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Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here. |
Today's bonus chart shows the steepening of the 3-month vs. 10-year treasury yields, which isn't necessarily positive news. Historically, after the curve steepens and normalizes, recessions have typically followed on a lag.
The Fed has achieved its goal in many ways, except for the lagging data like owners' equivalent rents. Most indicators show that inflation is now under control, and we can go about our deflationary day. However, the Fed's continued fixation on the Phillips curve raises concerns despite a plethora of other data suggesting inflation is in check. The Fed may turn a manageable recession into something worse. If you were to base the analysis on the Phillips curve, the Fed would have to hike rates to push unemployment from the present 3.6% to roughly 5%. Although this is a rough estimate given the curve's sensitivity to multiple consumption variables, it translates to a potential job loss of about 2.26 million. This shift could significantly reshape the financial flow landscape.
Student loan payments are set to resume in 16 days. This translates to an average monthly decrease of $400 in spending for 43.5 million Americans, or 13% of the population. According to a Credit Karma survey, 68% of borrowers earning under $50K report they'll have to prioritize student loan payments over essential expenses like food. Additionally, half of these borrowers admit they're already finding it challenging to meet auto loan and mortgage payments. There's growing apprehension that this could significantly impact spending in the restaurant and entertainment sectors. This potentially catalyzes the 5% unemployment rate Jerome Powell is looking for.
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Learn more about the Market Situation Report written by Tier 1 Alpha. |