The US 10-year T-note made it just above 3.00% before pulling back, and mortgages stopped rising short of 5.00%, today about 4.75%. However, today is odd. 1st quarter GDP data was released this morning, growing 2.3% annualized, probably distorted to the downside, but inflation-related aspects moved up.

Rates should have moved up farther but have not -- not long-term ones, and not the Fed-predicting 2-year T-note. Some observers think the economy will push the Fed to three more hikes this year instead of two, but market data says “uh-uh.“

For the moment, housing is safe. When mortgages do cross above 5.00% the psychological impact is likely to be greater than the change in payments.

Under normal circumstances, any common ones in the last fifty years, we would now enter the predictable Fed phase: continue to ooch upward until the economy slows, which the Fed accidentally overdoes and we have recessions.

Looking back a half-century, the rocket in oil prices guaranteed the ’73 recession no matter what the Fed did. The long, double-sink ’79-’82 affair was the intentional work of Paul Volcker. However, the next ones, ’91, ’01, and ’07 were all surprise events during gradual Fed rate-hiking. That’s the model. Only once in that whole span did a string of Fed hikes produce a soft landing (1994), and that was a close miss of recession.

But today is not normal. Patterns recur, but today is today, not yesterday. Perhaps the largest “not normal” is the global economy outside the US, allegedly in a strong and synchronized expansion which should exert even more upward pressure on rates. In the warm afterglow of the visit of Emmanuel Macron and icy welcome to Angela Merkel, start with Europe.

Macron is an exceptional player of poker, tilting the table his way even when holding no cards. He is charming, brilliant, and tough, the model of French leadership (graduates of Ecole Nationale Polytechnique, known as “énarques” run the place no matter who is president). Macron’s immediate predecessors were the worst since the 1958 founding of the 5eme Republique: Sarkozy a crook, Hollande a laughingstock.

France has never been as productive as Germany and will not be, despite Macron’s exertions toward a market-based economy. French public debt is just shy of 100% of GDP and packed into French banks. Its annual budget deficit is down to 3% of GDP, but growing faster than GDP, which in this very good year may reach 2%. Its trade deficit is 2.5% of GDP.

Rather worse, France must pay its bills in euros, whose value is based on the German economy and anti-inflation mania. Germany’s debt is only 65% of GDP and falling because Germany’s budget is in surplus by 1% of GDP. Germany’s trade surplus at 7% of GDP is the largest of any major nation and hurtful to all. No state dinner for Angela.

The empty hand played so well by Macron is based on elegant double-talk (French is ideal; even German poetry sounds like giving orders). Salvation for France is based on a duet with Merkel: “Europe’s problems can only be solved by more Europe.” But the two are off-key. To Merkel, more Europe means everyone to behave like good Germans, budget and trade surpluses devastating to the outside world including Euro-others, but good for Germany. To Macron more Europe means fiscal and banking union, mutualized taxes, debt and deposit insurance -- a transfer union in which Germany picks up the tab for the others’ deficient productivity. Nein. Wird nie passieren.

Europe is exactly where it was ten years ago, stifled by the German euro, and the ECB playing for time. This week the ECB again flinched from any pullback in emergency measures, its overnight cost of money minus-.4%. The Fed will be at least 2.25% by the end of this year. Our 10-year Treasury note pays 2.96% today. The German version pays 0.57%, and even flat-broke France can borrow at 0.79%. European fragility shows in Italy’s 10-year cost at 1.73%, and Spain’s at 1.25%.

These yields expose Europe’s recovery as a rag doll animated by the central bank -- as long as it can. So long as inflation stays below 2%, it can, but when the ECB stops then all of the Euro fissures will reopen. Japan is the same, sustained by its central bank, but its fundamentals far worse than Europe as evidenced by its 10-year yield today at 0.05%. China’s economic miracle acts as a tax on the rest, its over-production a heavy burden -- which if anything will increase as China attempts to restructure away from debt-based growth.

That external pattern explains our domestic mysteries. Given the tax bill and doubled deficit spending the US should be rocking and the Fed pulling away the punchbowl. We are growing well, especially jobs, but not accelerating.

All credit market eyes are on the narrowing spread between the Fed-sensitive 2-year T-note, today 2.48% and the 10-year, as above at 2.96%. When 2s pushed up by the Fed cross over 10s we have a recession. But, this time we might invert only because the outside world is the same jar of pickles it was the last time long-term US rates hit all-time lows.

Those of us in housing and mortgages certainly hope so.

The US 10-year T-note in the last year, tip-toeing across 3.00% and then scurrying back:

The 2-year T-note... no tip-toeing, no scurrying, just marching up in advance of each Fed hike:

The ECRI has settled in an okay place, but not hot, and as above is not accelerating: