short and long term macro update ?3

09:33 13-Jul-26


The two most significant developments to report are the death of Republican Senator Graham, and that ROAD Housing Act became law on Friday night without a presidential signature.  This is one of those rare bipartisan things that Congress actually managed to get done because of problems in the real economy.  Like most federal fixes it is far from perfect, probably making housing cheaper, but not better on the supply side, and those changes will take years to implement.  LII (Large Institutional Investor) restrictions on the demand side are more immediate, and though they probably amount to a only a percent or so nationwide, the effect may be more pronounced in certain southern metro areas.  This service has been consistent in projecting that any increase in home sales coupled with a decline in home prices will have a negative impact on stocks, and it will look at Pending Home Sales on Thursday morning.

More interesting, though, will be the extent to which the market does or doesn't shrug off tomorrow's CPI print, given that some of the media and market still buy into the Fed's theater.  In covering the first Fed decision under Warsh, this service wrote:
use of new data sources, which would certainly be welcome if they didn't raise the prospect of drifting even further from reality.
and over two years ago CrowdWisers wrote:
ultimately what we're seeing is that its measures are proving ineffective at actually changing economic conditions.  That may not stop it from eventually fudging the numbers and declaring victory as usual
The most likely means of doing that appears to be shifting to Trimmed Mean PCE, whose calculations simply ignore more than half of measurements, and bias them toward lower inflation readings by excluding the top 31% of readings, but only the bottom 24%.  Comparative historical figures from the Dallas Fed indicate that this would cut the unrealistic single-month numbers that the Fed already uses almost in half, and reduce longer term averages by around a third.  Nothing in the real world would change at all, and if the committee uses this as pretext for policy easing, affordability is likely to keep getting worse over time.  As usual, the main remaining question is When?  The press conference analysis linked above indicates it will occur around the turn of the year, but we may get some refinement when Warsh provides the semi-annual report to Congress starting at 10AM on Wednesday.  No matter what he says, it's still possible that the midterms and public pressure will cause a lack of follow through.

Regardless of what happens, it's past time for us to dispense with the ideas that the Fed is politically independent, and that government can be trusted with debt.  At this point, the only plausible solutions that this service can suggest are to move back away from fiat currency, or to have monetary policy constrained by deposit levels.