What’s driving this decline in the Atlanta Fed model? 

It’s mostly, a sharp decline in consumer spending (relative to the first two quarters of 2021).  Remember, back in August, we looked at the University of Michigan consumer sentiment survey. It had plunged to 10 year lows.  Why?  The economist that conducts the survey explained it this way:  “The reaction of consumers to rising prices has been to postpone purchases, given their fears of falling future living standards…”

This “postponement of purchases” has created this major slide in economic activity, in an economy that was running at a better than 6% pace through the first two quarters of the year.

Now, with the above in mind, the 10-year yield broke down today, trading to as low as 1.52%. 

That’s an 11 basis point decline intraday (a big move).  That’s nearly a 20 basis points drop in the world’s most important interest rate barometer, in just four trading days.  With that signal in markets today, key commodities that have been proxies of growth and inflation, were all knocked down today. 

What’s going on? 

The government’s Bureau of Economic Analysis reports the official Q3 GDP number tomorrow morning.  Based on market behavior today, this number may be negative. 

If it is, expect the chatter to start about potential recession. 

This would come just as the Fed is expected to take its foot off of the (stimulus) gas next week (beginning-the-end of QE).