Housing in a Fed stress test scenario

The median price of houses sold in the United States in March 1963 was $17,800.

Adjusted for inflation to March 2025, that would be $186,600.

But in fact the median price of houses sold was $416,900, 123% higher.

A 36% shock to that as contemplated by the Fed's recent bank stress tests could bring the median price of houses sold down to $266,800, dialing the clock back to 2013, which is still 43% higher than what the long term price would be merely adjusted for inflation.

A large number of homeowners who have purchased homes from 2020 when prices skyrocketed by 31% could be instantly underwater in this scenario. There have been 4.73 million new large bank consumer mortgage originations since 2Q2020.

Add losing a job and boom, you could have another foreclosure crisis all over again.

The 2007 shock to the median price of houses sold was only 19% 1Q2007-1Q2009, with prices not recovering until 1Q2013, but many millions of foreclosures were completed over the period.

A mitigating factor for homeowners generally today is owners' equity in real estate, which was almost 62% in 2005, but in 2025 is almost 72%, ten points higher. We haven't seen a level like that since 1960. 

Owners' equity had crashed by a quarter to 46% by 1Q2012, the lowest on record in the post-war.

Every major bank passes stress test from the US Federal Reserve

507 banks failed in the United States 2008-2014 inclusive, costing the Deposit Insurance Fund nearly $90 billion. Many millions of homes went into completed foreclosure.

 

Big banks all pass the Federal Reserve’s less vigorous stress tests

 

... All 22 banks tested this year would have remained solvent and above the minimum thresholds to continue to operate, the Fed said, despite absorbing roughly $550 billion in theoretical losses. ...

 

Under this year’s hypothetical scenario, a major global recession would have caused a 30% decline in commercial real estate prices and a 33% decline in housing prices. The unemployment rate would rise to 10% and stock prices would fall 50%. In 2024, the hypothetical scenario was a 40% decline in commercial real estate prices, a 55% decline in stock prices and a 36% decline in housing prices. ...      

 

The 2024 benchmarks are a mixture.

 

Commercial real estate prices year over year fell more than 11% in 4Q2008, and more than 30% in 4Q2009. Planning for a future 40% decline seems appropriate.

 

The 2007 shock to the median price of houses sold was only 19% 1Q2007-1Q2009, with prices not recovering until 1Q2013. But since the median price of houses sold has jumped by about 31% just since 2020, planning for a future 36% decline is more than appropriate.

 

Unemployment peaked at 10% in October 2009. The civilian employment level contracted by almost 7 million 2007-2010 on an average basis, and did not recover until 2014, seven long years later. Pandemic unemployment peaked at 14.8% in April 2020. We got as high as 10.8% in November and December 1982. Great Depression unemployment peaked at 25.59% in May 1933. This one is a crap-shoot. 

 

The average price of the S&P 500 fell 50.8% between October 2007 and March 2009, but in 2007 the S&P 500 was valued about 26% above the long term mean, not 130% as in 2024.

 

That's the datum that worries me. Just to get to its historical median value of 81, the S&P 500 today would have to fall 61%, to about 2425.

 

Imagine the howls. 

 

 

 

  

 

Methinks J. D. Vance doth protest too much about Jerome Powell

 

It backfired on Powell, though.

 

Yields climbed in response. 10Y went from 3.63 on Sep 16 to 4.37 by Nov 1. And core PCE inflation shot back up.

 

It's proof yet again that the Fed has next to no control over interest rates. It's one of the great myths of our time that it does, a myth Vance believes.

 

If Powell had cut and Kamala won, irrespective of what rates or inflation did, Vance might have an argument. He should quit complaining and take the win.

 

Meanwhile core PCE inflation was 2.66 in Sep 2024, same as it was in Mar 2025.

 

You'd think twice about trying that again, too, if you got burned like that, especially if you're being hectored by the tag-team wrestlers of the Oval Orifice.

 

 

 

It's stupid for Trump to riff off today's producer price report and call Jay Powell names because the number is likely to be revised higher, and besides, that's just poor form, old boy

 

 May 2025 core producer prices, aka core wholesale prices, were reported today up 3.02% year over year. That will doubtlessly be revised up, especially as we get farther away from May.

Today's chart indicates April was up 3.18% yoy, but was originally reported at 3.1%. The latter was already rounded up, but the former rounds up to 3.2%. We'll see if that gets revised higher in coming months as well.

