Good Tuesday AM,

Bonds opened up strongish today on some weak earnings reports and guidance from Walmart, etc.. Consumer confidence is dropping. That is typically the best forward looking metric we have as the consumers know well before the economist read the data. I still stick by the thought that we are in a recession now and are working our way through it. The Fed’s FOMC meeting started today and we will get their decision tomorrow.

I would continue to expect a .75 rate hike tomorrow and then .50 in September but at this point, I don’t think the Fed will be raising more than that and more than likely will start some whispers on cutting rates by the end of the year. Yes, rate cuts on the horizon. Even with the slowdown in the market, prices are continuing to rise year over year.. I would not be looking at the metrics monthly and certainly not weekly as anything more than a trend.

The 10-yr is at 2.75 and right at a line of support/resistance. I think we likely stay here until we hear the news tomorrow but expect volatility then. It’s always tough to float into a Fed meeting and with the gains we have this AM, it may be a good choice to lock this morning.

Bloomberg had an interesting piece worth sharing, but I would suggest understanding that the there are several ways to calculate employment, and the Governments U3 is not considered accurate although it gets the most attention.

This Thursday we get the preliminary reading of 2Q GDP, and while economists are expecting 0.4% annualized sequential growth, it’s possible that the reading will be negative. And if it’s negative, then that’s two in a row. And then we’ll get a big fight about whether that should be called a recession or not.

There’s basically two views on this question.

The recession view: “Everybody’s unhappy with this economy, and two quarters of negative growth is how most normal people define a recession, so it’s a recession.” And then the opposing view: “Well technically, a recession is something that the NBER declares, often many months later, based on a whole range of economic activity statistics. And even if we get two quarters of negative GDP, there are many indicators that haven’t started turning lower.” (My colleague Steve Matthews has an excellent piece on the role of the NBER here)

Anyway I’ll stay out of this whole argument, which obviously has all kinds of politics baked into it. But I will point out one thing. With every recession since the end of WWII, the US unemployment rate was either climbing prior to the declared recession, or it rose during the period where a recession was declared. That’s not the case in the first half of 2022. Since the beginning of the year, the unemployment rate has fallen from 3.9% to 3.6%.

You can still say the economy is bad. Real wage growth has been negative. Shortages are persisting. Inflation is high. But this measure, and how different it is from the run-up to previous economic slumps, suggests that the term recession may not be a good way to describe what we’ve experienced over the past several months.

Please remain safe and stay healthy, make today great!