To The Moon

The Fed is facing two choices, "recession" or "more recession".

CPI increased by 8.6% year-on-year in May, reaching a new high, and core CPI increased by 6% year-on-year, both beat estimates. Moreover, almost every category beat, with 61% of CPI components recording a year-on-year growth rate of at least 6%, and 63% of the sub-items recording similar high growth rate in April.

Before that, the market had already looked down on the prospect of easing because of the high inflation after the supply chain problem. Inflation is not only a disruption to the commodity supply chain, but is driven by strong consumer demand and strong wage inflation.

However, according to the consumer confidence index in May, the University of Michigan consumer confidence index released on Friday (initial value) dropped to 50.2 in May, hitting a new low since 1980, indicating that consumers have taken pains with inflation, which will continue to affect consumer behavior in the coming period.

The Fed is riding a tiger now-if the inflation problem is not solved, Biden may invite Powell to the White House again and again, and also blame him. At the same time, if the Fed's tightening policy is too strong, such as raising interest rates sharply in May, June, July and September, and too much balance sheet off, the market will give negative response and the pace of economic recession will be accelerated.

That is never a "soft landing".

At the same time, we remind once again that the impact of scale reduction on the stock market will far exceed market expectations. Although the mortgage interest rate tended to be stable in May, the overall mortgage lock-in interest rate continued to decline from April, and the monthly refinancing of interest rate/term (-23.6%) and cash (-11.9%) declined. The Federal Reserve began to shrink its table in June, and even did not rule out actively selling MBS.

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