The European Central Bank noted that inflation in the EU has dropped to 4.0% on average, allowing the ECB to begin prepping for a rate cut later in the year. Inflation has stabilized all across Europe, except in Turkey where it’s 64.77%. The Turkish lira is devaluing and costs of living are increasing, all while the Turkish government is maintaining extraordinarily low interest rates within the country. Something stinks over there and sooner or later the whole system will unravel.
Makes me glad to live in the U.S.. Despite the incessant squabbling over policy, the system of checks and balances should keep our monetary system as stable as possible. Our Central Bank is still selling off bundles of bonds and the excess supply along with buyers not willing to pay par value because of the prognosis for lower rates ahead is keeping longer term rates elevated for now. At the same time, the FOMC is marketing the idea of three rate cuts in 2024.
The Fed’s orchestration of the 2-10 re-version is playing out nicely. The Two Year’s 4.33% is currently only .235% over the 10 year’s 4.095%. A quick 0.25% slice by the Fed would cut the Two Year down to size while the act of selling off their holdings is keeping interest rates on the longer-term paper elevated. So when the FOMC lowers their overnight rate later this year, mortgage rates may not follow suit as quickly as we’d hope. Unless of course history repeats itself, GDP shrinks and a recession follows the 2-10 return to normalcy.
