Federal Reserve Chair Jay Powell Tells Financial Stability Conference Audience That Interest Rates Are not in Balance yet… Powell told the audience that as the Fed raises rates, the risk of overdoing or underdoing it comes into balance, but we’re not there yet.
What it means— Powell intimated that the Fed would raise rates a couple more times, which pushed investors to drive the 2-year Treasury yield near 4.9%. He noted the easing housing market and slower consumer spending but also noted the tight labor market. The bankers have been frustrated by stubbornly high inflation, especially using their preferred method of calculating inflation, the Personal Consumption Expenditures Index (PCE). The Fed chair and his cohorts have done everything to prepare investors for at least one more hike, if not two. Now it’s up to investors to believe them.
Personal Consumption Expenditures Index Up 0.3% in May, Less Than Expected… The core PCE rose 0.3% as well, to 4.6% for the year.
What it means— With PCE coming in a bit below expectations, investors are looking past the next Fed meeting. Futures show that 87% of investors expect a 0.25% rate hike at the end of this month, but the reaction to PCE shows they are banking on that being the end of the rate-hike train. Maybe, but BE cautious. Energy prices have fallen even as OPEC+ tries to prop them up. The Saudis along with Russia agreed to extend production cuts to August leaving a decision for more and longer still possible. This suggests that if recent moves higher persist, OPEC+ will let them run a bit before reigning them in. That won’t help the Fed push inflation near 2% and could lead the bankers to stay in the rate-hiking game.
New-Home Sales Jumped 12.2% in May, After Housing Starts Jumped 21.7% in May… New-home sales rose from an annualized rate of 763,000 in April to 680,000 in May, well above the estimate of 675,000.
What it means— The supply of new homes for sale fell 11.8% last month to a 7-month supply, as builders tried to fill the gap left by existing homeowners who are sitting on the sidelines. The median new-home price fell last month to $416,400, but we can’t read too much into that. With new-home sales up 20% over last year, builders are doing well. The slightly lower price tells us more about the level of homes builders are constructing than about the price buyers are willing to pay. With so many homeowners “stuck” in low-rate mortgages, it could be quite a while before the market reaches equilibrium.
Initial Jobless Claims Dip to 239,000, Continuing Claims Ease From 1.76 Million to 1.74 Million… Initial claims fell to the lowest level in a month.
What it means— We don’t need to belabor these statistics. Initial claims improved a bit, as did continued claims, which gives the Fed more room to raise rates. The more solid economic data we receive, the more likely it will be that the central bankers push rates higher.
As much as the Fed is looking for improvement, the labor shortage is unlikely to resolve quickly. Every action has a reaction. This is the case with the Covid business shutdown. Fed data reveals Covid cash handouts accelerated retirements which created today’s shortage – an unintended consequence. Without a deep recession, expect years for a resolution.
Man Climbs to 72nd Floor of Seoul Skyscraper Using Only his Bare Hands (and Feet)… British free-climber George King-Thompson reached the 72nd floor of the 123-story Lotte World Tower before authorities used a gondola lift to bring him inside. He was probably disappointed, because French climber Alain Robert, also known as Spiderman, made it to the 75th floor of the Lotte World Tower before authorities took him into custody. There’s no word on his motivation, but he has climbed other buildings to raise awareness of climate change, although there’s no known link between climbing buildings without safety equipment and climate change or climate change education. Next time, he might consider brushing up on the subject and renting a billboard.
Data supplied by HS Dent Research
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