finding Stress
Job openings have collapsed. And the number of quits confirms people are staying put.
February 5, 2025: ADP Payrolls Better than Expected But Two-Thirds of the Economy Has Stalled
ADP reported a better than expected 183,000 jobs in January, but small business trends are unsettling.
On February 14, I noted Retail Sales Crash – Did the Consumer Finally Throw in the Towel?
The Census Department shows huge across-the-board declines in multiple categories, down 0.9 percent overall.
February 19, 2025: Housing Starts Drop 9.8 Percent, Unable to Retain Any Traction
Housing starts have mostly been rangebound since late 2022 as high prices and high mortgage rates dampen demand.
February 20, 2025: How Will 77,000 DOGE Terminations Impact Unemployment and Jobs?
As of Feb. 13, 77,000 employees accepted the offer, according to White House press secretary Karoline Leavitt.
February 22, 2025: Trump Signs Order Cutting Off All Federal Benefits for Illegal Immigrants
Trump’s executive order is definitely legal. But what does it mean in practice?
The above related posts all have one thing in common: They are recessionary.
And that is the message from the bond market despite consumer worries over inflation.
For discussion of the silliness of inflation expectations, please see US Consumer Confidence Drops at Sharpest Pace in 3-1/2 Years
Note: Believing inflation expectations are meaningless does not imply no chance of inflation. It simply means expectations don’t matter.
The Fed has great faith in expectations. It’s absurd. For 3 years consumers had expectations of 3-4% while the Fed struggled to hit 2%. That would be impossible if expectations mattered.
Of course, the Fed does not understand inflation or expectations.
Importantly, the bond market reaction today was a recession + disinflation reaction rather than a “so what?” That’s how the data looks to me as well.
The solution to inflation is operations of the selling type.
The historical charts show that neither the bond market nor survey “inflation expectations” have anything much to do with actual future inflation.
The bond market was wrong about inflation and about future interest rates for most of the past 3 years.
Depends on the time period and the forecasters. When inflation is not very volatile, everybody is pretty good at forecasting it. When it’s volatile, household surveys are usually useless (households are slow in tracking inflation reality and tend to have heavy biases; e.g. right now Trump voters expect deflation in the Michigan survey). Markets and professional forecasters recognize inflation turning points usually a bit late but then track inflation again quite reliably.
Then I guess these bond charts are like those other historical charts that supposedly show that drops in employment in the BLS Household Survey numbers ‘always’ show a recession in real time (back 80+ years?)
‘usually’ right, but not always right, like the past three years?
Not sure what it means to say: The bond market doesn’t “believe” in inflation expectations.
There are survey-based inflation expectations and there are (bond) market-based inflation expectations. If the market wants to price a 10-year Treasury bond, by definition the market needs expectations of future nominal short-term rates over the next ten years. And to form those rate expectations, the market needs expectations of future inflation over the next ten years. Because we have TIPS in the US, we can even easily derive the bond market’s inflation expectations (because the TIPS measure the real rate plus the term premium). And right now the bond market simply doesn’t agree with survey-based inflation expectations. But that doesn’t mean the bond doesn’t “believe” in the concept.
Most of the short-term movements we see in 10-year Treasury yield are movements in the term premium and not inflation expectations. That said, the main bond market risk now is that Trump’s idiotic policies raise the term premium (which on average has been well below 1 percent over the last 30 years), and we see again term the term premia of 3 percent and more that were standard before Volcker squashed inflation. And this would be a Trump-made disaster at our present public debt levels.
Good, thoughtful and rational market-based analysis, thanks
This quote
Trump’s Policies
Left out
Hi Nate, Your last three words are the most important. I’ll cut to the chase about the only way to shrink the size and cost of US Government. Here is an example of what feeds the process: Biden hires 10,000 auditers at the IRS to shut down the tax cheeters. The 10,000 save us a few net dollers. Meanwhile 9,990 of the new workers join the Unions. They pay big bucks in union dues. Even though, in theory 1/3 are Democrats, 1/3 are Republicans and 1/3 are Independents, 98% of their dues go the Democrats. Then the politicians they put in office give them more money, more holidays, and a lifetime job with great retirement plans.
