Morning Report: Neel Kashkari says a June pause doesn’t mean the Fed is done

Vital Statistics:

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

The week ahead has some important economic data with new home sales, GDP and Personal Incomes / Outlays. The Personal Income / Outlays report contains the Personal Consumption Expenditures Price Index, which is the Fed’s preferred measure of inflation. Markets will close early on Friday for the Memorial Day Weekend.

We will also get the minutes from the May FOMC meeting on Wednesday. That will be interesting since there should be plenty of discussion about the regional bank situation. I want to see how many voters were willing to pause rate hikes, but went along with the consensus.

Minneapolis Fed President Neel Kashkari said that even if the Fed pauses rate hikes in June, the markets shouldn’t take that as an all-clear signal. “Right now it’s a close call either way, versus raising another time in June or skipping,” the central bank official said on CNBC’s “Squawk Box.” “Some of my colleagues have talked about skipping. Important to me is not signaling that we’re done. If we did, if we were to skip in June, that does not mean we’re done with our tightening cycle. It means to me we’re getting more information. Markets seem very optimistic that rates are going to fall now. I think that they believe that inflation is going to fall, and then we’re going to be able to respond to that. I hope they’re right,” he added. “But nobody should be confused about our commitment to getting inflation back down to 2%.”

Despite 500 basis points of tightening, the economy remains quite strong. The Atlanta Fed’s GDP Now Index sees Q2 growth at 2.9%.

Troubled regional bank PacWest is up this morning after reaching a deal to sell a portfolio of construction loans to an investment firm. The regional banks are all up in sympathy this morning.

Mortgage applications for new home sales rose 4.1% in April, according to the MBA. “Purchase applications for newly constructed homes declined in April but were up 4 percent compared to a year ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “This was the third straight month of year-over-year growth in applications, which signals improving housing demand for newly built homes at a time when the broader housing market is leaning more on new construction to boost for-sale inventory levels. Mortgage rates have settled in the 6.5 percent range lately and remain over a percentage point higher than last year. The higher mortgage rate environment continues to factor into homebuying and selling decisions.”  

31 Responses

  1. News flash: You’re not going to evacuate 25 million. Houston was unable to evacuate 2 million during hurricane Ike and I’d rate our infrastructure as second to none.


  2. Brent you may find this amusing:

    “Top Asian Diversity Consultant Accused Of Defrauding Low-Income Housing Fund

    Faith Bautista is accused by her former colleagues of filing thousands of fake applications for state funds meant for housing assistance to low-income residents.

    Lee Fang
    May 22, 2023

    The lawsuit also raises questions about Bautista’s relationship with First Republic. After Bautista helped generate millions of dollars from the housing program, she allegedly went around the NAAC board to use the nonprofit’s newly flush coffers to invest $2.5 million into Chime TV, an Asian-focused television network founded and led by Bautista. The investment was part of a bid to obtain a loan from First Republic to finance her television venture.

    First Republic, which appointed Bautista in 2016 to its advisory board following her work to lobby regulators on the bank’s behalf, approved the loan last year. In its lawsuit against Bautista, NAAC noted that the bank approved the loan despite the absence of signatures from other NAAC officials on Bautista’s loan application.

    After a dispute with Bautista over the unauthorized loan application, NAAC cut ties with her television company and swiftly returned the money to the bank.

    Bautista’s brand of activism blends bromides about racial inclusion with business advocacy. As I previously reported, her organizations frequently deployed the rhetoric of social justice movements to assist corporate lobbying campaigns benefiting companies such as Uber and T-Mobile.

    But Bautista’s alleged fraud entailed a level of sophistication — criminal entrepreneurship, even — not present in her previous lobbying efforts. Her former colleagues at NAAC claim that she defrauded a program whose creation she had demanded as a civil rights activist. ”


    • Yep. We are at the endgame kabuki:


      • So, the equivalent of a clean debt ceiling bill. I’m shocked I tell you!


        • The Republican messaging on this is horrible. Ross Perot could have had a field day with charts on the growth of spending and the deficit since the Obama years.

          But they really aren’t serious if their big ask is freezing at FY 2022 numbers.

          I suspect the crash will come when I’m getting ready to retire.


