Our main macro paper for the first half of 2025 is another disinflation wave collides with the US.
We hope to increase the annual rate by under 2% in H1 2025.
Our key inflation indicators suggest that the final one wave of the first half of 2025 may be scheduled.
To add some substances, this key indicator is constructed using the seven most statistically significant future look indicators for US core inflation.
The latest DIPs are primarily attributed to key indicators of shelter inflation. This represents over 30% of the US core inflation basket.
As you know, official shelter inflation tends to incorporate ground rent growth with delays due to methods and series like Zillow. Rental indexes are used to predict where shelter inflation will go.
The CoreLogic detached home rent index is one of the best predictors of shelter inflation, and has just been printed at the lowest level in 14 years.
Several weaknesses in the housing market are beginning to emerge, as evidenced by other key indicators.
One of the main reasons why the housing market was so bad despite high mortgage rates was the huge backlog that worked.
While demand for housing has been extremely hot during the pandemic, supply bottlenecks and labor shortages have led to longer home construction cycles.
This tailwind seems exhausting as large US home builders like Dr. Houghton are now reporting that their backlog has returned to 2019 levels.
Additionally, a report on Tuesday shows that construction sector jobs are shrinking rapidly (see chart below).
The construction sector is key to the US business cycle, where periodic weakening always had an early signal of wider softening in US growth conditions.
Just to be clear: Construction workers have not been fired yet.
However, conditions for slowing down the housing sector seem to be in place, leading to divergence through shelter components rents.
Incoming data on inflation, growth, and housing markets suggest that a slowdown in growth might be ahead of us. In that case, you can quickly switch to a quarterly pace cut and reassert the Fed.
This “Aggressive Risk Management” ‘Dovish Stance makes your financial situation easier = Stock and bond gathering:
Looking at the relative ratings of stocks and bond markets as a whole, the best risk/rewards lie in bonds.
At this point, this is the price the market is planning to hold by the Fed over the next two years.
The Fed’s prices have been put on hold in March, and this year we have two total cuts, which will stop there.
The terminal rate price is around 3.90% – and that’s what stops the Fed’s disconnection cycle.
Given that as long as Powell has a Fed chair until May 2026, the chances of hiking are relatively small, so if my layoff paper proves correct, bonds are interesting. Provides risk/reward.
Thank you for reading, this was today.
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