This is how to to Reduce Government. Make it illegal for Government unions to collect or make any donations to any candidate or cause.
To accelerate the process require the Gov and the Media publish the amount of Trillions that Goverment run pension funds are Under Funded.
The way things are going, the most competent and skilled people are going to leave public service, and we will be left with Trump and his flunkies. PS: Those underfunded pension funds are at the state level.
Sorry Albert but you have been Gaslighted. the Underfunding at the federal level is where Trump should start.
Lots of states are deep in pensionplan trouble but this is the top three at the Federal level.
The Intragovernmental Top 3 debts that are part of the National Debt. Aug. 2023
Social security Old-Age and Survivors Ins. Trust Fund $ 2.692 Trillion
Dept. of Defense Military Retirement Fund $ 1.376 Trillion
Civil Service Retirement and Disability Fund $ 985 Billion
From:
Q&A: Gross Debt Versus Debt Held by the Public-Tue, 09/19/2023 – 12:00 | Committee for a Responsible Federal Budget
It sounds like (from your description) you’re reading this wrong, even 180 degrees wrong.
These three funds you have listed have assets (‘trust funds’) equal to these $ amounts, not debts, for payments of future obligations. But they have those assets invested in Treasury bills and bonds that were incurred for other past expenses. Thus the Treasury (one government agency) owes these other government agencies money.
That’s why economists really worry most about the public debt – per the linked website. Government agencies paying each others’ debts off nets out assets and liabilities to zero difference.
Dear HEWO, You too have been Gaslighted, The funds in question are Debts and are part of the National Dept. The Democratic Party and their co-conspirators in the Majority Media have convinced you and 260 million (or more) citizens, into believing that this $ 6Trillion, in the national dept doesn’t count because a dead President once said that the money from the Trust Funds would be paid back before us Boomers needed it.
None of it has ever been paid back. The Treasury has to barrow $ every month so they have the $ needed to pay all the benefits due. This is really Refinancing the debt not paying it off.
When the SS Dept. says they have enough “reserves” to pay benefits for another 10 years you believe it. Because you want to.
I’ll wager my Engineering Degree, My MBA, my 20 year old Series 65* and my 40 years of observing this Con that you can’t tell a Debit from a Credit. * Ask Mish.
Dave, thanks, but I agree with the explanation below of how trust funds work at the federal level. The pension fund story at the state level is, unfortunately, different.
Thanks for the concise data. We might have a recession for a year or two, followed by considerably more inflation.
In 1966 GM and other US co were the globalists. After several decades TNX rose in a turtle pace from zero in the 30’s to 4,7%/5% in 1966, before reaching 15.8% in mid 1981. It dropped in a turtle speed to 0.4% in 2020. After 3 years, not 30 years or 40 years, it took off in a lightning speed from ground level and reached the 1966 level of 4,5%/5%. A correction might send it back half way down, before rising in a sling shot to the 10.0%/11% area, a lower high. Yesterday TNX dropped to Oct (C) level.
The bond market has been wrong since Covid. I believe it will be wrong this year too, and possibly most of this decade, but it really depends on the budget. If spending cuts manage to lower the deficit spent then maybe, but if we continue with 7% deficits then a recession is just unlikely.
Also, it is arguable deportations are inflationary, since you are reducing the labor pool, while the consumption of those being deported tends to be low given their poverty.
You’re assuming that the majority of those illegals being deported are employed.
Bonus: Criminal activity is inflationary, so reducing crime by deporting criminals should be deflationary.
Another 328 billion in deficit spending should fix all that: https://www.reddit.com/r/QuiverQuantitative/comments/1iy0dr1/republican_representative_thomas_massie_just/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button
If you are going to have a recession then it is better for it to occur at the very start of the President’s four year term and that the recession comes about for the right reasons. Most of Trump’s policies are hugely popular even though they will have a depressive effect on the economy. Just about everyone is cheering DOGE’s waste-cutting efforts even though the reduced spending will hurt consumption. Most people are for deporting illegal immigrants although it will raise labor costs and reduce spending. Everyone except bureaucrats is ecstatic about Trump and Musk taking a chainsaw to government agencies even though they know it will depress spending. If these policies follow through then we will have a recession but Trump does have the option of sending out $5,000 checks that come from the cost savings and not borrowing if of course those cost savings actually happen.
Scott Bessent said that their priority is to raise the bottom fifth of the population and I see that these policies affect them in a positive way and their positive effects will happen almost immediately. Deporting the dangerous illegals first lowers crime immediately. Deporting the others and keeping new ones arriving improves their wages immediately. Less competition for housing improves their lot immediately and there are others on the list. A recession may come but paradoxically in this one the bottom 20% may come out ahead.
“Most of Trump’s policies are hugely popular” is just … delusional thinking, my friend. $4T debt cap increase whilst slashing Medicaid? They will soon be taking to the streets, one way or another. Trust me. I actually know some working people. Tickticktick
I think above all that you know a lot of Washington bureaucrats.
Well, they will likely come out to vote in the 2026 mid-terms.
Enrollment #:
79+ million in Medicaid in 2025 (includes 7+ million children)
And, if the Republican controlled house (and maybe Senate) really want to shoot themselves in the foot:
67+ million in Medicare in 2025
Me too…..I attended a demonstration the other day – lots of young adults there, some voted for Trump….they said, “We didn’t vote for this”.
The “chainsaw” photo was a huge miscalculation by the Republicans.
Cutting Medicaid and food stamps will definitely raise the bottom fifth of the population, presumably at the cost of the top ten percent.
Polling data supports Doug78 on this one. A “recession for the wealthy” that restores the working middle class would be quite popular.
There’s a deep, hard to measure level of visceral, pent-up rage against government stupidity out there. It was greatly increased by the COVID policies. Censorship only made it worse by pissing people off and preventing necessary cleanup.
Now people are seeing that it was worse than they thought, with even more stupid shenanigans now being exposed.
An angry mob can get to the point of ignoring its own self interest, willing to sustain some damage if it punishes the wrongdoers even more. Conceptually, that’s how justice always works – citizens are generally willing to penalize themselves somewhat (put time into jury service, forego income) in order to make sure criminals are punished.
so time to abandon France and head back to the US, the land of milk and honey. maybe.
So many factual issues here.
Just one, violent crime has been essentially flat for the last decade. So this idea of the hordes of immigrants coming in recently mercilessly killing, assaulting and maiming Americans is false. And that we would return to ‘lower crime’ as in the good ole days is comical (violent crime rate in US was double today’s rate 30 years ago when a lot fewer immigrants were here)
It’s just statistics:
https://www.statista.com/statistics/191219/reported-violent-crime-rate-in-the-usa-since-1990/
Like i have kept saying…. Deflation all around the world
Mish keeps banging on about inflation, but there isn’t any. Synthetic policy-driven price rises are not inflation.
Mish says inflation because that is what devaluation looks like in the early stages.
Once it starts it can’t be stopped.
I might splurge on personal security hardware.
If we are looking at supply shocks (labor, imports restrictions driving prices up), we are looking at inflation. Shutting off government spending and closing government jobs might also produce recession. A demand shock: consumer spending recedes. So I say stagflation. Can the newly freed businesses and rich consumers (mostly the same people) fill that gap? Will new hiring fill that gap? My money says not for a good while: non-immigrant laborers are expensive in the USA. Who will affordably pick vegetables? All this is pretty wrenching. Meanwhile many in the lower 50 percent are (even more) in trouble, as their safety net is in tatters. if their wage demands drop, then so does consumption spending. They are already working all week to get bus fare, and half a bedroom with a bathroom down the hall. This is the valley of trials ahead. Lots of consumer businesses, I think, will go the way of the dinosaur. Americans are avid spenders with half an excuse, so I cross my fingers hoping for them to bail us out, or rather, roll their futures in that casino. Y’all first!
Mish clusters, his best work, are back. The yield curve diversion: the 3M was above the long duration, trending down, but now it’s below. The long duration are trending up. If there will be a test of Oct 2024 low, the 3M will stay down, for a while, but the rest will popup. Their trend is up. The spread between the 3M and the long duration will normalize. Gravity with Europe will pull the mid and the long duration down. The yield curve is defective. It will not show the real inflation. The bond market massacre will be moderate. Mortgage rates will be moderate. The real value of houses will deflate. US gov debt will be cut in nominal and real terms. The Dow will take off.