        • It’s the Uniparty. Nobody really wants any real cuts, the demagogy over eliminating even $100,000 for cow fart monitoring will be fatal. It’s all protected and incestous. If defense cannot be cut, and there are 535 votes for not cutting it, if truth be told, then nothing is cuttable.


  3. When the mask slips. In this case “Not quite the same thing” means “It’s exactly the same thing, but inconvenient for my narrative”

    “Bret: Switching subjects, Gail — Democrats were enraged when DeSantis and the governor of Texas, Greg Abbott, started busing migrants north to New York City and other self-declared sanctuary cities. Now the mayor of New York, Eric Adams, is declaring a crisis and busing some of those same migrants out of the city, often to the consternation of nearby smaller cities like Newburgh that are straining under the weight of the new arrivals. Are you ready to denounce Adams?

    Gail: Not quite the same thing, Bret. States like Texas have a permanent relationship with countries across the border — it’s part of their economy. In times like this, the rest of the country should offer support, from good border enforcement to services for the needy. And, of course, accept these folks if they come to our states of their own volition.

    Bret: Not quite sure why some states should bear a heavier share of the immigration burden just because they happen to be next to Mexico, particularly when immigration enforcement is primarily a federal responsibility. I think we in the nonborder states have so far sort of failed to appreciate the scale of the crisis and the burden it has imposed on border towns.

    Gail: We know Texas has been mass-shipping immigrants to places like New York to make a political score, not solve a problem.

    Bret: Well, both are possible.”


  4. Very interesting series on the “rigging” of LIBOR and the traders who got sent to jail for it.

    One revelation that I was not aware of back when I wrote my original series on this topic here 10 years ago, is that during the financial crisis not only was the fed aware that banks were low-balling their libor submission at the time and didn’t care (which I did know about), the UK government had itself gone to Barclays and told them to lowball their submissions.


    • I may leave a comment and suggest Taibbi do a follow up piece.

      I like his current exposes on censorship, but I’m a bit burned on on them currently. I think he needs to avoid focusing just on one topic.


      • Good idea. It would be interesting to see how he reports it today compared to what he said 10 years ago.


  5. I actually have no clue what any of you believe anymore but I wanted to link this and since it might be behind a paywall……………I’ll paste the entire piece. I doubt any of you believe that I’m actually a moderate, even though I am, but the crazy shit from the right is scaring me right now and chief among my fears is another Trump term. Even if he loses, which I assume he will, his rhetoric and ideas are poison to this country and he doesn’t seem to be alone in his zealousness.

    FROM CNN’S CALAMITOUS TOWN HALL to the ABC News/Washington Post poll showing Donald Trump leading President Joe Biden by 6 points, the prospect of Trump returning to the White House can no longer be dismissed even by those who most wish to dismiss it.

    Neither can it be dismissed what a Trump restoration would mean. Trump is not hiding the threat he poses to the nation—he’s flaunting it. Trump plotted a coup to try and steal the 2020 election and hold power through the incitement of an insurrection.

    And he’s campaigning on this history.

    Trump made clear he will not accept the outcome of next year’s election, either, unless he is the winner. He is promising pardons for the insurrectionists who attacked the Capitol. He called January 6th “a beautiful day,” called the police officer who fatally shot rioter Ashli Babbitt “a thug,” urged members of Congress to default on the debt, admitted to trying to overturn Georgia’s 2020 popular vote in his call with Georgia Secretary of State Brad Raffensperger by stating “I said ‘you owe me votes because the election was rigged,’” declared former Vice President Mike Pence “made a mistake” in not overturning the election for him, and did not deny (“not really”) showing anyone the classified documents he stole from the White House that he still insists belong to him.

    He called in to a QAnon rally and let Michael Flynn know he would hire him again in his next administration.

    And all of that is just from the last two weeks.

    Everyone on the outside can see this. But there is a group of citizens who know even more keenly how dangerous another Trump term would be: the people who worked for him the first time.

    Is it too much to ask that “former administration officials” speak honesty about the danger Trump poses now?

    Because it seems that it would be helpful, and important, to hear the truth—ideally in a united, coordinated way—from the following people:

    Gen. John Kelly

    Gen. Mark Milley

    Dan Coats

    Rex Tillerson

    Gen. James Mattis

    Lt. Gen. H.R. McMaster

    Reince Priebus

    Steve Mnuchin

    Gina Haspel

    Gary Cohn

    Kirstjen Nielsen

    That’s a partial list of the most high-profile adults in the room who worked for Trump the first time and clearly understand who and what the man is. There are others from the middle and lower ranks of government who could—and should—join them.

