Rates Up Again! Johnson: “This Is The New Normal, Unless…”

“I expect rates to stay in this range for the foreseeable future, well into 2025, unless…”

My favorite macro analyst, Brent Johnson, said that in a recent podcast.

His contention is that inflation is stickier than we realize, so we should expect continued higher rates, unless… (explained below).

The 10 Year Treasury bottomed out at 3.6% in September, and the average mortgage rate bottomed out at 6.10%.

It was exciting times too … for about 15 minutes…as the entire mortgage industry was locking refis en masse and screaming…. “woohoo! Refi boom is back!”

But then the Fed started to “cut rates” – by a full 1% since September.

So yes, while the Fed Funds Rate went down by a full 1%, mortgage rates and 10 Year Treasury Yields INCREASED by a full 1%.

The 10 Year Treasury Yield is now about 4.6%, and the average mortgage rate is now about 7.15%.

We warned everyone repeatedly that cuts to the Fed Funds Rate often result in rates going higher, but we did not expect to be this right. ??

Rates have been edging higher for several reasons: (1) hotter inflation reports; (2) ample concerns expressed by famous traders (e.g. Stan Druckenmiller) and analysts about inflation; (3) Fed comments about potential inflation and the likelihood of fewer Fed cuts in the future; and (4) the expectation of fewer Fed cuts (and even a potential rate increase) in the future.

So, what is Brent Johnson’s “unless?”

Johnson says rates will remain relatively high…unless there is a major crisis that forces a massive “flight to safety” (when investors move from stocks to bonds en masse), or a Fed intervention (with massive rate cuts and/or quantitative easing).

Such crises could include a major stock market correction, sovereign debt crises (where major foreign governments can’t pay their debts), a full-blown recession setting in in the U.S., major recessions overseas (in China, Japan, or Europe) expanding to the U.S., or a regional war escalating into something much larger.

Could we see any of these things?

Search for “Everything Bubble” on YouTube and you will see asset-crash predictions galore.

George Gammon reminds us too that we saw a very similar pattern play out in 2007, with similar Fed cuts and even worse inflation fears – before we saw deflation.

Danielle DiMartino Booth reminds us that the labor market is very weak and screaming recession now.

Ed Dowd reminds us that much of the positive government data we have been seeing is inaccurate.

Jeff Snider continues to insist that the recession setting in overseas will invariably spread to the U.S.

So, once again, we’ll see.

But it looks like we should expect higher rates to continue if, and until, something blows up.