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Interest Rate Mayhem - Economy Update June 2022, Elliot Eisenberg - American Pacific Mortgage - YouTube
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hi this is elliot eisenberg consulting
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economist to american pacific mortgage
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catching you
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up to date on the latest in mayhem in
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interest rates and have the last six
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months been wildly turbulent insanely
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turbulent and it's all because inflation
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has kept surprising us we kept them
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thinking inflation wasn't going to be
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bad and it gets worse and then it gets
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worse and then it gets worse let me
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explain up until the end of 2021 the
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belief was that inflation was transitory
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and that it was going to be brief it was
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going to go up and then by early 22 mid
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22 it was going to be well on its way
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down it was largely going to be over by
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now yeah the fed would have to raise
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rates three or four times in 22 each by
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a quarter point but inflation wasn't
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going to be serious
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and then all this bad information began
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coming out starting in early january and
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it hasn't let up and every time the
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inflation numbers came out worse than
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expected and it's been six straight
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months powell the chairman of the fed
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had to pivot so that was the power pivot
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and he'd go like this and say oh
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interest rates aren't bad we have no
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problem whoops interest rates are worse
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we're going to have to raise rates oh
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interest rates are worse we're going to
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have to raise rates more whoa interest
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rates are much worse we're going to have
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to raise a lot more and a lot more and a
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lot more and every time he pivoted
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markets tanked uh the stock market went
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down interest rates went up 10-year
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treasury went up 30-year mortgages
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rates went up this was a wash rinse and
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repeat process over and over again
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because the inflation expectations
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became worse as well as the real data
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came in that was really bad now the
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problem with this is what does this mean
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fortunately for housing markets i don't
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think there's much more bad news yes the
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fed's going to start to raise rates or
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has been raising rates every six weeks
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and we'll continue to do so through the
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probably the middle of next year but
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that's what they've told us they'll do
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and as a result of telling us that
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markets responded right away or it took
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six months as powell said things but now
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the markets fully expect the fed funds
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rate to be around 3.4 by the end of this
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year and probably somewhere around 3.8
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by the middle of next year as long as
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those expectations hold and the fed
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doesn't change their agenda here because
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the inflation data coming in doesn't get
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worse the 30-year mortgage and the
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10-year treasury won't appreciably
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change yeah they'll bounce around of
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course but there's not going to be any
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appreciable movement that's the good
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news the bad news is we're probably
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setting ourselves up for a recession and
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here's why it's very hard to avoid a
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recession when you start a large
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interest rate rising cycle like we're in
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right now especially when the fed's
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behind the curve because they should
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have begun raising rates in retrospect
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last august or september or november or
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somewhere not as late as march april
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when they started let me explain to get
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it just right the fed has to figure out
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when to start raising rates how fast to
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raise them how high they should be at
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the end how long they should stay at
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that rate when they should start to come
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down how fast they should come down and
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when they should stop coming down if you
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get all those decisions right and
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foreign policy issues and
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shocks like wars in europe and lockdowns
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in china don't make things worse you
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gotta shout avoiding a recession but
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that rarely ever happens
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as a matter of fact since 1950 they're
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55 there have been 13 rate rising cycles
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and of those 13 only three have ended up
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not in recession 64 84 and 94. what
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makes them all the same those in those
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periods there was no inflation and the
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fed raised rates to cut the inflation
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off before it began to get bad in all
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other cases when their inflation was
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already out there at above five percent
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every time the fed raised rates to quash
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the inflation bam a recession occurred
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so i fully expect there to be a
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recession i want you to be ready for
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this because this rate rising cycle is
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almost guaranteed to end in a recession
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in future conversations we're going to
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talk about the duration of the recession
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when it's going to start and the
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magnitude of it thanks very much for
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watching and i hope this video has been
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helpful
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you
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