Breaking Down the Balance Sheet
The Fed has a targeted balance sheet reduction of $95B a month. Up until this point, the Fed had failed to reach its target almost every month since QT began.
In the latest month, the Fed made up for their recent shortfall with a big balance sheet reduction of $139B, exceeding their target by 50%! Despite the larger-than-expected reduction, the Fed still missed its target on Mortgage Backed Securities (MBS).
According to the BLS, the economy added 263k jobs in November with a modest revision up in October from 261k to 284k but a revision down in September from 365k to 269k. October was a beat against median expectations of 200k. The employment rate (black line) stayed flat at 3.7% while the labor force participation ticked down from 62.2% to 62.1% This is the weakest labor force participation since December of last year.
Federal Reserve Chairman Jerome Powell came out this week and indicated the central bank is set to pivot away from its aggressive rate hikes. But he couched the announcement in hawkish terms. The markets bought the pivot and ignored the hawkishness. In this episode of the Friday Gold Wrap podcast, host Mike Maharrey puts Powell’s remarks in a broader context and speculates about what might be coming down the pike.
Inflation was running rampant for months before the Federal Reserve launched its inflation fight. As you’ll recall, we were told over and over again that inflation was transitory. But now that the central bank is on the job, most people are confident Powell and Company can get rising prices back under control.
Perhaps they shouldn’t be so confident.
Federal Reserve Chairman Jerome Powell all but confirmed a soft pivot by the central bank in its inflation fight on Wednesday, while trying to maintain a hawkish demeanor.
The markets appear to be buying the pivot, but they are ignoring Powell’s “tough guy” spin.
While the data this month looks weak, I think there is more to the story. My hypothesis is speculative in nature, so I will save it for the end after going through the data.
In another bad sign for a housing bubble that is quickly deflating, investor purchases of single-family homes tanked in the third quarter.
Meanwhile, overall home sales continue to tumble and prices are falling.
The powers that be keep telling you that the economy is fine and inflation has likely peaked. But you’re not buying the story.
Consumer confidence fell for the second straight month in November as worries about inflation and the trajectory of the economy persist.
When people talk about “inflation” today, they generally mean rising prices as measured by the Consumer Price Index (CPI). But historically, “inflation” was more precisely defined as an increase in the amount of money and credit causing advances in the price level. Inflation used to be understood as an increase in the money supply. Rising prices were a symptom of inflation.
I find this change in definition problematic. But many disagree with me. They argue that I’m being pedantic and the definition doesn’t really matter all that much.
In another sign of a struggling economy, small businesses are having an increasingly hard time paying rent.
According to Alignable’s November Rent Poll, 41% of US small businesses reported they couldn’t pay their rent in full and on time in November. That was a 4 percentage-point increase from the previous month.
