US Senator McCarthy has totally rejected the idea, put forward the day before by some Democrats, that staffers meetings had made significant progress. The Senator says this is not the case at all, and the differences between the two sides remain huge with little if any common ground.
All this on a day when the Empire NY Manufacturing Index collapsed – down ten times more than expectations in the month of May, to -31.8. Household Debt hit record levels on the back of credit cards and higher mortgage rates.
However new mortgages collapsed to their lowest level since 2014. Yet another signpost to declining property prices.
The US economy is in dire straits. Pushing back against the now looming ‘Great US Debt Default of 2023’, there seems only to be the hope that it has been done before, to suggest the debt ceiling will be raised in time.
We also saw yesterday that various Federal Reserve Presidents made comments suggesting they expect interest rates to indeed stay higher and for longer. That the job may not yet be done.
This raises the question as to whether the Federal Reserve will pause its tightening cycle at its next meeting. Several Fed members made similar comments that they are not convinced inflation is on a sustainable downward trajectory.
Just as we have been forecasting for some time, inflation is stabilising at far too high an altitude to provide any degree of comfort. Not at all an environment to be cutting rates.
One wonders if it is simply wishful thinking to avoid a full-blown banking crisis that keeps markets believing in the fantasy of rate cuts this year. They may not even happen next year. We may indeed be at the new normal, and in the near-term rates can go higher than anyone would like on the back of stubborn inflation.
For all US asset classes this is a terrible economic reality that confronts current pricing levels. Debt default risk, stubborn extreme inflation, manufacturing meltdown, huge layoffs continuing, banking crisis on-going, and higher rates for longer.
Unfortunately, too much ‘hope’ may well be priced into stocks, bonds and even property prices at current levels, given the outlook for a flat at best US economy over the next few, perhaps several years.
Market commentary and analysis from Clifford Bennett, chief economist at ACY Securities