Deregulation will cause economic growth. Maybe enough to cancel out recessionary forces.
Tariffs are recessionary for consumers, but may cause some domestic production growth.
Well I remember the days when inflation was going to be “transitory” so it feels like deja vu a bit all over again. The only thing that has been transitory were slow and short pauses in the rate of inflation.
I believe inflation will be higher than anyone thinks although it’s not out of the realm of possibility to have reprieves every now and then. The core reason is the fact that we’re headed toward 80 million people on social programs putting huge demand on goods and services while the same 80 million produce or contribute little or nothing. Most here would agree socialism doesn’t work yet this is exactly what has become of America the past 30 years and more so moving forward.
Throw in tariff wars which will drive up the cost of goods, re-shoring with expensive American labor, and supply chain disruptions and inflation is really baked into the cake. Oh and the GOP just added another $4 trillion in debt.
Of course, I’d love a major deflationary correction too so I can snap up properties and other assets but that would make paying back debt impossible for everyone.
Socialism: down. Shingle mums: get a husband. Men status: up. Retired people will get hurt. Bureaucrats: down. DC per capita: down. Productivity: up.
Demographic decline can’t be arrested by illegal mass immigration, especially when you are using debt to keep unproductive ageing citizens alive.
Men status up. I like it. As Neil Young sang, welfare mothers make better lovers.
You can’t have inflation without increasing lending; you can’t have increasing lending without increasing growth; you can’t increase growth by destroying demand.
How are people on welfare with hardly any money or productivity going to increase demand?! All of the things you described cause demand destruction.
The “demand” has been coming from social programs that I keep harping on, social security and medicare. That’s $2+ trillion of spend into the economy for people that produce nothing. Bank of America released charts showing most of the economy was being kept afloat by the older generation because that’s where all the wealth and welfare is at these days.
In ancient times, new kings and rulers would forgive debts, hence the biblical phrase, “forgive us our sins (debts). There is a book about it.
Every US ruler from now on is in this cycle of forgiving debt under different engineered packages. The last one was COVID stimie checks under Biden and Trump. Biden tried other things like student loans that didn’t work out so well but kinda.
Trump’s new one is shaping up to be a 5K check for something. More to come on that one but he will absolutely be forgiving some debt. So will the next President and the next and the next until…..the game is over.
That would suggest (1) inflation (printing away debt), so, (2) higher interest rates, would it not? So the economy slows, prices deflate ….
Agree. The game is over. My home insurance went from 2200 last year to 3000 this year. This is A LOT more than 2%. This is bullsh!t that inflation will drop. My agent cannot sell new policies because a number of his clients had claims.
Mish, PLEASE, report it as it is. This mumbo jumbo government numbers are just that. Food expensive has heck. My insurance agent told me that we will be forced to have one car because rates going up. He’s not happy either with everyone calling him.
If Trump want to sock it to inflation, how about restricting the tribe that charges usury rates on credit cards. Seriously, 20 plus percent? That’s F’d up.
I’m long gold and silver. Waiting for the next financial catastrophe. Also, long bullets.
I bet you those price rises are put down to “climate risk”.
Regarding your Home Ins Policy: AAA/SAFECO was my Ins Co for 20 years.
They jacked my home & car Ins ‘To The Moon’ and it was quick.
I policy shopped. One year with Progressive (I don’t like the Co but it was less expensive), now I am with Farmer’s.
The are charging 25% less than Progressive.
It seems that Ins Co’s will give you a good rate for at least the first year.
I will continue to shop each year to save money because the Ins Co’s are hammering us, so no loyalty from me any longer.
I wish I could’ve stayed with AAA for Home & Car Ins but I will not accept being ass-hammered by these predators..
So, the solution for individuals is to load up on debt as much and as fast as possible.
It’s the Health Care, Stupid.Forget DOGE. Republicans are playing with political fire as they move to gut Medicaid. https://www.politico.com/news/magazine/2025/02/24/medicaid-cuts-republicans-gop-town-halls-00205667
The whole healthcare system needs to be gutted.
https://market-ticker.org/akcs-www?blog=Market-Ticker-Nad
The question is what the replacement should be.
