Juggling Dynamite

Yesterday, the US Federal Reserve held its policy rate steady at 4.25%–4.50%, as Chair Jerome Powell admitted he doesn’t know whether rising inflation or surging unemployment will hit hardest.

In the meantime, indebted businesses and consumers feel the pressure of interest rates near multi-decade highs.

A larger share of student loan balances are past due now than before the pandemic forbearance began (below since 2017, courtesy of The Daily Shot), and the Trump administration resumed collection efforts on Monday after a roughly five-year hiatus. See: Trump administration to garnish wages of 5.3 million defaulted student loan borrowers this summer.As US 30-year fixed mortgage rates hover around 6.76%, new US home sales have fallen to 2019 levels, and existing home sales to a 14-year low.Canadian real estate boards report that home resales fell significantly in April from a year ago in most markets (blue below with new listings in yellow). The MLS Home Price Index fell again in several markets, including the Toronto region, Hamilton, Kitchener-Waterloo, Cambridge, Vancouver and Fraser Valley—extending months-long negative streaks. Even the Calgary index recorded its first year-over-year decline in five years. See RBC: Canada’s housing markets crack.Many people alive today did not think that home prices could go down. They also erroneously believe that central banks will not ‘let’ stock markets fall. The truth is that central banks do not have the power to bail out a world full of reckless and wilfully blind financial decisions, especially with asset prices still at uneconomically high levels and revenues in retreat.

DDB offered lucid updates on the many moving parts yesterday. Worth a listen.

 Danielle DiMartino Booth, CEO of QI Research and former Fed advisor, joins Jeremy Szafron to break down why she believes the Fed is missing clear signs of recession and a credit crunch already hitting Main Street. Here is a direct video link.

QI Research CEO and chief strategist Danielle DiMartino Booth discusses China’s stimulus plan and the Federal Reserve’s interest rate strategy on ‘Making Money.’ Here is a direct video link.

China’s economy showed signs of damage from the trade war in April, with a drop in export orders and the weakest production at the country’s factories in more than a year. See, Beijing doesn’t want America to see its trade war pain

Here is a direct video link.

The impacts are evident in America, too.

Port of Los Angeles Executive Director Gene Seroka says the volume of imports are falling. He expects a soft year ahead and he’s worried about the impact on dockworkers and truckers. He’s on “Bloomberg Surveillance.” Here is a direct video link.

Dr. Lacy Hunt, Chief Economist at Hoisington Investment Management, analyzes what he calls an economic “interregnum” where five convergent forces are aligning to depress growth. Dr. Hunt methodically explains how tariffs will ultimately prove deflationary rather than inflationary, why the Fed’s restrictive monetary policy is misplaced, how federal spending cuts are creating headwinds, why massive debt overhang limits policy effectiveness, and how changing demographics will impact long-term prospects. With over 56 years of experience and historical perspective dating back to the 1920s, Dr. Hunt delivers a sobering but authoritative prediction that recession lies ahead in 2025, describing it as “a long, difficult slog” rather than a brief downturn. Here is a direct video link.

Hoisington’s Q1 2025 Review and Outlook is available here.

The current 9th period of negative M2 money supply referenced by Dr. Hunt in the segment above is shown below, since 1914 (with recessions marked in shaded bars).