At Financial Times Mohammed El-Erian interprets the market signals as suggesting that the likelihood of U. S. recession is rising:
An intense period of rising interest rates, high oil prices and a stronger dollar is pushing the financial market consensus on US economic growth away from the comforting notion of a soft landing.
By my count, this will be the sixth time in the past 15 months that conventional wisdom shifts for the world’s most influential economy. It is a pivot that, unfortunately, is likely to stick for longer this time around, threatening what has been an impressively strong US economy, undermining genuine financial stability and exporting volatility to the rest of the world.
concluding:
If congressional dysfunction spreads further, and if the Fed continues to drag its feet on changing key underpinnings of its policy formulation, the turn in US economic surprises will not be pleasant for either the domestic economy or the rest of the world.
I would think that the market had priced in Congressional dysfunction at this point. At this point home mortgage interest rates are the highest they’ve been since 2000, heading higher. If that persists for any substantial length of time, it’s hard to imagine what would happen.
