Why A Recession Is Better Than Continued Inflation

The Weekly Recap

Debt limit deadline might be sooner than expected, Yellen at Treasury expects US banks to tighten lending while US money market funds saw inflows for a fifth straight week, The Fed approved UBS's Credit Suisse takeover, the Big 4 banks wrote off $3.4B in bad consumer loans to start the year, US labor supply returned to pre-pandemic levels, retail sales fell for a second straight month in March, nationwide home prices experiences their biggest drop YoY since 2012, according to a new study, NYC is the wealthiest city in the world and that's before we even had a 'rat czar', future overlord of the universe Elon Musk's Starship launched then exploded and he's also planning to build a truth competitor to OpenAI, and Taylor Swift is really smart.

Why A Recession Is Better Than Continued Inflation

As the Fed increasingly reminds us, we are still way above the 2% long term inflation target that they would like to see for a healthy, growing economy. As most Fed Presidents from around the US have stated, they are less worried about a recession caused by rising rates than continued inflationary pressures disrupting the economy. But aren't recessions just as bad if not worse than inflation? Well, both recessions and continued inflation have negative impacts on the economy, but in certain circumstances, a recession may be preferable to continued inflation.

Inflation refers to a persistent increase in the general price level of goods and services over time. This can lead to a decrease in the purchasing power of a currency and can have negative effects on both consumers and businesses. For example, if inflation is high, people may feel that their wages or income are not keeping up with the rising cost of living, leading to a decrease in consumer spending. Additionally, high inflation can make it difficult for businesses to plan for the future, as they may not be able to accurately forecast their costs and revenues.

On the other hand, a recession is a period of economic decline, often characterized by a decrease in GDP, high unemployment rates, and decreased business activity. While recessions are certainly not desirable, they can have some benefits in the long run. Recessions are a return to means where we will see rates come down once banks have their balance sheets adjusted to have maximized liquidity and collateral already on hand, leading to a return to consumer confidence in which buying power will return. The big concern to be on the lookout for is delinquencies in auto and home payments has people spend their 'covid savings' and slow walk into a contraction of credit.

In general, it is safe to say that interest rates are likely to start coming down within the first year or so of a recession as central banks work to provide support for the economy. The timing and magnitude of interest rate changes will depend on a myriad of factors but the quicker we are able to enter a recession the faster we can get out of one and hit the Fed's ideal inflation rate.

Market Performance

Here is how other asset classes performed as of this morning's opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market as well as newly signed contracts that have taken place over the last week.

Mortgage Rate Update

For the first time in over a month, mortgage rates moved up due to shifting market expectations. Home prices have stabilized somewhat, but with supply tight and rates stuck above six percent, affordable housing continues to be an issue for potential homebuyers. Unless rates drop into the mid five percent range, demand will only modestly recover.

News You Can Use

• US Debt Ceiling Deadline Could Be Sooner than Anticipated Reuters

• White House Economists: 'There Isn't A Missing Worker Problem Anymore' Axios

• Few Banks Are Hedging Interest-Rate Risk WSJ

• US Economy Stalls as Credit Narrows Bloomberg

• Home Prices Fall 3%, Biggest Drop Since 2012 Axios

• Mortgage Rates Rise For the First Time In A Month NY Post

• As Earnings Season Begins, S&P 500 Forecast Looks Less Weak Reuters

• Wall Street Banks Sailed Through A Quarter of Collapsed Lenders Bloomberg

• Retail Sales Declined In March As Consumers Cut Back Spending Axios

• BlackRock Sees Big Investors Boosting Private Equity, PE Stakes Bloomberg

• March Home Sales, Prices Slide in Tepid Start to Homebuying Season NY Post

• Private Equity's Latest Money-Making Trade: Buying Its Own Debt Bloomberg

• Federal Reserve Green Lights UBS-Credit Suisse Deal in US Reuters

• Elon Musk Plans Artificial Intelligence Start-Up to Rival OpenAI Financial Times

• US Banks Highlight Office Real Estate As Next Big Worry Reuters

• These 5 Charts Show How Much 2 Years of Inflation Have Really Cost You CNBC

• How Bank Apps Know You're You WSJ

• The End of Faking It At Silicone Valley NYT

• Ferrari Has Record Orders 'Well Into" 2024 Reuters

• Taylor Swift Sidestepped FTX Lawsuit By Asking a Simple Question CNBC

The Deep Insight

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