March was up 3.91% yoy we are told today, but originally it was reported at 3.3%.

February was up 3.74%, but originally reported at 3.4%.

January was up 3.92%, but originally reported at 3.6%.

December was up 3.74%, but originally reported at 3.5%.

The average up revision, including April, has been 0.3. 

Be that as it may, we have in the May report nine consecutive months with core producer prices up in excess of 3% year over year.

Meanwhile for the nine years 2012-2020, the average increase was 1.62% yoy. I don't call producer prices rising at a rate 85% higher than that in May 2025 good news. It may be "less bad" news, but that doesn't make it good news.

Trump's a jerk to Powell. Vance is a very polished jerk. Remember his treatment of Zelenskyy? Stephen Miller is a jerk to Rand Paul. If you've seen the Trump cabinet in action, many of whom are political losers, you've seen even more insulting jerks. They may be descendants of the people of Jerkola for all I know, but I can only speculate.

 

 

  

 

What they lack in intelligence they make up for in bad manners

 

Trump calls Fed chief Powell ‘numbskull’ as he urges interest rate cut

 

... Trump claimed at the White House that lowering rates by 2 percentage points would save the U.S. $600 billion per year, “but we can’t get this guy to do it.” “We’re going to spend $600 billion a year, $600 billion because of one numbskull that sits here [and says] ‘I don’t see enough reason to cut the rates now,’” Trump said. ...

Trump’s insult came hours after the Labor Department reported that U.S. producer prices rose less in May than some economists anticipated. ...

 

‘Immaturity’: Rand Paul rips White House after being ‘uninvited’ from picnic 

 

... “I’ve just been told that I’ve been uninvited from the picnic; I think I’m the first senator in the history of the United States to be uninvited to the White House picnic,” Paul told reporters. “The White House is owned by the taxpayers, we are all members of it, every Democrat will be invited, every Republican will be invited, but I will be the only one disallowed to come on the grounds of the White House.” ... 

 

Average US Treasury yields climbed all across the curve in May 2025

Bills 4.28

Notes 4.096

Bonds 4.91

Aggregate 4.31 

Average Bond yields climbed for a second consecutive month.

The Daily Federal Funds Rate averaged 4.33.

 

Ah, so Republican pinhead Joe Concha thinks a Democrat win in 2026 would be a loss lol

Joe Concha never really does get to his point in this column, but he does spread a lot of nincompoopery about like so much manure on a field.

This is the guy who masked himself and his kids while outdoors during COVID-19 because his wife is a doctor and told him he had to, which is very amusing given Joe's interest in Democrats' inability to "connect" with young men.

Joe Concha lives in an imaginary world of fanciful creation and takes his marching orders, repeating stupid.

Trump's mandate, for example, "the greatest verdict in history" he says, in 2024 was actually smaller than W's in 2004.

Even Jimmy Carter's was bigger in 1976 than Trump's was in 2024.

Core pce inflation released this past week came in at 2.52%, not 2.1% as Joe says. Joe wouldn't know core if he ate an apple.

Just 49.6% had full time jobs in April 2025 vs. 50.4% in April 2023, 0.8 points lower than two years ago.

Also two years ago, unemployment was 0.8 points lower at 3.4% than Joe Concha's current "historically low" level, again having touched a level under Joe Biden not seen since May 1969.

Joe stealing glory from Joe. Tut-tut.

Democrats may have had trouble connecting with young men in 2024, but the Biden administration really did drop the bigger ball of communicating its record of historically low unemployment. The Wall Street Journal trumpeted it for them in 2023, but you'd hardly remember the fact.

Meanwhile Joe Concha's "respected" GDPNow model got 1Q2025 GDP wrong by 2.4 points lol.

With an actual negative print now at -0.2% for the first quarter, the set-up for a dead cat bounce in 2Q would seem obvious.

But you never know with Trump in charge, and for my money you have to bet against Mr. Unpredictable. 

If Jonathan Swift were here, he might say that it is the Republicans who are led by a changeable female mind, not the Democrats, which may be why Joe Concha likes him so:

The current of a female mind stops thus,

and turns with ev'ry wind;

Thus whirling round, together draws

Fools, fops, and rakes, for chaff and straws.

 

 

Dems Winning 2026 Midterm May Be Kiss of Death

Joe Concha, Washington Examiner

 

... after the votes were counted on Nov. 5, Trump won the greatest verdict in history by capturing the popular vote over former Vice President Kamala Harris while winning every swing state. ...