I take very good care of my own health, but on he occasions I need it, receive very high-quality and affordable health care (for years now) in the existing system.
“what the replacement should be.”
Trump has provided years of utterly empty promises. That is not anything like a replacement. That is vaporware, bupkis, pie in the sky. Right now with the current budget bill, it looks like a nudge into the street for the non-rich, including those who are (for the moment) functioning and contributing members of society.
Pray tell what Biden did? How about Obama? Nothing. Please stop being partisan. The Republicans and Democrats both suck.
I work in healthcare as well. Do my own property management for my rentals. When folks complain about prices, I tell them our health care system stinks. That’s putting it mildly.
There are going to be more Luigi’s taking out health care CEO’s and anyone in positions of power that will crap on the American people. How is that people not born in this country are getting free medical care, but the Middle Class slob has to sell his house? No, this f’d up. Again.
This whole system (I’m not talking our Constitution) has to collapse and start over again. The American government has to service the people and not the corporations or the leeches like illegals, lazy immigrants or welfare bums. Corruption has to be dealt with like the Chinese: the death penalty.
The hard truth is that low risk consumers of health products get low rates, and high risk get high rates, and high risk consumers are usually less wealthy.
Skewing the system to be mostly low risk consumers paying for high risk consumers seems unsustainable. There have to be some carrots and sticks to reward people for looking after themselves and penalise people for doing the opposite.
What happens when those trillions of dollars worth of bonds start maturing? Won’t the bond rates need to increase to entice current bond holders to roll-over into new bonds? And if the current bond-holders decide not to roll them over, won’t higher interest rates be needed to bring in brand new buyers of US debt?
As has been the situation — for many, many decades of various interest rates. And there are always people saying the trail is about to derail.
What you are really saying. is QE is coming and the FED will be buying the majority if not all Treasury notes going forward.
If the market was to find a true 10 year treasury yield, that yield would be north of 8%.
YCC /MMT is indeed coming and will be policy.
With baby boomer government pensions for government jobs (cop, fireman, teacher, nurse) they retired out of, and the property taxes that are jumping because they have to find the money for the pensions somewhere, and how that cost snakes thru the economy, inflation is baked in. So is 0% interest rates that Trump will get whether the Fed likes it or not. Resulting in ….. ?
I guess. But I’m still frankly terrifed about inflation.
It sure doesn’t seem to be slowing down in a reassuring way, and its so destructive to everything.
It really does shred the fabric of society every bit as much as a war.
The nominal 54 month low in bond yields is the next 2-3 months. Then interest rates will challenge 52 week highs during the early stages of the next 54 month interest rate cycle. The 60 year interest rate cycle peak is about 10-12 years away, and those peaks are exponential spikes. The analogy is the bond market now is about where the bond market was in the early 1970’s, building a spike into the early 1980’s
House just voted to pass a framework for the renewal of the DJT tax cuts and raise the debt ceiling 4 Trillion dollars – Good to know they’re all serious about reining in spending. I thought not raising the debt ceiling would have showed seriousness about not wanting to dig any deeper but (Shrugging like an Italian Movie Mobster) “What do I know??”
Though I heard in the news the states are going to have to cover the costs the Feds arent going to pay anymore.
To not raise the debt ceiling they would have to raise taxes 4 trillion dollars starting immediately. Instant recession.
In 2023 income taxes collected were 2.2 trillion. Even doubling all rates wouldn’t close the gap. Doubling all rates AND cancelling Medicare, Medicaid, and the ACA subsidies would about balance the budget.
I disagree. Cancel Medicare? Absolutely not! Cancel the Dept of Defense budget by at least one half! No aid to Israel. Lots of rich Jews in America that can send money there besides the evangelical brainwashed Boomer’s.
DOGE has shown that our government has no control on spending and doesn’t even know where it goes. Same goes with the Pentagon.
I would create a blockchain for the American government’s spending so that we can root out the corruption. How come no fkn reporter or news ageny asks how these politicians become mega millionaires while in office? We are a Banana Republic! Until the American people get out on the streets with torches and pitchforks, we we be pissed on by the junk people we have in both State and Federal government. We need accountability!
Ugly bill …
Saw an analysis saying only $1T over 10 years … don’t know if USAID even got cut.