Fed Members Causing Pain

The US federal reserve has been successful at popping the bubbles within the stock, bond, and crypto markets.

Now they have their sights on the labor and housing markets, both which have shown an unhealthy level of strength in recent years.

If I had to guess, I would say that the members of the Fed are engaging in a collective media blitz to spread the message that they will continue hiking and that more pain lies ahead.

The spreading of this message has helped drive a 12-week gain in bond yields that was last matched in 1984 when then-Fed President Paul Volcker was fighting his inflationary battle.

Only time will tell, but it seems likely to me the Fed will push too far and create irrevocable damage to important segments of our economy (such as mortgage) and cause more pain than would be needed to manage the problem.

At the end of the day, the issue is too much cash circulating. As painful as this is for me to say, they should consider pulling cash from some of the segments that benefited greatly from the Covid boom by increasing taxes on the very wealthy who saw their net worth grow by hundreds of millions and even billions.

This is a deflationary tool that is rarely discussed but would be more focused on reducing the money supply which has led to high inflation. Further, it would help shelter some of those who are most impacted by a rising cost of living.

Once again, mortgage interest rates are climbing. An 8% rate now seems to be a very real possibility. This is not something I ever expected to see in today’s world where technology is replacing US workers and our taxpayers are supporting interest on an insanely high US National Debt, both of which are deflationary pressures.

There remains no end in sight to this madness. We maintain a locking bias.