 

The core inflation numbers released this week show it at just 2.1%. . ..

 

Unemployment is historically low at 4.2%, with private sector jobs soaring. ... 

GDP is expected to grow at 3.8% in the second quarter, according to the respected Federal Reserve Bank of Atlanta. ...

 

 

 

 

Trump calls Powell a fool for not lowering rates, yields rise in response lol

 

Trump calls Fed Chair Jerome Powell a ‘fool’ after central bank keeps rates steady again

 

 

 

Federal Open Market Committee says inflation remains somewhat elevated and the economic outlook is increasingly uncertain, leaves DFF between 4.25 and 4.5, i.e. 4.33

 

Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. ...

More.

This week's US Treasury auctions indicated the opposite of rising interest rates

As usual the alarmists and doomsayers are . . . alarmists and doomsayers.

Demand for US debt is steady and strong this week:

3MO at 4.225% average vs. 4.225% previously

6MO at 4.05 vs. 4.06 previously

2Y at 3.795 vs. 3.984 previously

5Y at 3.995 vs. 4.1 previously

7Y at 4.123 vs. 4.233 previously.

Yields across the curve last night averaged 4.240, down from 4.261 a week ago, below the Daily Fed Funds Rate at 4.33.

 

 

 

Mad King Ludwig is in a foul mood this Easter Monday because the Supreme Court ruined his weekend deportation plans

 Trump ramps up attacks on Powell, demands ‘loser’ Fed chair lower rates ‘NOW’

 

Gold futures surge above $3,400 per ounce

 Gold surges to a record above $3,400 as Trump threatens Fed independence

Gold prices broke $3,400 on Monday, hitting a new record as President Donald Trump’s threats against the Federal Reserve’s independence and his tariffs shake investor confidence in the U.S. economy.

Gold futures jumped about 2.69% to $3,418 per ounce by 8:20 a.m. ET on Monday, with investors buying the precious metal as the dollar hit a three-year low.

Gold has jumped about 29% since the start of the year and nearly 8% since Trump unveiled his sweeping tariffs on April 2.

Trump said last Thursday that Fed Chair Jerome Powell’s “termination cannot come fast enough,” after the U.S. central bank chief warned that the president’s tariffs will likely increase inflation in the near term. ...

 

They're calling the 10Y at 4.5% the moron premium because everyone hates Trump and his tariffs, but I don't remember it being called the 5% dotard premium under Joe Biden

People need to get a grip.

Blaming hapless Liz Truss' two-months as PM in September and October 2022 for the UK's high interest rates pretends that the Bank of England didn't raise interest rates in response to inflation same as the US Federal Reserve Bank.

This trashy headline belongs in The Daily Star, not the UK Telegraph. No wonder they're trying to sell you a 1-year subscription for only 29 pounds.

 

 

Week over week US Treasury yields in the aggregate popped 5.8% on net to an average 4.335% after declining for months from 4.5 to 4.0 and everybody's freaking out like this hasn't happened, what, six times now in the current era

Most of the pissing and moaning is from investors who pulled the bond trigger too soon, plowed into fixed income, and got burned badly because interest rates reasserted themselves.

The press this weekend is instead full of apocalyptic language about the Treasury market and the implications for America on a grand scale. It's complete rot and I'm ignoring it. It's all designed to pressure the Fed to lower their rate again.

The last time the Fed embarked on rate cuts is instructive. It was late September 2024. The average of the aggregate of the curve had fallen to just north of 4. Inflation rates seemed to be trending down. So the Fed cut, and voila! Treasury rates hilariously shot upward!

The burn was real.  

$TLT investors, who were down 4.76% in 2021, 31.41% in 2022, up 2.96% in 2023, went down again, 7.84% in 2024 as a result. Ouch.

They are back, itching again for a policy reversal like they have a flea infestation, so bad they are bleeding.

As things stand year to date, long term investment grade investors in VWESX, for example, are down 1.43%. It wasn't supposed to be this way, not again.

So everyone hates the bond vigilantes with the heat of 1,000 suns, and urges more imprudence.

Meanwhile in "cash" you go on making 4.3% or so, and in gold you have made a killing, while stocks reel under Trump's stupid tariff shotgun blasts which are wounding everyone in the field, including himself.

