The Federal Reserve Raised Rates by 0.25%… The central bankers forecast that they will raise rates six more times this year, bringing the federal overnight funds rate close to 2%.
What it means— Raising the overnight rate is all fine and good, but the real issue is the $9 trillion in bonds sitting on the books of the Fed. In the press conference following the monetary policy statement, Chair Powell said the Federal Open Market Committee made good progress on how to reduce the central bank’s balance sheet and would disclose that information at an upcoming meeting. It seems unlikely that so many smart people focused on one thing couldn’t figure it out. Rolling this out slowly is part of engineering an economic soft landing. It never works. At some point, the economy will hit a rough spot and the tightening monetary policy will cause us to land with a thud. Investors seem to be counting on this outcome.
The markets soared after the Fed meeting and press conference. Maybe it was relief that the bankers didn’t move faster, or maybe it was after investors figured out that the bankers estimate that GDP will fall dramatically before they get interest rates back to neutral. If this happens, then the Fed is likely to reverse course before reaching its goal, which will give the markets more fuel to push higher. In short, investors are counting on the Fed to make policy mistakes.
Unfortunately, nothing suggests that short-term rates will come close to, much less surpass, inflation anytime soon. We’re stuck with a negative real rate for the foreseeable future.
Oil Briefly Drops Under $100 per Barrel, Gasoline Prices Barely Dip… Oil prices fell after the United Arab Emirates agreed to push OPEC for more oil, but consumers didn’t get much relief at the pump.
What it means— The U.A.E. is making the call, but there’s no guarantee that the Saudis or other OPEC members will answer by pumping more oil. For the moment, there’s enough oil to meet demand, but that won’t last.
As mentioned last week, the energy sanctions don’t go into effect before mid-April, so Russian crude is still reaching foreign ports. It’s not clear that supply routes can be reconfigured quickly enough, with China, India, and others taking more Russian oil and Western nations taking less or none, to keep supply and demand in balance. Today, we’re in balance, because countries like the U.S. are releasing strategic reserves and countries like India are stepping up their Russian oil purchases at steep discounts. Equilibrium would be bad, because it would mean that Russia can still sell all its oil and, even with discounts, receive a high price. An imbalance would be bad, because it would mean tight supply and higher prices for consumers around the world. If this seems like a choice between bad and worse, that’s because it is. Unless the war and sanctions miraculously end over the next three weeks, things are going to get rocky in the months ahead.
Retail Sales Inched Up 0.3% in February… The sales figure barely missed the 0.4% estimate, but January retail sales were revised up by 1.1%.
What it means— Retail sales in the rearview mirror are worse than they appear. The headline number only stayed above zero because of gasoline, which was up 5.3%. Without that, retail sales would have been negative. Without both gasoline and autos, retail sales would have fallen 0.4%. Sharply higher prices in things we need to survive, like energy, aren’t a great way to increase retail sales. It makes consumers cranky because they’re spending more on something that doesn’t provide increased utility.
Housing Starts Up 6.8% in February… Home builders started units at an annual rate of 1.77 million in February, 22% higher than the same month last year.
What it means— Housing starts are subject to weather, particularly in the winter. The jump in starts isn’t worth getting excited about, but the fact that housing starts didn’t fall is worth noting. Mortgage rates were on the rise before Russia invaded Ukraine. Solid housing starts show that builders expect strong demand, even though buyers must make higher payments. If they are right, then this means real estate will remain strong in the months ahead, even as inflation, rising rates, and war concerns weigh on other parts of the economy.
Existing Home Sales Fell 7.2% in February and Were Down 2.4% Over Last Year… The existing-home inventory increased to 870,000 units, or 1.7 months of supply at the current sales rate.
What it means— Mortgage rates moved up and sales eased a bit; that’s no surprise. As usual, the thing to watch is price. Whenever prices are moving up, we know that there are more buyers than sellers. The median existing-home sale price increased to $357,300, up 15% over last year. The annual increase in February marked ten complete years of monthly median price increases, the longest streak in history.
Florida Man Calls Police To Verify That His Meth Is Real… We’ve all been there, right? We buy a bag of meth, get home, light up, and… nothing. We miss that familiar high and think, “Did I get scammed?” Florida man Eugene Colucci had that feeling and decided to take action. He called 911 and told the Hernando County Sheriff’s Office (HCSO) that he thought his meth was fake. He asked that it be tested.
Colucci told the HSCO that he often does drugs, so he knows what it feels like. When he didn’t get high, he wondered if he’d bought bath salts. If so, he wanted the dealer to get in trouble, although Colucci couldn’t provide a name, contact information, or anything else about the seller. The bags tested positive for meth, which landed Colucci in jail for possession. “Stupid is as stupid does.”
Data supplied by HS Dent Research
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