Economic Risk Dashboard: A Framework to View the US Economy

This post introduces a practical dashboard for assessing the health of the US economy amid an age of deep uncertainty. By monitoring foundational indicators across household strength, credit markets, and consumer confidence, the framework offers a structured way to interpret where we may be in the economic cycle. Yet the analysis also acknowledges a critical truth: numerical metrics, while useful, are judgmental representations of reality. They cannot replace wisdom, knowledge, and understanding, which require a deeper philosophical view of how economic life actually works.

Go to my WordPress site to read the full post here:

https://uncommoninsight384054130.wordpress.com/2026/09/19/economic-risk-dashboard-a-framework-to-view-the-us-economy/

Housing Prices and Mortgage Rates – Where Do We Go From Here?

I was curious to see what has been the relationship of house prices and mortgage rates over the last decade, starting in February 2026. I went to the St. Louis Fed Fred tool to observe the relationship between the S&P Cotality Case-Shiller U.S. National Home Price Index and the 30-Year Fixed Rate Mortgage Average in the United States. To clearly see the movement, I rebased both metrics to the same date and year (February 2016) to compare their levels.

As can be seen in the graph below, home prices rose dramatically and steadily from 2016 through 2022, while mortgage rates stayed low and stable; but once mortgage rates spiked in 2022, home‑price growth flattened sharply, showing that the affordability shock effectively halted further appreciation even though prices did not fall.

        Source: https://fred.stlouisfed.org/graph/?g=1YL3Q

The divergence between the two lines, i.e., mortgage rates rising sharply while home prices remain elevated, captures the core dynamic of the current housing market: demand is constrained by financing costs, but supply remains too tight for prices to correct meaningfully.

If mortgage rates continue to rise from here, three broad scenarios emerge in my view:

Scenario 1: A modest rate increase leads to a national flat‑line in home prices, with only regional declines.

Scenario 2: A sharper rate increase produces mild national price declines as affordability deteriorates further.

Scenario 3: Rising rates combine with rising unemployment, creating an environment where meaningful nationwide price declines occur.

I am forecasting a recession in the next 6 to 12 months. Because of that I believe that the economy will eventually reach this third scenario, but without a repeat of the 2008–2010 housing crisis, because today’s market lacks the extreme leverage, speculative inventory, and credit‑quality deterioration that defined that period.

September 2026: What the Federal Reserve Thinks About the Broader Economy

Here is a graph courtesy of the Financial Times that shows what the member of the Federal Reserve who vote on interest rates think about the broader economy.

A few things stand out:

• Most officials cluster around the 4% range for 2026 and 2027. This means that there is broad consensus that rates will not fall quickly and it is the Fed’s way of quietly signaling that the era of 0 to 2% rates is over.

• The longer-run dots are creeping upward, sitting mostly above 3%. This implies that the Fed believes the economy can sustain higher rates without a recession.

• Core PCE inflation expectations for 2026 have risen, which means that Fed officials believe inflation will be more persistent than previously thought. The Fed here is signaling to expect a slower return to their prefer target of 2%. The 2027 inflation line is flatter, meaning that Fed officials think inflation will eventually ease, but gradually.

• The GDP line shows that Fed officials believe growth is expected to be modest, but stable. And the unemployment line staying near 4% tells us that the Fed thinks that the labor market will remain tight.

Putting this all together, the charts show that Fed officials expect interest rates to stay higher for longer, inflation to be stickier than previously assumed, GDP growth to remain modest, and unemployment to stay low. The combination signals a central bank that sees persistent inflation pressures and no imminent recession, which is why the rate path is flatter (i.e., no sharp cuts expected) and elevated (the longer‑run neutral rate drifting above its historical 2–2.5% range).

Inflation Fears: The Reason Why Interest Rates are Climbing Now

In an article published today (September 14, 2026) by the Financial Times we read that the 10-year US Treasury Bond reached 5% during the trading session. “The yield rose 0.04 percentage points to hit a high of 5.01 per cent in morning trading on Wall Street, before easing back to 4.98 per cent.” As can be seen from the graph below, the yields have hit a peak not seen since 2023 and prior to that you have to go back to the Great Financial Crisis period to see such a rate:

              Source: Financial Times
 

A Quick Primer on Nominal Interest Rates

Nominal interest rates are driven by inflation expectations and a term premium. Nominal rates start with the real interest rate, which is driven by economic growth, demand and supply of loanable funds, etc. The market then adds an inflation expectation percentage amount and a term premium amount to the real interest rate to come up with the nominal interest rates we see reported. Inflation expectations have to do with average expected inflation over the time horizon of the fixed income instrument. Term premium includes an additional element to account for the fact that the inflation expectation can be wrong. In other words, inflation expectation has to do with mean (average) expectation and term premium includes some percentage amount to account for the variance deviation of that expectation.  

