Signals of a Coming Economic Breakdown, Fed Reversal

May 30, 2022 (EIRNS)—One of the Federal Reserve Bank’s public “signalers,” Atlanta Fed Bank President Raphael Bostic, said in a May 23 speech that he thinks that after two more half-point rate increases, the Fed will “pause” its tightening of monetary conditions in September. Bostic had recently been an interest rate “hawk,” so major bank and Wall Street pundits have run with his comment to proclaim that the Fed may be back to quantitative easing money-printing by the fall.

There is much more behind this than Bostic’s remarks. First, the huge Federal Reserve-Treasury joint money-printing wave which began in late 2019 ($10 trillion, no less!) culminated in February-March 2022 in record U.S. goods-trade deficits—more than $200 billion in deficit in those two months—representing tremendous volumes of imported business and consumer goods while U.S. factory orders remained 10% below their 2019 level. This drove the U.S. GDP negative in the first quarter; but more to the point, it has now ended, as American households’ total real incomes in 2022 are more than 10% less than in 2021. Second, the raging inflation set off by the central banks’ money printing has been much stronger in producer goods than consumer goods, squeezing thousands of production firms and, at this point, causing them to halt wage increases and begin hiring freezes and layoffs. One consulting firm, Piper Sandler, forecasts a million layoffs over the summer.

And third, the roaring U.S. residential real estate bubble has stopped expanding and hit a wall of unaffordability of homes. U.S. existing home sales fell dramatically in April, down 29% over a year, pending sales were down by 11.5%; while the median existing home sale price reached an extraordinary $457,000, with the average price at $550,000. The average mortgage payment in April America was 35% higher than a year ago. This now looks like a mortgage bubble ready to break.