    What’s important about this list is that none of these figures has anything to lose. Mike Pence won’t speak honestly about how dangerous Trump is because he thinks he’s running for president. And Mike Pompeo, despite having declined to run for president, is still nursing his own ambitions and so cannot be counted on to do the right thing. No one needs to hear from Bill Barr, who went on a book tour to describe how Trump became “manic and unreasonable and was off the rails” before January 6th and said that “the absurd lengths to which he took his ‘stolen election’ claim led to the rioting on Capitol Hill.” Barr also said he will vote for Trump should he win the nomination.

    But the rest of these figures have no such constraints. Jim Mattis is off living his best life—getting married to a physicist he met in a bar at a Vegas ceremony. Rex Tillerson has become Jack Donaghy in winter. Neither Gina Haspel nor Kirstjen Nielsen seem to be doing anything that requires them to be held in the good graces of MAGA voters.

    So why won’t these public servants rise, as former Rep. Liz Cheney has, and as Judge J. Michael Luttig has, to testify to what they saw and what they think about the possibility of Trump becoming president again?

    IN 2020 NONE OF THESE MEN AND WOMEN warned the country about a second term of Trump, even after all they had seen. Trump swooned for Kim Jong-un and provided the dictator a useless summit, he pardoned war criminals, complimented Xi Jinping on his handling of COVID, abandoned our Kurdish allies at the Syrian border, invited the Taliban to Camp David, insisted on providing a likely compromised Jared Kushner a security clearance over the objections of intelligence officials, and didn’t even look the other way as Ivanka received trademarks from the Chinese Communist Party as her husband built close relationships with the Saudi kingdom that would enrich him immediately upon his exit from the White House.

    And throughout, Trump insisted on protecting Putin, reiterating the dictator’s talking points that the Russian president should rejoin the G7, that NATO was obsolete, and of course, that Ukraine had meddled in the 2016 election. Trump provided classified intelligence to Russian officials in the Oval Office and spent two hours alone with Putin without notetakers before saying he believed Putin over the FBI in what has to be the greatest betrayal by an American president of his own government.

    Miles Taylor, a former administration official who first penned a New York Times op-ed and then a 2019 book titled “A Warning” as “anonymous” but later revealed himself, describes in a new book to be published this July how he attempted to convince Trump administration officials to go public with their fears about a second Trump term in 2020. None would.

    I conferred with dozens of former Trump officials over coffee, at lunch, and by phone to assess whether they would come forward. Everyone declined. They wanted to move on with their lives or expressed hesitation about provoking Trump’s ire. He was famously vindictive and would no doubt threaten them with personal and professional retaliation. Others explained (unconvincingly) that it was inappropriate.

    Former Defense Secretary Jim Mattis told people he felt a devoir de réserve—French for “duty of silence”—about his time serving the president. I was surprised. Behind closed doors, Mattis stridently voiced alarm, once referring to Trump as a “threat to the very fabric of our republic.”

    (This is according to a pre-publication review copy obtained by The Bulwark.)

    These same officials, Taylor says in the book, had not only met to discuss invoking the 25th amendment but had once traveled to “an empty building in rural Virginia” to discuss, without phones in the room, the idea of a mass resignation.

    SOME OF THOSE FORMER ADMINISTRATION OFFICIALS officials have spoken, but only obliquely.

    Following Trump’s Lafayette Square photo-op debacle, Mattis submitted a long statement to the Atlantic in which he wrote, “When I joined the military, some 50 years ago, I swore an oath to support and defend the Constitution. Never did I dream that troops taking that same oath would be ordered under any circumstance to violate the Constitutional rights of their fellow citizens—much less to provide a bizarre photo op for the elected commander-in-chief, with military leadership standing alongside.”

    It was an extraordinary act, but even so, Mattis was clearly trying to stay in his lane and not be forthright about the true danger of Trump.