Inflation Up Interest Rate Up

Let’s take a look at a metric that gives us a glimpse of inflation expectation. Below you’ll see the 5-year forward inflation expectation rate, which is a metric that the Federal Reserve Board monitors as part of their dataset to determine monetary policy.

        Source: Federal Reserve Bank of St. Louis, 5-Year, 5-Year Forward Inflation Expectation Rate [T5YIFR], retrieved from FRED, Federal Reserve Bank of St.                Louis; https://fred.stlouisfed.org/series/T5YIFR, September 14, 2026.
 

You can clearly see the upward trend in inflation expectation being driven by oil price spikes resulting from the Iran War.

Making matters a bit more concerning is that the longer the elevated oil prices are maintained it will inevitably disrupt the term premium element of inflation and hence pushing upward pressure in nominal interest rates. That will have knock-on effects impacting economic growth expectations, fiscal deficits, and total government debt. Against this background, it would not be at all surprising if the Federal Reserve Open Market Committee (FOMC) decides to increase its target federal funds rate this coming week (to be announced on Wednesday, September 16).

September 2026 Equity Valuations: Above Trend and Beyond Normal Bounds

Let’s look at the broad level graph of the monthly close for the Dow Jones Industrial Average over the last 10 years (as of September 11, 2026), as reported by MarketWatch.

Starting from the low observed on March 1, 2020, the DJIA stood at 21,917. The most recent value for DJIA as of September 11, 2026 is 52,573. The total return during this time is 140%, and if we were to annualize the return, you are looking at a rate of 18.6% (you calculate it by dividing the most current value by the previous value, and then raise the result to 1 divided by time in years, and then you subtract 1 from that result, and then you convert to percentage by multiplying by 100).

Doing the same for the S&P 500, we observed a similar elevated return profile.

Starting from the low observed on March 1, 2020, the DJIA stood at 2,584. The most recent value for DJIA as of September 11, 2026 is 7,656. The total return during this time is 196%, and if we were to annualize the return, you are looking at a rate of 20%. This is almost double the historical standard over the last 50 years. I intentionally anchored the analysis at the March 2020 COVID low because it captures the full effect of the fiscal and monetary interventions that reshaped the post‑pandemic market environment. While this starting point inflates returns relative to neutral baselines, it is appropriate for evaluating the consequences of policy actions on equity valuations.

If the S&P 500 had grown at its historical long-term rate of approximately 12%, the index would be around 4,600 today (=(1.12^6.534)*2,584). In other words, the S&P 500 is about 66% (=(7,656 – 4,600)/4,600) above where long-term historical compounding would place it. All this indicates that we are in bubble territory. The question then is not if there will be a reversion to the mean, but rather how that will manifest.

A word of caution is warranted: As J.M. Keynes stated, “markets can remain irrational longer than you can remain solvent.” Although we cannot pin-point the exact day that the mean reversion will occur, I do believe we can know the season (i.e. time range) when that will happen. We will explore that in a future post.

FDIC Bank Failures: What the Numbers Look Like

Here is a brief illustration of the number of bank failures that I calculated per the FDIC public listing.

This metric is a lagging indicator of economic downturn, as you can see from the years preceding the last Great Financial Crisis of 2008 – 2010. It’s also a lagging indicator when the economy has begun to improve. Said another way, the years preceding an economic downturn is marked by a relatively low number of bank failures; and the years after the economy has begun to improve there is still relatively high number of bank failures.

Price Stability in a Fixed-Money System

This is a follow up topic discussed in a previous post about economic theory with respect to  monetary systems, particularly a fixed-money system. Here is the question that was asked:

How does a fixed-money system limit variability in prices of good, when price variability is inherent to commodity-based, fixed-exchange monetary systems and when the pre-Fed era saw more variability in price?

A fixed-money system (e.g. gold-standard) does not limit price variability of goods. Price stability is not necessarily linked with a fixed-money system (e.g. gold-standard); variability of prices is part of any economy. At a basic level, all prices depend on the law of supply and demand; and that depends on the productive capacity of a society. As output increases, assuming a stable supply of money, then you’d see prices of goods decline (less money chasing more goods). What does this mean? It means the standard of living is increasing.

Now, with respect to the prices of gold, don’t take my word for it, look at this table published by the National Mining Association listing the historical average price of gold (http://www.nma.org/pdf/gold/his_gold_prices.pdf):

Pre-Fed era, price of gold in 1833 = $18.93; and price of gold in 1913 = $18.92.

Post-Fed era, price of gold in 1914 = $18.99; and price of gold today (as of 4/28/23) = $1,999.