![\"GDP\"](\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-04-29-gdp.png?resize=525%2C328&ssl=1\")
<\/p>\nGDP grew by a solid 10.64% for the 12 months ended March ’22 but that is in nominal terms.<\/p>\n
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GDP for the quarter slowed to 1.58%, while real GDP fell to -0.36%. Not only is growth slowing but inflation is taking a bigger bite.<\/p>\n
![\"GDP](\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-04-29-gdp-realgdp.png?resize=525%2C328&ssl=1\")
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The implicit price deflator climbed to 1.94% for the quarter — almost 8.0% when annualized.<\/p>\n
![\"GDP](\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-04-29-gdp-deflator.png?resize=525%2C328&ssl=1\")
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Growth is expected to decline further as long-term interest rates rise.<\/p>\n
![\"10-Year](\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-04-29-10y-baa.png?resize=525%2C328&ssl=1\")
<\/p>\n
Conventional monetary policy would be for the Fed to hike the funds rate (gray below) above CPI (red). But, with CPI at 8.56% for the 12 months to March and FFR at 0.20%, the Fed may be tempted to try unconventional methods to ease inflationary pressures.<\/p>\n
![\"Fed](\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-04-29-ffr-cpi.png?resize=525%2C328&ssl=1\")
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That includes shrinking its $9 trillion balance sheet (QT).<\/p>\n
During the pandemic, the Fed purchased almost $5 trillion of securities. The resulting shortage of Treasuries and mortgage-backed securities (MBS) caused long-terms yields to fall and a migration of investors to equities in search of yield.<\/p>\n
The Fed is expected to commence QT in May at the rate of $95 billion per month \u2014 $60 billion in Treasuries and $35 billion in MBS \u2014 after a phase-in over the first three months. Long-term Treasury yields are likely to rise even faster, accompanied by a reverse flow from equities into bonds.<\/p>\n
![\"S&P](\"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-04-29-spx-fedasset2.png?resize=525%2C328&ssl=1\")
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S&P 500 breach of support at 4200, signaling a bear market, would anticipate this.<\/p>\n
Fed rate hikes combined with QT are expected to drive long-term interest rates higher and cause an outflow from equities into bonds.<\/p>\n
A bear market (Winter) is coming.<\/p>\n","protected":false},"excerpt":{"rendered":"
GDP grew by a solid 10.64% for the 12 months ended March ’22 but that is in nominal terms. GDP for the quarter slowed to 1.58%, while real GDP fell to -0.36%. Not only is growth slowing but inflation is taking a bigger bite. The implicit price deflator climbed to 1.94% for the quarter — … <\/p>\n