The New York Fed released its quarterly report on Household Debt and Credit this past week. Consumer strength is waning, not gaining.
Loan delinquencies and foreclosures are up across auto loans and mortgage debt which is primarily where debt expansion has occurred in prior months. There are a number of charts between pages 3-40 that are quite interesting and speak to an uptick in consumer weakness. Read more HERE.
- The consumer is weakening.
- The duration and depth of a looming recession is unknowable as so much will be predicated on the Fed’s actions. The Fed is unsure of what path it will choose as it relates to tightening monetary policy and for how long it will tighten.
- The Fed can’t afford to let rates climb too high as Treasury would not be able to service the interest expense on its $30 trillion of outstanding debt. Much of this debt is in the form of T-Bills and T-Notes (19% T-Bills, 66% T-Notes), and therefore will need to be refinanced at affordable rates. As of month-end April, the average interest rate on the T-Bills outstanding is 50 basis points. The average interest rate on the T-Notes outstanding is 140 basis points.
- The record monetary expansion/ money printing of 2020 and 2021 has led to record price inflation which won’t return to a 2% CPI over the next several years and probably not for the next decade. Our view is that elevated prices (3-4% CPI through the remainder of this decade), and anemic growth (0-2% Real GDP), are the new normal.
- It’s interesting that we are no longer the lone voice that considers Stagflation to be the base case for the U.S. economy (see YouTube video below).