All Things in Moderation

Vital Statistics:

Stocks are higher this morning as investors sense the banking problems of the past few weeks are in the rear view mirror. Bonds and MBS are flat.

The Fed Funds futures now see a coin flip for another 25 basis points hike in either May or June to get to a Fed funds rate of 5%, and then they see the Fed beginning to cut rates. Even if the banking crisis is over, the banks will probably be a bit more conservative in their lending which will act as a brake on the economy. Of course that is the whole point of tight monetary policy, but this adds an additional component.

The economy expanded 2.6% in the fourth quarter, according to the third estimate for GDP. Consumption was revised downward, while the core rate of inflation was revised upward. Corporate profits fell.

The Fed’s tightening policy still has had little to no effect on the labor market. Initial Jobless Claims came in again below 200k, which is extraordinarily low. I plotted the Fed Funds rate versus initial jobless claims. Jobless claims and the Fed Funds rate should correlate, but over the past year they have not.

Pending Home sales rose 0.8% in February, marking the third consecutive increase. “After nearly a year, the housing sector’s contraction is coming to an end,” said NAR Chief Economist Lawrence Yun. “Existing-home sales, pending contracts and new-home construction pending contracts have turned the corner and climbed for the past three months.” Note that activity is still way down from a year ago.

The most affordable regions – the Midwest and South – are leading the activity. As work-from-home becomes more cemented in American culture, we should see more of an evening out between the expensive coastal MSAs and the cheaper Midwest and Southern ones.

The cuts keep coming in the finance industry – Lending Tree announced it is cutting about 13% of its workforce in order to lower operating expenses.

The Fed is considering adding a special assessment to the biggest banks in order to replenish the FDIC insurance fund after covering deposits for Silicon Valley Bank and Signature. Regulators see this as a way to ease pressure on the regional banks.

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