Good Wednesday AM on this best day of the week,
Today is Fed Day.
What will the committee and Fed Chairman Powell say in about 45 minutes? The consensus is that he will raise rates despite it seemingly being a mistake. In truth, it does not matter what he does, it is what he says that will matter. Will he talk about inflation concerns, wage pressure or concerns about the services sector? Will he signal one more increase this year or will he be more hawkish and say that “further increases” are on the table? I am looking out for four key messages in Chairman Powell’s Q&A: (1) 2% inflation is still the goal (2) lower inflation desired without undue harm to economy (3) further tightening still likely appropriate (4) data dependence. When we get through today’s Fed announcement today, we will have Q2 early read of GDP, and then when we get through that, we have to deal with the PCE number on Friday. These are dangerous waters for sure!
Bloomberg shared that:
The unanimous expectation is that the Fed hikes 25bps today, bringing rates to their highest level in 22 years. Then the expectation is that the following meeting (September) is up for debate, so at the press conference we’ll learn more about where Powell’s head is at with what comes next.
Obviously, soft landing optimism has broken out in the markets and Wall Street over the last several weeks. But whether the data will cooperate, so to speak, remains TBD.
Yesterday we got the latest Conference Board Consumer Confidence Data, and thus a chance to update one of my favorite charts. The white line shows how the public is feeling about the labor market. The teal line is the quits rate (which comes from the JOLTS report). Both lines ticked up in the recent readings, indicating that both in sentiment and actions (quitting is a sign of economic confidence) the public is feeling quite good about the job market. Both of these lines remain extremely elevated by historical standards.
If you’re under the view that we must see more labor market weakness in order for inflation to finally go back to target, then this would imply there’s still a long way to go. Another thing that’s worth noting is that oil and gasoline prices are picking up again. At least on a headline inflation basis, the big tumble in energy costs has been a huge disinflationary driver over the last year. But the US just saw its biggest one-day jump in gasoline prices in a year. Energy costs matter tremendously, both for consumers, and for the cost of other goods, etc. So definitely worth keeping an eye on the chart.
The market for luxury homes confronts a new reality: not enough buyers and sellers.
Nationwide, second-quarter sales of luxury homes—defined as the top 5% of homes based on estimated market value—were down 24% from a year earlier, according to a new report by Redfin. The brokerage’s data shows that sales began to plummet significantly as early as June 2022, as buyers began to grapple with inflation and a volatile stock market. In many metro areas, homeowners appear to have pulled back on listing homes in light of the market shift. New luxury listings were down by 17% from a year earlier in the three months ended June 30, Redfin’s data shows.
Please remain safe and stay healthy, keep an eye out in about 45 minutes.
