Federal Reserve Raises Rates by 75 Basis Points to Range of 3% to 3.25%… The move was widely expected, but the bankers also raised their estimate of rates for this year and next year.
What it means— While everyone knew the Fed would raise rates by 75 basis points, few expected the central bank to raise its terminal rate this year from an expected 3.4% at the June meeting to 4.4% this week and push the 2023 terminal rate to 4.6%. This implies another 75–basis point move in November and a 50–basis point move in December, which would be very aggressive.
The combined moves since March make the Fed rate hikes this year the highest within such a short time since 1982. Investors were digesting the information and pushing the markets up and down by a half a percent or so as Chair Powell talked through the Fed’s thinking. The press conference was sort of boring until Powell noted that it’s unlikely that we can tame inflation without some pain. The markets started to roll over and then sank when Powell said that housing is likely to go through a recession.
We’ll see. The numbers on housing, outlined below, aren’t terrible, because builders are scaling back and current owners don’t have to sell. The Fed can induce a recession and looks like it wants to. But, with unemployment very low and consumers still sitting on savings from COVID stimulus, it might not be nearly as painful as investors are forecasting.
Bank of Japan (BoJ) Intervenes in Currency Market to Prop Up Yen… On Thursday, the BoJ sold U.S. dollars and bought yen to strengthen the Japanese currency after it fell to more than 145 per dollar. The yen moved down to less than 141 per dollar before reversing back above 142.
What it means— Just before the Fed started raising rates in March, the yen traded at 115 per dollar. Since then, the yen has stair stepped higher, first to 130 and then to 138, and now it’s risen to more than 145, losing more than 25% of its value against the dollar in six months.
While those holding yen and yen-denominated assets might be happy with the intervention, they shouldn’t expect it to last. To stop the pain, the BoJ would need to raise interest rates significantly and stop printing as much money, neither of which is likely to happen. Instead, the intervention will fade over the next couple of weeks and the yen will resume its march toward 150. The other thing that would ease pressure on the yen would be a pivot or at least softer stance by the Federal Reserve, but we aren’t likely to get that before the November meeting, if then.
Housing Starts Up 12.2% Last Month, Essentially Flat Over the Last Year… The jump in construction last month offset the 10.9% decline in July and was led by a 28.6% increase in multi-unit construction.
What it means— Builders might have started more homes last month but permits show they are scaling back quickly. Building permits fell from an annual rate of 1.62 million to just 1.52 million, which is where they were just before COVID. If permitting continues to fall or even remains steady, then new construction will slow down, inventory will dwindle, and we’re likely to see prices remain high, because buyers won’t have many choices.
Existing Home Sales Down 0.4% in August, Are Down 19.9% Over Last Year… Not including the first months of COVID, existing home sales have fallen to the rate of November 2015.
What it means— The median sale price of an existing home eased to $389,500, down from the peak of $413,800 in June. The 5.9% drop doesn’t match up with the almost 20% decline in activity. Sellers aren’t motivated. Not only are prices holding up, but sellers are also fewer. The number of homes on the market dipped 1.5% to 1.28 million, which held down inventory to just 3.2 months’ worth of supply even as sales eased.
While that is higher than it was before August, it’s still only about half of what would be expected in a market balanced between buyers and sellers. Prices likely have further to fall, but an all-out rout isn’t on the horizon, yet.
Mortgage rates hit 6.29% last week on the way to 7% probably by year’s end. FOMO is gone and only fear remains as bidding wars disappear and prices are softer.
Cook County, IL, Board Announces Universal Basic Income (UBI) for Two Years for Between 550 and 3,500 Residents, Based on Income… Cook County Board president Toni Preckwinkle announced the $42 million program, the largest in the country.
What it means— The Cook County Promise Guaranteed Income Pilot program is open to any adult Cook County resident who makes less than 250% of the federal poverty rate, which covers 36% of the county residents, or 1.8 million people. The program is open without regard to immigration status or assets; it is based only on income. The funds pledged to the program will run out when approximately 0.1% of eligible people have applied. The county will hold a lottery after applications to determine who will participate. With more than two jobs available per unemployed person in the nation, some detractors are wondering why UBI programs are operating.
It’s possible the Cook County Board doesn’t put too much thought into it. They aren’t providing the money. The cash comes from the last COVID stimulus bill, so national taxpayers are picking up the tab.
German Customs Officials at Dusseldorf Airport Follow Slime to Giant African Land Snails and Rotting Meat… The officials noticed a trail of slime and traced it to a giant land snail, which can be eight inches long and almost four inches tall. They thought it was a toy until it moved, then they backtracked the slime and found a bag containing 93 of the snails and more than 60 pounds of fish and smoked meat, along with another suitcase of rotting meat. The items were imported from Nigeria and bound for an African goods store in Germany, but they weren’t going to make it. The customs officials handed the snails over to animal rescue and destroyed the rest of the items.
Data supplied by HS Dent Research
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