MUCH PAIN LIES AHEAD FOR CONSUMERS, HOUSING, STOCKS, BONDS, GOLD - RATE CUT HOPES ARE NOW DEAD

Added: 2026-05-14

[00:00:00]Well, the inflation reports that we've received over the last two days have completely killed the entire rate cut story for 2026 and maybe even beyond that. The CPI came in yesterday at 3.8%. If you believe the official number, that was still the highest in 3 years. Core inflation was higher than expected at 2.8%. Energy accounted for 40% of the increase and food prices, I'm sure you're all aware, surged. Today, we got the PPI uh numbers and those are even worse. Up 1.5% on the month and 6% on the year. That's the biggest increase in PPI going back for 4 years.

[00:00:49]CNBC reported that traders have moved further away from expecting any Federal Reserve rate cuts and instead started pricing in a higher probability that the next move could actually be a rate hike.

[00:01:03]Goldman Sachs just pushed back its expected rate cuts into December 2026 and March of 2027.

[00:01:12]And the CME FedWatch now shows markets pricing roughly a 37% probability of another rate hike before the end of this year. 37%, folks. It's almost 40% there. Chicago Fed President Goolsbee admitted inflation is going the wrong way and Mark Zandi, the chief economist from Moody's just said that if inflation expectations continue moving higher, the Fed may need to focus on raising rates.

[00:01:42]Understand uh higher rates don't just hurt borrowers or consumers. Uh they pressure stocks, bonds, even gold all for different reasons. Let's start with stocks. By the way, please don't forget to hit the subscribe button for me and consider getting on board with the Risk Map newsletter. I'll leave the link in the description below.

[00:02:03]Look, much of the stock market rally over the past couple of years has been built in part on the assumption that inflation would cool and the Federal Reserve would return to its more aggressive rate cutting cycle because lower rates increase valuations. Cheap money pushes investors into risk assets.

[00:02:24]But if inflation as it is now stays high and keeps going higher, uh the math changes very quickly. Corporate borrowing costs understand stay high.

[00:02:36]Profit margins get squeezed by energy, labor, and financing costs. And suddenly investors are no longer willing to pay extreme valuations for these future earnings.

[00:02:49]Especially hit speculative growth sectors that were priced, you know, for a lower rate environment. And that includes our often talked about private credit, trillions of dollars sitting on the sidelines trapped waiting for lower rates so they can refinance. Well, that's not coming. Let's look at bonds.

[00:03:10]This is where damage can become immediate because, as we know, everything begins and ends with the bond market as Greg Mannarino always says.

[00:03:20]Uh no matter how much people want to focus on equities, the bond market is enormous. When rates stay higher, existing bonds lose value because newly issued bonds are offering higher yields.

[00:03:33]That's exactly what crushed bond portfolios during the last, you know, inflation surge.

[00:03:41]So, if the inflation expectations keep rising as they are now, uh Treasury yields uh will keep spiking higher and they are now. I saw the 10-year is up almost back to 4.5% the two-year is also spiking and that creates more unrealized losses for banks, for pension funds, insurance companies and bondholders that were planning on and banking on lower rates.

[00:04:09]So, persistent inflation means that the safe asset trade suddenly becomes extremely dangerous once again.

[00:04:19]One of my favorite assets as you know is gold. A lot of people assume inflation automatically means gold goes up. That's not always the case. If real yields rise because the Fed is forced to stay aggressive, gold will come under pressure.

[00:04:34]Because gold doesn't generate any yield as we know. So, when investors can suddenly earn higher returns in money markets or treasuries, capital will to will flow into those assets and move away potentially from gold. Not saying go sell your gold, you know, I I I believe in it um as a hold in the physical form. So, when investors um understand with the mechanism this volatility uh will impact even traditional hedges.

[00:05:05]So, think about this broader setup now what we've been been given over the last couple days. Stocks pressured by lower growth and higher financing costs, bonds they're going to be pressured by higher yields and gold by higher real rates.

[00:05:19]So, what's this going to do to housing?

[00:05:21]Well, housing's going to be pressured by mortgage rates staying elevated. Um I would be surprised if it stops going pushing back towards that 7% again very quickly on the third year. And private uh excuse me, on the 30-year. And private credit uh is going to be pressured by refinancing stress uh uh at all this zombie garbage stuff they loaded up on when rates were low. And last but not least, consumers continue to get pressured by cost of living, elevated credit card interest rates, um and elevated auto loan rates. I did a video on the auto loan fiasco in this country right now. That's going to keep getting worse. And now these rates are going to stay elevated and maybe even go higher. The housing market's going to get smacked even even harder. We're going to see a a continued freeze in the housing market, which is already frozen.

[00:06:14]Millions of homeowners are locked in at ultra low-rate mortgages from years ago.

[00:06:19]They're not going to be able to refinance those, folks. At the same time, the new buyers are already struggling with affordability at current mortgage rates and the insurance, taxes, and everything else that keeps going up.

[00:06:32]So, what if these Treasury yields uh climb further because the bond market starts pricing in additional Fed tightening? Um mortgage rates could easily move back to the highs again. And of course, the biggest hidden risk I always discuss is what's going to happen downstream to the private credit issue.

[00:06:55]Hundreds of billions of dollars, okay, were lent uh you know, and originated of debt under the belief that these rates would would keep coming back down. So, what if rates stay elevated into 2027 and nothing changes or gets worse? And that becomes a refinancing nightmare across the board. More defaults are going to result. You're going to see more restructurings and more pressure, not only on consumers and on households, but on the private credit markets to maintain these marks and these valuations that were built uh during this, you know, the cheap money era. Uh and eventually, unfortunately, what happens is this pressure is going to migrate into pensions, over two insurers uh and the institutional investors that are heavily exposed to these products that rely on lower rates. So that's why these reports have been seeing the numbers are important, but it matters beyond just grocery prices and prices were paying at the pump.

[00:08:04]The fact remains right now the public is exhausted. Consumers are already getting tapped out, feeling squeezed. Insurance costs as we know are exploding. Food prices are off the charts. Gasoline prices nosebleed levels depending on where you're at. I know here in California it's brutal. Credit card balances remain near all-time highs. No relief coming there on those rates. Auto delinquencies are climbing.

[00:08:31]And of course as we've talked about before the buy now pay later usage keeps exploding as well. So now we layer in on top of all this persistent inflation.

[00:08:41]An environment that's going to keep these rates higher. And we all know wages are not keeping up with the cumulative inflation that we're all getting hit with. So people feel poor.

[00:08:54]That's the reality of what's happening.

[00:08:56]So it wasn't just another CPI print yesterday and PPI print today. It was a clear sign that inflation, even the official numbers, are anything but under control. And that means the entire financial system has to reprice around where the you know money stays more expensive for a lot longer than people expected. If you guys enjoyed the content, leave me a like on the video. Please don't forget to subscribe to the channel. Check out the link for the newsletter. Leave me your thoughts and comments. That being said, I'll talk to you soon. Bye.