IMO the economy is going to get much worse by end of the year. A bunch of the numbers that we’ve seen about the past year were cooked up. Q4 they said that there were 1M added jobs but the St Louis FED revised the number and there were actually 10k jobs added. Q2 and Q3 saw a decline of GDP and Q4 saw growth. The only reason that there was growth was because the Federal government was dumping an immense quantity of oil from the Federal oil reserve. The oil that was sold was added to the GDP growth. Without that we would have another negative growth for GDP. That is 3 straight quarters. On the other side, the Federal government passed the Inflation act, and some states like California were giving 1k checks to people (even though California will have a 20B deficit). On top of that, the federal government stopped dumping oil and China is reopening. That means higher oil and commodity prices. That is already reflected in some inflation numbers. PCE inflation trended up and all other indicators were higher than expected. So we have on one side the FED trying to cool down the economy and the other side the federal government handing money out. That is not going to be any good. The FED has been raising rates and thinks that it will be able to control inflation to 2%. People are already celebrating 6% inflation, thinking that we are in a good direction. In my opinion, we are not. The problem is that supply hasn’t increased and the government is blocking the development of new oil rigs and, for example, stopped the keystone pipeline, which are deflationary. So supply is not going up, and demand is going up because of all the federal spending.
The FED will be negatively surprised by inflation, stocks will crash and they will keep raising rates until something breaks. Something will break by probably end of the year. Something similar to what happened in England with their Pension funds. And so the FED will have to pivot. One way or the other. At the current rates, the amount of money that the government will have to pay will be upwards to 1T, since a lot of the bonds will be rolled out in the next 3 years. So they will have to push interest rates back to low. What that means is that we will have high inflation (we won’t see 2% inflation) and a hard landing (meaning a bad recession). The FED will pivot and will have to print more money with inflation higher than 2%. It is just not going to be good.