In Moderated Q&A, Fed Chair Powell Tells Audience It Might Take Longer to Tame Inflation… Powell noted that while inflation had declined significantly since last year, recent data have not given the bankers the confidence they need to cut rates.
What it means— Well, it can’t be clearer than that. Chair Powell might as well have taken a Sharpie pen and crossed May and June off the calendar as potential meetings at which the bankers might have cut rates. May was a long shot, but most investors were counting on June. It’s not about the month this year that the central bankers start cutting rates, it’s about how many rate cuts we’ll get in 2024. The later they start, the fewer the cuts, which will leave rates higher for longer. Leveraged investors, particularly in fixed income, are in a pickle. Short rates remain high, but geopolitical issues have put a lid on long rates… for now. Be careful in bonds; rates might pop higher before turning down.
March Retail Sales Rose 0.7%, Well Above the 0.3% Estimate… Excluding autos and gas, retail rose even more, by 1%.
What it means— People spent 0.4%more going out to eat last month and have spent 6.5%more over the last year. The jump is not as big as it seems because the numbers aren’t adjusted, but it’s still more than 3% after adjustment for inflation. Consumers must’ve grumbled when they got their bills or cried into their beers, but they still paid. Remember that the Fed has only one tool to reduce inflation: to make stuff so expensive we can’t afford it, so that we spend less. The problem is that other factors, like tariffs, can create inflation. Be careful if you’re hoping for inflation to fall; it might hurt on the way down.
Existing Home Sales Fell 4.3% in March, to an Annualized Rate of 4.19 Million Homes… The current sales rate is 3.7% less than last March, which was already low.
What it means— Wash, rinse, repeat. Current owners aren’t in a hurry to move as long as their home valuations remain elevated and a new mortgage would be expensive, so inventory remains tight. The game of chicken continues, but the peak season is passing quickly. If we get through June without a big uptick in activity, 2024 might be a bust. Unfortunately, a major geopolitical event (war) might change that. If things in the Middle East escalate, foreign investors could begin looking for a safe haven, and many of them will choose U.S. Treasury bonds. That would lower yields, although it would take a while for mortgage rates to fall. That would mean investors think the war could last for some time, which would be depressing.
March Housing Starts Fell 14.7%, From an Annualized Rate of 1.55 Million to 1.32 Million… That’s the sharpest drop since April 2020.
What it means— We’re still building a lot of homes, but we need a lot more. We’re still shy by at least 1.5 million units. The problem is that higher mortgage rates make home buyers nervous, so they wait for lower rates. Home builders are adept at putting on the brakes when interest rates move up and keeping a tight leash on inventory. With so little existing home inventory available, builders have been big winners, but that won’t last forever.
Woman Takes Her Dead Uncle to Bank to Secure a Loan… Brazilian Érika de Souza Vieira Nunes wheeled her dead uncle into the local bank and promptly applied for a $3,400 loan, with the uncle as guarantor. Nunes pretended that her uncle was deaf and simply weak, but bank employees weren’t buying it, perhaps because the uncle never said a word and his head kept tilting back. A bank employee called the cops, who verified that the woman’s uncle was, indeed, dead. Apparently, he had been dead just a few hours. According to some news sources, an autopsy suggested foul play could have played a role in his death.
Data supplied by HS Dent Research
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