The Federal Reserve Held Rates Steady but Opened the Door to Another Hike This Year… The Fed Monetary Policy Statement noted that the economy remains strong and unemployment remains low. It also raised GDP growth for 2023 from 1% to 2.1%.
What it means— The Monetary Policy Statement and following press conference were dripping with phrases like “dependent on the data.” Yeah. We get it. If student loan repayments (which affect parent loans, too) don’t ding the economy, continued high financing rates don’t eat into auto sales, and generally higher costs don’t curb some holiday spending, then yep, the central bankers might raise rates one more time this year.
The bigger issue is that the members of the Federal Open Market Committee seem to be capitulating on the idea that they’re not winning. Not only did they raise their GDP estimate this year by more than 1%, but they also raised the GDP estimate for next year from 1.1% to 1.5% and lowered the 2024 unemployment forecast from 4.5% to 4.1%.
Now, investors aren’t enthusiastic about a pivot anytime soon, which could leave big deposits sitting in nice, safe, short-term U.S. Treasuries, instead of chasing the next big thing in equities. As we’ve said for more than a year, don’t fight the Fed. If the Fed bankers change their stance this fall, they will let us know.
August Housing Starts Dropped 11.3% to Lowest Level Since June 2020… Housing starts peaked at an annualized 1.8 million units in April 2022, just as the Fed started raising rates.
What it means— It looks like the builders learned a thing or two in the Great Financial Crisis. Home ownership is wildly out of whack, with prices high and mortgages around 7%, and multi-family housing builders are stepping away from expensive construction loans. Is anyone surprised? It’s true that builders are the go-to place for buying homes as existing homeowners sit on low-rate mortgages, but even the home builders have limits on their potential client pool at current levels. We’re not sure how this one will shake out, because building costs are high and many existing homeowners don’t have to move. It could be a standoff that lasts another six to nine months.
August Existing Home Sales Down Slightly by 0.7%, Down 15.3% Over Last Year, While Median Price Edges higher… The existing-home median sales price remained around $407,100, up 3.9% over last year.
What it means— It’s still about inventory. Even with sales down 15.3% over last year, there’s only 3.3 months of inventory, which is about where it was last month. The question is, how many realtors will survive while the buyers, sellers, and builders wait each other out? If you run a processing service for realtors or property, this could be a great time to pick up struggling businesses on the cheap.
Initial Jobless Claims Fall to 201,000, Lowest Level Since January… Continuing claims fell by 21,000, to 1.66 million.
What it means— The central bankers must be thinking, “Can someone just fire somebody already!?” For a while it looked like initial claims would climb above 250,000, which would imply a weakening economy. Instead, we’ve gone the other direction, with initial jobless claims falling and continued claims remaining very low. Unemployment rose a bit in August, but that was due to rising labor force participation, not job losses. The Fed is fighting a huge job-creating machine, the federal government, and retiring Boomers.
Julio Cesar of Puno, Peru, Has an 800-year-old Friend… The city’s Directorate of Culture found a mummified skeleton in a fetal position in a lined, red bag of a kind commonly used by food delivery companies. The remains were estimated to be 600 to 800 years old. The Directorate, which took ownership of the remains under national heritage laws, traced the bag to Julio Cesar, who said the body belongs to him. Mr. Cesar said, “It sleeps in my bedroom with me. There’s my bed, the TV set and next to it there’s Juanita (his name for the remains). It’s like, if you’ll pardon the expression, as if it were my spiritual girlfriend.” Apparently, Mr. Cesar doesn’t know his spiritual girlfriend as well as he thinks. Juanita is, or was, a man.
Data supplied by HS Dent Research
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