Powell And The Fed Gang Stick With Negative REAL Treasury And Mortgage Rates (US Housing Starts SOAR 6.8% In February)

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by confoundedinterest17

Well, Powell and The Fed Gang failed to tackle inflation with its 25 basis point increase in their target rate. The result? Inflation is still roaring and REAL Treasury yields remain NEGATIVE (nominal Treasury yields – inflation).

In fact, the US Treasury 10-year yield hovering around 0% when Biden first became President, then the inflation kraken was unleashed leading to progressively declining 10-year Treasury yields. As on late night, the REAL 10-year Treasury yield is -5.71%.

REAL mortgage rates (Bankrate 30Y rate – inflation) were positive at the beginning of the Biden Administration, but have sunk to -3.40%.

With negative REAL mortgage rates (and continued Fed Stimulypto), we saw February housing starts rise 6.8% in February.

The Fed is apparently jittery about Russia invading Ukraine (mentioned in The Fed minutes) as well as the possibility of China invading Taiwan (NOT mentioned in The Fed minutes).

But if we look at the Fed DOTS plot, we see a rise in The Fed Funds Target rate in 2022 (7 rate hikes), more rate hikes in 2023 and 2024 and then a slowing in the longer term (as if voting members have a clue about the long-run economy).

The WIRP (Fed Funds Futures) is signalling 7 MORE rate increases over the coming year.

Biden is relying on Powell And The Fed Gang to provide ample liquidity in the markets, particularly before the midterm elections in November (hint: Biden doesn’t want Powell to rock the boat).

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