Yellen speaks as mortgage stress sets in
There may be some reaction on the day to US Treasury Secretary Yellen’s suggestion that she is worried by a possible loss of liquidity in the bond market.
This is the same Treasury Secretary who was totally confident inflation was a blip and not a problem at all. Yellen is a pure politician now and rising bond yields and in particular higher mortgage rates are indeed an election loser.
This is jawboning of the worst kind. There is no loss of liquidity in the US Treasury market. As is typical of late, Janet Yellen is behind the curve, speaking of things that have already happened and only with political spectacles. It is a shame after such a strong career.
The market may have a knee-jerk response to these comments over the next 24 hours, but they are likely to be completely discounted after some thought.
Then there is the upcoming inflation figure. With US energy prices remaining elevated and the continuing flow through impact of much broader based inflationary pressures now, this release may actually be higher.
Anything above 8% is a real ongoing concern. Even at 6%, the Fed would continue to hike given recent comments and their consistent mantra the whole way through. There was never going to be a pivot. It’s a nice market volatility creating technique, but it doesn’t register as serious economics.
The very best that can be hoped for is that the Fed will at two or three meetings from now, slow to 50-point rate hikes, even 25 point rate hikes, but rates will still keep going up. US mortgages just hit 6.8% and this spells further gloom for both mortgage stress and now declining home prices.
There is no way out of seeing a further darkening of the already technical recession that occurred across the first half of the year.
Despite Janet Yellen’s political mis-direction efforts, voters are feeling real pain on a variety of fronts and this will register at the upcoming mid-terms and the next Presidential election.
There’s little doubt the US economy is headed toward more pain, even Depression, and Biden will be a one-term President.
For markets, stocks are flatlining near their previous lows. This is simply ugly price action.
There may be a slight chance of some improvement in inflation, which could provide brief relief to the market later today, but the dominant risk and trend will remain down regardless. The Fed will continue hiking as the economy deteriorates for a host of reasons.
I suggest taking advantage of any stock market bounce. My concern is that any higher inflation print will just see markets collapse with ever greater speed.
My central forecast remains for a further 20% decline in US stocks.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities