Mortgage rates have improved, down to 6.5 percent, as credit-market psychology has entered a substantial reversal. In the mass psychosis of late May, the financial markets suddenly decided that the economy had passed bottom; the banking system was recovering; inflation had become the dominant risk; the Fed would therefore begin an extended rate-raising campaign; and it was a good idea to dump every IOU within reach. That hallucination is now responding to medication. Nothing like hard news to clear the mind: Mortgage applications collapsed 8.8 percent in a week under the weight of spiking rates. Industrial capacity in use fell again in May, now 79.4 percent, overall production sliding 0.2 percent versus expected gain. The stock market has had a very hard time since Citi's CFO...
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