    Milley, who provided testimony to the House Select Committee on January 6th, wrote a resignation letter one week after the Lafayette Square photo op that he ultimately never sent, but which was reported in Peter Baker and Susan Glasser’s book, The Divider: Trump in the White House 2017-2021. In it, he wrote: “It is my belief that you were doing great and irreparable harm to my country. I believe that you have made a concerted effort over time to politicize the United States military.” Again: extraordinary. But we should hear from him now.

    Tillerson criticized Trump publicly after he lost re-election, saying Trump’s knowledge and understanding of history and global events was “really limited,” but he did not address the threat Trump poses. Tillerson admitted he was mystified that Trump bashed our allies, saying, “he saw those as people who were weak. He used to say that over and over again. I don’t know why he viewed them as weak, other than they were overseeing free countries.” Maybe Tillerson should elaborate on this to the public?

    And then there is Kelly, who, having been chief of staff, presumably knows everything. After Trump lost in 2020, Kelly cooperated so extensively with the New York Times that reporter Michael Schmidt added an additional 12,000 word biography of Kelly to the paperback edition of his book Donald Trump v. The United States, so as to include information that didn’t make the first edition. Among this new information: Trump suggested using a nuclear bomb on North Korea and then blaming another country, that Trump “had no grasp on the basics of American foreign policy,” and that “Trump seemed to have no interest in—and be confused by—Kelly’s explanation that nations created a deterrence against Russia by committing to a collective defense.”

    But talking to a reporter is different than speaking your mind.

    And also: The situation has changed in a material way since 2020 because Trump attempted a coup. Any reticence that existed on the part of these figures in November of 2020 should have been obliterated by January 6.

    PERHAPS THERE ARE REASONS for some of them not to speak out.

    Former Defense Secretary William Cohen told The Bulwark that people like Mattis and Kelly are seeking to protect the civilian/military divide when it comes to partisan politics for the very reason that someone like Trump could try to corrupt it.

    “The former military leaders do not want to be seen as endorsing or opposing any political figure. Once that threshold is crossed, you can imagine what happens when Trump or Trumpanistas are in charge, what they would insist upon to support any candidate for selection or promotion,” Cohen said.

    But Cohen, who has opposed Trump since 2016, agrees that a second term of Trump represents an existential threat to the nation.

    “The danger is exponentially greater since there will not be a Gen. Mattis or Kelly or Cohn to try to restrain Trump. We are only one minute from midnight in the loss of democracy. The sad thing is that Republicans who once believed in the rule of law, of a strong national defense predicated on alliances and engagements with like minded nations who treasure democratic ideals, are eager to give it all up to raw autocratic power in the name of white supremacy wearing the guise of Christian nationalism,” he said.

    So perhaps those military leaders could encourage their civilian colleagues— Tillerson, Coats, Haspel, Priebus, Cohn, Mnuchin and others —to raise their voices, since they face no such constraints. Because a coordinated response from these public servants to the peril of another Trump term, far more grave than it was three years ago, would be a service to the country.


    • As bad as Trump was, the current authoritarian and utopian left is worse.


    • “Even if he loses, which I assume he will”

      I wouldn’t assume that. The poll in the piece you just cited has him up by six points.

      I didn’t vote for him in 2016 or 2020, but my life was materially better during the Trump presidency.

      On a personal level, Biden’s presidency has been a disaster for me financially. I don’t think I’m the only one who believes that they were better off four years ago.

      Here’s the link:

      The mistake the author makes is believing that the officials that are cited command widespread respect and can sway the opinion of likely Trump voters. I think the establishment pile on will have the opposite effect. It shows that Trump is truly not a part of it, and is the only candidate perceived as a threat to it. RFK Jr. may fall into this category as well, but he’s not likely to get the nomination.


    • lms:

      …but the crazy shit from the right…

      What ideas from the right are even close to being as bat-shit crazy as thinking that:

      1) women can have penises
      2) the southern border is secure
      3) gas stoves should be outlawed
      4) a government-run “disinformation governance board” is compatible with the first amendment
      5) a SCOTUS ruling that elected state legislators can make law is “a threat to democracy”
      6) your grand children “belong to all of us”


  6. Some useful perspective on the growth of the federal budget recently.


  7. I like the agenda and I need the other candidates to sign on. Will DeSantis pardon J6ers? That and defunding the FBI and reigning in the IC are my red lines.


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