October 6, 2024

An Economy That Is Quickly Slowing

Hyman #Hyman

Stock Market Capital Gains Increasing From A Bull Market

Darren415

Eyes are on the Fed again this week as the FOMC will announce their interest rate decision on Wednesday. Last month the Fed gave indications the magnitude of future rate increases would be lessened in order to evaluate the economic impact of earlier rate hikes. In an earlier post I touched on the fact the current tightening pace has been the steepest on record with the most recent hikes consisting of four consecutive 75-basis point increases in the Fed Funds target interest rate, or 0.75%. The market is anticipating a 50-basis point hike Wednesday. Below is a video of a recent interview with Ed Hyman conducted by Cosuelo Mack on WealthTrack and Ed believes the Fed should increase rates by just 25 basis points.

Ed Hyman has been voted the top economist on Wall Street by Institutional Investor for an unprecedented 42 years. Ed discusses his reasoning behind why he believes inflation has peaked, which would be welcome news to the Fed. In the video link near the end of this post, Ed Hyman notes:

  • Housing is a key driver of economic activity and the housing market has weakened significantly with the increase in mortgage rates. One could say existing home sales, down 28.4% year over year, have fallen off a cliff as seen in the top half of the below chart.
  • Chart: existing and new home sales October 2022

    Ed Hyman’s firm conducts a number of industry surveys, one being a trucking industry survey, and it is providing near recessionary level results. His reliance on trucking is due to the fact the industry has one of the highest correlations to GDP. Also showing weakness is shipping data as measured by the Baltic Dry Index (BDI) which measures global freight rates for dry bulk shippers. When global demand for shipping rises, the BDI rises as well. The BDI peaked in October of last year and has mostly been trending lower since, an indication of less demand for shipping as seen in the bottom half of the below chart.

    Dow Jones Transport Index and Baltic Dry Index as of December 9, 2022

    Other factors cited in the interview as an indication the economy is slowing,

  • the Fed’s Quantitative Tightening program, i.e., where it is shirking its balance sheet by $90 billion a month, is estimated to be equivalent to an additional 200 basis points being added to the Fed Funds rate according to the Federal Reserve Bank of San Francisco.
  • Image

    Fed balance sheet and target rate December 9, 2022

  • Also highlighted in the interview is the fact the money supply is contracting for the first time in 70 years. During the depths of the pandemic cash was created and provided to companies and individuals for a multitude of reasons, but when one prints more dollars, the end result tends to be more inflation. Reducing the money supply takes pressure off of inflation.
  • Image

    Money Supply (M2) October 2022

    Finally, Ed Hyman’s interview here provides one’s insight into 2023. It goes without saying though, the crystal ball is not always perfectly clear.

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