The excellent Steven Blitz at TSLomabrd.
The FOMC meets today and tomorrow, and they will not disappoint – the funds rate goes up 25BP and they will guide to wait-and-see, which really means wait-until-we-cut. It could be several months (my guess) or in a year (06-07 pattern), but once they stop the next move is cutting in response to rising unemployment. Problems in banking will be cited as one reason to stop now but keep sight of the problems in tech as the root cause of the deposit churn exposing the mis-investment of bank assets. Tech is the negative impulse pulling the economy into recession – not the whole reason, and not big enough to create an 08-09 recession, but an impulse pulling down high-end employment, exposing levered private financial firms intermediating funds into tech, and more.
Point is the problem in banking reflects problems in the real economy, as evidenced by recent consumption patterns (hidden in a strong Q1 GDP number bolstered by January). The Q1 real GDP 1.1% increase, Q/Q SAAR, matches up with my call last November – but to be fair, a week ago I did up the GDP call to 1.5%-2.0%. Like the old test advice, never go back and change your answer. It is also true that low Q1 real GDP growth reflected a big inventory drawdown, but drawdowns are part of any recession. I expect -1% Q/Q SAAR for real GDP in the current quarter and -1.5% Q/Q in the third quarter. GDP recovery begins in Q4, though employment will lag.
