2017 has been an interesting year. Donald Trump was elected President and seated in January 2017. The Federal Reserve kept rates near zero with a massive balance sheet for almost all of Obama’s 8 years as President, then started to raise rates and unwind their massive balance sheet AFTER Trump was elected. Note the decline in M2 Money growth after Trump’s election.
Inflation? Both Core PCE Price growth and Core CPI growth have declined in 2017 (yet The Fed has raised their target rate 4 times since Trump’s election but only once during Obama’s term despite declining inflation.
The M1 Money Multiplier and M2 Money Velocity have finally stabilized.
Mortgages? Mortgage purchase applications have declined since the financial crisis and have been slowly recovering, hampered by Dodd-Frank and CFPB rules and regulations.
New and existing home sales? Smokin’!
Home prices? Their YoY growth rates are continuing to rise, despite being almost 3 times YoY earnings growth for most Americans.
How about 30 year mortgage rate and the 10 year Treasury yield? While the 10 year Treasury yield has increased over the year, the 30 year mortgage rate has declined. Although both have been increasing since early September.
Both the 30Y-2Y and 10Y-2Y Treasury curve slopes have been flattening over the year.
The 10 year Treasury volatility and term premium have both been declining over the year.
With 2018 just around the corner, let’s see how many times The Fed raises their target rate and continues to unwind their balance sheet.