If the Fed had done a proper job against inflation by jacking up the Fed Funds Rate to meaningfully combat the core pce inflation rate of its average 5.35% in 2022 instead of going only where it did, which was 1.69% on an average basis, maybe we wouldn't still have this lingering inflation for the bond vigilantes to demand payment against. Core pce inflation hasn't moved materially off 2.8% in a year now, still much too high.

The bond market is "she who must be obeyed". She doesn't tell you everything you need to know, but she does tell you the most important thing.

But what the hell do I know. I'm just some punk keyboard warrior blogging in his underwear in the basement to the money men. So yippee-ki-yay, you earned it. Especially you Donald Trump, you complete ignoramus.

 

Ambrose Evans-Pritchard: Trump will stop at nothing in his quest for imperial power and will destroy the credibility of US Treasury debt

 

telegraph.co.uk

If you think it’s alarming now, just wait for Trump to wreck the bond market

The White House’s push for for expanded presidential power threatens US economic stability

 

Ambrose Evans-Pritchard

8 April 2025

---

Donald Trump is systematically purging every US government institution, a pattern familiar to anybody who has studied the caudillo regimes of Latin America, or the playbook of today’s Putin-Orbán-Erdoğan prototypes.

It is a racing certainty that he will soon do the same to the Federal Reserve, forcing the central bank to cut interest rates into the teeth of rising inflation, with epic consequences for the world’s dollarised financial system and for €39 trillion (£33 trillion) of offshore dollar debt contracts and swaps.

Late last week he fired the head of the National Security Agency and its top officials at the behest of Laura Loomer, a fringe conspiracy theorist, who whispered into Trump’s ear that they were disloyal to the Maga movement.

He has already fired the heads of the FBI’s intelligence division, its counterterrorism division and criminal investigations division, as well as the heads of the Washington and New York offices.

He has fired the top brass of the US military, starting with a preemptive strike on the chairman of the joint chiefs of staff. An earlier chairman – General Mark Milley – refused to ratify Trump’s attempted coup d’etat on Jan 6 2021.

“We don’t take an oath to a king, or to a tyrant or dictator, and we don’t take an oath to a wannabe dictator. We take an oath to the constitution,” said Milley in his parting shot.

But Trump also fired the three judge advocates general, who are legally independent by Congressional statute and have the authority to decide which military orders should be disobeyed – such as Trump’s order to “just shoot” American protesters, on American soil, during the Black Lives Matter saga.

That obstacle will not recur. Pete Hegseth, the defence secretary, said the three judges had been sacked to stop them posing any “roadblocks to orders given by the commander-in-chief”.

You can go through the list, agency by agency, extending to the universities and private law firms, and even to the muzzled editorials of some of America’s once great newspapers: the purge is Bolshevik in ambition.

Does anybody in their right mind think that Trump will spare the Fed’s Jerome Powell as the two men gear up for an almighty clash over US monetary policy? “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!” bellowed Trump in capital letters on Truth Social on Friday.

The Fed will indeed cut rates this year but not until it is able to see through the confusing blizzard of tariffs and the ricochet retaliation of an angry world.

Powell told Congress that the tariff shock is much bigger than expected and may set off “persistent” inflation rather than just a one-off jump in the price level. He came close to damning Trumponomics as a recipe for low-growth stagflation. That is a red flag to a bull.

The current debate over whether or not Trump has the legal power to fire Powell entirely misunderstands the character of the Maga revolution. America’s rule of law is for guidance only these days.

You could say it was ever thus. Franklin Roosevelt tried to pack the Supreme Court after it blocked the New Deal. He failed, and unleashed tax investigations to settle scores, as did Richard Nixon. But Trump is an order of magnitude more outrageous.

Powell will not go without a fight. “I will never, ever, ever leave this job voluntarily until my term ends under any circumstances,” he said during Trump 1.0.

Scott Bessent, the Treasury secretary, said the administration could sideline Powell by appointing a “shadow” Fed chairman, who could steer the markets by issuing forward guidance. But this does not overcome resistance from the Fed board and the hawkish regional presidents.

A secretive team of Trump loyalists drew up a 10-page report before the election proposing more radical measures. These include forcing the Fed to “align policy with administration goals” or even to make the president an “acting” member of the Fed board.

Trump could purge members of the seven-strong Fed board one by one until they get the message. The law states that the president can terminate the 14-year term of a Fed governor “for cause”, usually meaning malfeasance or neglect.

