Full size image
This shows what’s happened to the number of home mortgage purchase applications since rates went up (they’ve gone down!).
While higher rates help savers as much as they hurt borrowers, the borrowing at the higher rates has to take place for the savers to get helped.
Yes, Tsy auction rates are higher, but the Fed is buying pretty much the same amount of securities that the Tsy is selling, so no help there.
It’s when the economy is ‘strong enough’ such that borrowing continues even at the higher rates that those rates ‘feed back into the economy’ through savers.
However, it is now the case that ‘investors’ hiked mtg rates due to various Fed fears, etc. with the open question being whether or not prospective home buyers will in fact borrow at those rates. If they don’t, no savers get helped and housing adds less to GDP.
Meanwhile, the Fed wants to exit QE on it’s ‘risk/reward’ analysis and has stated that improvement in the ‘labor market’ is what warrants the exit. And if ‘market forces’ have moved rates higher due to the economic outlook that’s ok too, so the current level of rates and weaker housing is unlikely to alter tapering plans, leaving the coming August jobs report as the critical data point. At the same time, the Fed wants to remain highly ‘accommodative’ and so will likely take communicative measures to attempt to keep longer rates lower, as they seem to have run out of operational alternatives.
So in my search for the agents who will increase their ‘borrowing to spend’ sufficiently to offset this year’s decrease in the govt’s deficit spending, seems I can scratch off ‘housing’.
And if any of you notice any signs of ‘borrowing to spend’ I’m missing please let me know- it’s lonely (and depressing!) being the only one to see the kind of downside risk to GDP growth I’m seeing…