Fed Raises Rates, Crude to $80, and the Fed Danger Signal

Here is this week’s report list – it is a bit long:

• Fed Balance Sheet (WALCL): -31B (-0.38%) w/w, prior -0.27% w/w.  Deflationary.
• Personal Income (PI): +0.30% m/m, prior +0.46% m/m, +5.3% y/y.  Neutral.
• Durable Goods (DGORDER): +4.49% m/m, prior +1.94% m/m.  Expansionary.
• Bank Credit (TOTBKCR): +18B (+0.11% w/w), +0.11% y/y.  Deflationary.
• Auto/Light Trucks (ALTSALES): +3.86% m/m, prior -6.62% m/m.  Expansionary (vs last year).
• Median New Home Sale Price (MSPNHSUS): -0.46% m/m, -4.16% y/y.  Home sale prices topped out.
• 30 Year Mortgage Rates (MORTGAGE30US): +0.03% w/w,  6.81%.  Home price deflationary.
• GDP (GDP): +1.15% q/q, +6.2% y/y.  Not adjusted for inflation.

Durable goods look strong, personal income is growing at an average rate (y/y), and auto sales have grown since last year.  That’s not very recessionary.  Of course, if you’re trying to sell your house, prices are falling likely due to the massive increase in mortgage rates over the past year.  And that pesky declining bank credit (although it did inch higher this week) is the scariest series of all.  Banks seem afraid to lend, for whatever reason.  Things did get a tiny bit better for bank credit this week, but that is not showing up on the y/y chart, which is on the cusp of turning negative.

On Wednesday, the Fed raised rates by 25 bp as expected; in the rates chart below, we can see the 1, 3, and 12-month treasury yields all converging roughly at 5.4%.  This grouping suggests the markets see just a small chance of another increase.  This agrees with the CME Fedwatch Tool which places the chances of a September rate increase at 20%.  The thing I picked up from Powell’s press conference on Wednesday: the labor market remains very tight.  Of course, we knew this would happen because of the “With a Disability” series I posted a few weeks back.  Also, Powell focused on “core inflation”, but he liked the drop in the CPI (driven by energy prices) because (he said) it made everyone think that inflation was dropping.  But ultimately – “The process still has a long way to go” – translated: No Pivot For You.