But Trump has just abused his tariff powers on an heroic scale by invoking fictitious “emergencies”. He could no doubt stretch the meaning of “for cause” to anything he wants. The Supreme Court has the last say, but Trump-appointed justices have already shown a strong leaning towards an imperial presidency.

In any case, there are other methods to bring the Fed to heel.

Maga vigilantes are intimidating American judges by having pizzas delivered to their homes – a mob tactic to say “we know where you live”. So we can assume that recalcitrant members of the Federal Open Market Committee will face this sort of treatment.

The major US banks are raising their inflation forecasts to 4pc or higher this year. This inflation will hit before the last three price shocks – Covid, the Putin commodity spike and Biden’s overspending – have faded from immediate memory. It is exactly how inflation psychology becomes embedded.

A variant happened in the 1970s. Nixon bullied the Fed into expansionary policies, with some choice language on “the myth of the autonomous Fed” that later surfaced in the Oval Office tapes.

Loose money stoked inflation, so Nixon ordered a freeze on prices and wages in 1971, declaring war on “gougers”. It was very popular. Illiterate policies often are.

If Trump succeeds in extracting rate cuts from the Fed and tax cuts from Congress, the same problem is going to arise. So my assumption is that he will blame the symptoms and will resort to price controls.

The elephantine difference is that US federal debt was 34pc of GDP in 1971. Today it is 122pc on the Fed measure, and galloping upwards. The fiscal deficit is over 6pc as far as the eye can see.

The US does not have the domestic savings to fund this debt appetite. The savings rate has collapsed to 0.6pc of national income. It was 12pc in the 1960s.

Foreign investors have been plugging the gap. This soaks up a large part of the world’s savings – the underlying cause of America’s trade deficit.

If you think the stock market gyrations of the last few days are terrifying, just wait until Trump destroys the credibility of the Fed and of US treasury debt, the anchor of the global system.

He could order a captive Fed to relaunch quantitative easing and buy the bonds, but to do that when inflation is running hot would be seen by the whole world as naked fiscal dominance. It would set off a price spiral and a collapse of the currency – the sort of outcome seen over the decades in Latin America, or Erdoğan’s Turkey.

The end destination is a return to US capital controls to stop foreign funds and US investors from taking their money out of America. A man willing to impose 116pc tariffs – including pre-existing ones –  on Chinese goods and shut down the biggest bilateral trade relationship in the world as if it were a TV reality show will stop at nothing.

 

https://www.telegraph.co.uk/business/2025/04/08/trump-sell-off-is-bad-wait-until-wreck-us-bond-market/

Beef, breakfast, and bliss just went up again: A dozen basic foods posting new all time high average prices in February 2025 according to the St. Louis Federal Reserve Bank

Choice chuck roast $8.104/lb

Ground chuck $5.744

All uncooked ground beef $5.96

All uncooked beef roasts $7.995

Round roast $7.49

Round steak $8.485

 

Eggs $5.897/dozen

Frozen orange juice $4.492/12oz

Coffee $7.246

White Sugar $1.011

 

Table wine $14.087/liter

Beer $1.819/pint

 

 

Last week US Treasury yields for Bills averaged below the Daily Federal Funds Rate of 4.33 after 12 weeks averaging 4.3+change

 

Nine basic foods posting new all time high average prices in January 2025 according to the St. Louis Federal Reserve Bank

Round steak $8.28/lb

Eggs             $4.953/doz

Frozen OJ    $4.48/12oz.

Coffee          $7.019/lb

Sugar            $1.011/lb

Ice Cream     $6.459/half gallon

Steaks, all     $10.905/lb

Table wine    $14.035/liter

Beer              $1.813/pint

In the aggregate US Treasury yields averaged 4.408 on Friday, Feb 7, still ahead of the Daily Federal Funds Rate of 4.33 set by the Fed in December

Relative to each other by duration, bond yields on average normalized at the beginning of December, and notes on average in mid-December. 

Last week the spreads narrowed as bills on average rose a little bit in the aggregate and bond yields fell.

The 20-year bond was the yield leader at 4.75 while the 1-year bill was the yield laggard of all the issues at 4.25. 

The fixed rate 30-year mortgage averaged 6.89 last Thursday.

 

 

The revenge of the bond vigilantes

 The Fed started cutting the Federal Funds Rate last September (DFF 5.33 then, 4.33 now), and average yields for notes and bonds started climbing and haven't stopped lol.