29 Nov Are We Already in a Recession?
Yesterday, Fed Chairman Jerome Powell finally gave the markets what I hoped he would offer for a long time. He stated that the current path of Fed rate hikes may not be the best strategy for 2019. He finally realized that driving short term interest rates higher will speed up the process of the US economy entering a recession. By holding interest rates at or near current levels, they may be able to delay the recession that will eventually hit regardless of what the Fed does. The Fed has a history of not knowing when to stop tightening their policies, and there is no reason to believe this time will be any different.
Since economic expansions all come to an end, we are closely monitoring the signs that indicate at what point this will happen. There is a lag between the point at which the turn happens vs when people realize it is underway. I strongly believe that the process is already underway and wonder why most economists don’t see what I see. Both the housing markets and mortgage interest rates are expected to continue to climb higher. I don’t see this happening. I believe one or both must fall.
With corporate debt now at its highest level in history, continued increases in interest rates will force many companies to struggle as the payments become unmanageable. Further, with both housing prices and interest rates moving higher, according to FHA statistics, debt to income ratios of new homeowners has also reached the highest level in history. Once again, this is not sustainable. Either interest rates and/or home prices must soften.
Mortgage bonds were able to break above their 50-day moving average, which is a great sign. Although I believe interest rates have room to fall, we could see upward pressure in the near term. If you don’t wish to take the risk, rates are in a great position to lock.