Morning Report: Longer-term inflationary expectations increase

Vital Statistics:

Stocks are higher this morning on no real news. Bonds and MBS are flat.

Consumer sentiment slipped in May, according to the University of Michigan Consumer Sentiment Survey. This is down 9.1% from April. Consumer expectations fell 11% despite a strong labor market. Inflationary expectations for the near term fell, while longer-term expectations rose to 3.2%, the highest level in 12 years.

We know the Fed pays close attention to the UM inflationary expectations, so this is bad news for those hoping for rate cuts this year.

Mortgage delinquency rates fell 3.56% in the first quarter, according to the MBA. This is down 40 basis points from the fourth quarter and 55 basis points from a year ago.

“The mortgage delinquency rate fell to its lowest level for any first quarter since MBA’s survey began in 1979 and was the second lowest quarterly rate overall, just 11 basis points above the survey low in the third quarter of 2022,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “Mortgage delinquencies and the unemployment rate continue to track each other closely, with the unemployment rate in April falling back to the 54-year low of 3.4 percent set in January. Consistent with the resilient job market, the performance of existing mortgages is exceeding expectations. Across all states, there was an improvement in the first quarter compared to one year ago. Year-over-year delinquencies for all product types – FHA, VA, and conventional – were also down.”

Unemployment and delinquencies correlate pretty tightly:

Fed Governor Michelle Bowman spoke in Germany this morning. Here are her prepared remarks. Her comments were pretty hawkish on monetary policy, and nothing remote suggests rate cuts are coming in the near future, though the Fed Funds futures see cuts as imminent.

In my view, our policy stance is now restrictive, but whether it is sufficiently restrictive to bring inflation down remains uncertain. Some signs of slowing in aggregate demand, lower numbers of job openings and more modest gross domestic product (GDP) growth indicate that we have moved into restrictive territory. But inflation remains much too high, and measures of core inflation have remained persistently elevated, with declining unemployment and ongoing wage growth. And, as senior loan officers signaled beginning last summer, credit has continued to tighten.2 I expect this trend will continue given increased bank funding costs and reduced levels of liquidity.

Should inflation remain high and the labor market remain tight, additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance of monetary policy to lower inflation over time. I also expect that our policy rate will need to remain sufficiently restrictive for some time to bring inflation down and create conditions that will support a sustainably strong labor market.

25 Responses

  1. It would take a heart of stone not to laugh.

    Adidas has about 1.2bn euros (£1bn; $1.3bn) worth of Yeezy shoes sitting in storage.

    Wonder if anybody lost their job over it.


  2. Concise summation on the changing Democratic position on “merit”.


    • It is just marxism gussied up with new labeling. Democrats have never abandoned the concept.

      They live in a world of what ought to be true instead of what is true.


      • Brent:

        It is just marxism gussied up with new labeling.

        This is exactly right. The key to understanding what motivates the policies of the modern Democratic Party is knowing that it has been captured by the radical, Marxist left. Once you understand that, everything the Dems embrace, from BLM to CRT to the trans nonsense to open borders, makes sense.


      • Not precisely. The identity politics that are grafted on are something separate from classical Marxism. It drives real Marxists batty because it interferes with the old class consciousness arguments.


        • I think the left struck out trying to sell the concept using class so they are giving identity a go.

          If everything in life is a function of privilege and oppression based on identity, than success is nothing more than an accident of birth.

          And equity is the lever to even everything out.

          The current left understands that a command economy cannot work. So they use ESG ratings to conscript the private sector into doing their bidding.


        • Brent:

          I think the left struck out trying to sell the concept using class so they are giving identity a go.

          Yep…this is precisely what is going on. It is no mere coincidence that all of the ideas being pushed via the DEI and ESG movement have their intellectual grounding in the Marxism departments of academia.


        • jnc:

          The identity politics that are grafted on are something separate from classical Marxism.

