Author: Kyla scanlon
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Everything in the market is falling apart
In the end what happened?
In the end what happened?
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GDP change
Now the economy is not overheated, and the market is moving towards the stable state that the Fed wants. This is like a balance, with two sides. Consumer spending, a major driver of economic growth, is changing dramatically. GDP contraction: Many seem to think a recession is imminent, with GDP now forecast at 0% (which would imply a technical recession considering we had a negative GDP reading last quarter). On top of that, consumer confidence is low. Recessions are scary, and a lot of people worry about what's going to happen next in the market.
This affects what people spend: consumer sentiment is a core driver of GDP growth. Consumption behavior reflects a shift toward more low-priced items such as food and rental services rather than expensive items such as cars. These behaviors can be influenced by factors such as consumer frustration with supply shortages and a desire not to consume high-priced products.
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consumer health
Consumer spending accounts for about 70% of GDP growth, so policies largely encourage people to keep spending. Consumer sentiment is made up of many different things, but the core components of the current market seem to be: food prices, gas prices, housing costs (house prices, rent, utilities), jobs.
Now, three of these four factors are faltering. Supply chain problems, fertilizer prices and other reasons have led to high food expenditures; high crude oil prices and restrictions on oil refining capacity have led to high gasoline prices; water and electricity prices are also high, and rents are soaring; people are struggling now.
The resulting downturn in consumer sentiment sent the economy in a negative direction. The only bright spot is the labor market - unemployment is low and jobs are being added, but things are starting to change. There have been a series of layoffs in the tech and cryptocurrency space, and of course monetary policy will have a bigger impact on this.
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Company development
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Dollar
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price sensitivity
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credit market
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deflation
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financial situation
Financial conditions are central to the Fed's eventual impact on the dominoes, with the main factors being:
the stock market; people feel they spend less because they earn less;
Housing Market: Higher mortgage rates make buying a home more difficult;
real estate market
real estate market
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Supply and demand
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borrowing cost
The main lever of change today is mortgage rates - making owning a home much more expensive. "The monthly payment on a 30-year fixed-rate mortgage is $2,514, up from $1,692 a year ago!" Redfern wrote.
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Pressure on the rental market
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"The Fast and the Furious" Federal Reserve
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No bidders for mortgage securities
Also, the market doesn't want to touch mortgage securities - it's not attractive to the market, so that would have to drive up mortgage rates to attract buyers. The supply and demand issues I mentioned earlier remain. As Conor writes – “While higher mortgage rates and less panic buying may help ease imbalances in the short term, they do nothing to address long-term demand for housing growth.” We seem to have been I am doing one thing, digging countless pits for myself with chaotic policies. You can see this with energy, housing, etc. - by trying to fix a problem, we make it worse.
The policy never issued what it was supposed to do, such as is Blackstone eligible to buy a lot of property and turn it into a rental property? But that's the extraordinary way Blackstone is executing to hedge against inflation.
Energy and housing are the same. We need more and more sustainably. Depressing demand in the short term will not solve systemic long-term problems:
1) Not enough housing
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the fed
The federal government can't do anything about it. Their very existence defies expectations. That's why they're announcing 75 basis points because they're losing control of the economic narrative.
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federal base rate
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balance sheet
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Reserve requirement rate and discount rate
There are also factors that encourage banks not to lend, which can also lead to a slowdown because there is less money flowing.
Above all, the Fed must strike a balance between good standing and aggressive action. Now, the market believes them. They've been managing expectations pretty well and haven't done a lot of actual tightening -- they're just talking. But now, their credibility is at stake because everyone feels like "Fed, you're a bit behind..." Which explains why the Fed announced 75 basis points of policy.
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Chain Reaction Effects
The Fed manages market economic expectations, but I think expectations will have to shift.
The OECD released its Economic Outlook for 2022 report, banging on the lid of the trash can and saying, "Hey everyone, the world economy may be about to collapse."
Their three main arguments were that: the war slowed the pace of economic recovery; inflationary pressures intensified; and an existential crisis would create hardship and the risk of famine.
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Economic bubble soft landing?
The Fed has some pretty bold expectations of what it can achieve in this tightening cycle. Their forecasts for unemployment and GDP suggest some slowdown but no recession. However, the chances of this happening without causing financial hardship are minimal. The Fed Narrative: The Fed can only move things forward. They have to politicize part of what they do because inflation really hurts. It's not the best option for them. People may no longer believe that the Fed has any power to influence the markets in a way that destroys their credibility and expectations.
Jerome Powell even said at the meeting that they don't want people to lose their jobs, but unemployment happens all the time. The New York Fed predicts a 10% chance of a soft landing for the U.S. economy and an 80% chance of a hard landing - something painful will have to happen. Other central banks are also joining the ranks.
The Bank of Japan remains on an accommodative monetary policy. The European Central Bank has implemented a loose monetary policy for many years, but signaled that it will tighten monetary policy in July. At about the same time, the price of Italian government bonds plummeted (which was very bad). Inflation in Europe is quite high, but the market is still demanding more loose policy, which is a huge challenge.
In the end, what everyone thinks about the economy is just guesswork, and that's monetary policy. As Neel Kashkari, president of the Minneapolis Federal Reserve Bank, wrote: "As far as I know, there is no theory that tells us how we can tighten long-term interest rates for a limited time in order to bring inflation back to target."
Many people mistake the bull market for an opportunity to flex their muscles—in reality, as Jim Chanos describes it in Odd Lot, they are nothing more than "the money behind their backs." credit cycle". And, we're used to good things. Our expectations were high! That's a good thing, but the notion of 15-minute delivery is a luxury. As Sarah O'Connor writes about the unprofitable "on-demand" service where someone delivers a Coke to your door, it made people feel rich after a decade of stagnant wage growth. This behavior has previously been subsidized by investors. However, now that the funds are drying up, there is no way to push this to happen, which will make our desires come to naught.
We can align our expectations with reality through action. But we can't do this now, just like the United States wants to build utopian sweeping robot high-speed rail without high-speed rail. A lot of our solutions are simple in nature, but we don't want these simpler frameworks, as Alan Cole writes:
1) Our infrastructure building process is rife with rules and regulations
2) Action often disappears in the gutter of US bureaucratic government
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