          It isn’t separate. It is simply an extension of it, or an updated version, like DOS 1.0 and DOS 2.0

          The underlying premise of Marxism is that various groups in society have competing group interests, and that these interests drive both the societal creation of hierarchies among and conflict between the groups. For Marxism 1.0, the groups were defined by economics, ie class, but recall that a basic tenet of Marxism 1.0 was that capitalist societies would produce their own collapse when it impoverished the proletariat, leading to rebellion against and destruction of the hierarchies of the state. The problem for Marxism 1.0, however, was that capitalism did exactly the opposite. It provided wealth and comfort for the proletariat, leading them to buy into capitalist society and its hierarchies rather than rebel against it/them. So if this destruction of the state and its hierarchies was ever going to happen, the relevant identity groups needed to be recast. A large part of the Marxist project in the academy in the 1960s and 70s was aimed at doing this recasting, producing Marxism 2.0, which differs primarily in that the hierarchies are supposedly established by racial and gender identities rather than economic class identities. Hence the constant claims of “structural” racism and discrimination. Just as economic oppression was supposedly an unavoidable aspect of capitalist societies, so too now racial and sexual “oppression” are also claimed to be “structural” aspects of society. And the goal in both cases was/is the overthrow and destruction of this “oppressive” system by the oppressed.

          And that is exactly what we are witnessing the left attempting to do..create the conditions in which this destruction will come about. It isn’t a separate Marxism. It is just an updated version of the same old Marxist theology applied to new identity groups. Whether the Dems are knowingly participating or simply new versions of Lenin’s useful idiots, I don’t know (probably a bit of both), but they are certainly enabling it.


    • “Hunter’s business dealings in Romania were highlighted in a report released by the House Oversight and Reform Committee Wednesday. Gabriel “Puiu” Popoviciu, a Romanian tycoon who was facing criminal charges related to corruption and bribery, reportedly hired Hunter Biden in 2016 to advise him in the case. Popoviciu was eventually convicted and sentenced to seven years in prison in August 2017, NBC News reported in 2019.

      At the time, Vice President Biden was calling on the Romanian government to crack down on corruption. “Corruption can represent a clear and present danger not only to a nation’s economy, but to its very national security,” he said during a speech in Romania in 2014.”


  3. What’s your take on this Brent & Scott?

    “The agency is proposing to shift the economics of trading on exchanges and institute a new best-execution rule — a mandate that requires brokers to seek the most favorable terms to carry out client orders. Among other changes, the proposals would force brokers to disclose more about the quality of trading they offer and reroute individual investors’ orders through auctions, putting them up for bids like a collector’s item on eBay to increase competition.”


    • My guess is the price improvement will be negligible at best. Maybe a couple hundreds of a cent. In an environment of zero cost commissions, I don’t know how someone like Robinhood can stay in business

      At the end of the day, if you want to have broker-dealers, they have to earn revenue somehow. Commissions, payment for order flow, or bid-ask spreads.

      People forget that 30 years ago, stocks traded in 1/8ths, and the institutional rate was a nickel a share commission.


  4. Interesting piece. I didn’t know that the whole hostile working environment lawsuit against Carlson was based on this:

    “Carlson’s show was not the most diverse place, racially, but it was run by gay men. His top two producers, Wells and Alex McCaskill, are married to other men.

    A whole host of Fox executives and lowly Carlson staffers are mentioned in the lawsuit, but her primary villains are Wells and McCaskill, the two producers. Depending on your reading of the suit, the two come off as prurient misogynists or gossipy gay men making shady, jokingly inappropriate comments. Grossberg details their “blown up photographs of Nancy Pelosi in a plunging bathing suit revealing her cleavage,” their japery about testicle-tanning and Kelly Clarkson’s weight, and the time the pair asked her if it’s really true that Bartiromo was “fucking” Kevin McCarthy. None of it was PC, but that’s what Carlson’s staff liked about their workplace — they seemed to think they could speak and behave in a manner just as uninhibited as their boss did on air each night. Turns out that when you work for a publicly traded company with an infamous history of treating women badly, you can’t.”

    Also, this is a perfect turn of phrase: “power-victim portrait”.


  5. Why repudiation will occur sooner rather than later.

    Things go on until they can’t. When there’s no more room in the budget to hand out funds, we’ll just shed the debt.


    • Japan has been a basket case for the past 20 years and they still have the lowest interest rates in the world

      Their debt to gdp ratio is 2.3x. We are something like 1.3, and a bunch of that is owned by the Fed, so that number gets an asterisk next to it.


  6. To me, these dudes are obviously feds.

    But, if they’re not all feds than the non feds in the groups are horrifically stupid considering how completely penetrated such groups have been in the past. Consider the Oathkeepers or Proudboys are, in the latest proud boys trial it was established that there were at least 48 feds and or informants with the group on Jan 6, which I’m guessing was at least 25-50% of their entire presence there.

    I find this whole thing hilarious.


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