Wages and Consumer Prices: The Impact of Inflation on Human Capital, Product Development and the Small-Scale Economics of the 21st Century
There is another concern. Wages are rising but not keeping pace with consumer prices. 5.2% doesn’t mean you need to be a genius in math.
Inflation is not just a function of the price of oil and other commodities and production costs like manufacturing and shipping. How much workers take home in their paychecks is also a big part of the inflation picture.
When people have more money in their wallets (virtual or good old-fashioned leather ones), they tend to be more willing to spend it. Companies have more flexibility to raise prices.
The problem is that wage growth above 5% is still historically high. Wages rose 3% a year before the Pandemic. But labor shortages, due to Covid-19 and people dropping out of the workforce, shifted power from employers to employees when it came to worker pay.
Inflationary Pressures, Consumer Consumption, and the Future of the U.S. Retail Sales: A Prediction from the Fed
The government reported Friday that its preferred inflation metric, personal consumption expenditures (PCE), rose 6.2% from a year ago in August. That was lower than July’s reading.
The Fed looks for a 2% growth rate in the PCE number as a sign of price stability. That’s not going to happen anytime soon. According to the Fed’s latest forecasts, PCE will rise 4.9% this year, compared to the 4.7% projected in June.
Retail sales have held up relatively well despite inflation pressures, but Norton warns that can’t last forever. American shoppers would soon reach their breaking point and begin buying essentials. Slower economic growth will inevitably lead to lower prices.
The Fourth and Fourth Quarters of the U.S. Stock Markets: A Time for Repositioning and Reprioritizing Washington
The third quarter is over. It’s been another doozy for the market. September in particular was bleak. It was the worst month for the Dow since the start of the pandemic in March 2020.
But even though we’re seemingly in a bear market for everything as bonds, gold and bitcoin have all tumbled this year as well, there are some hopeful signs for the next few months.
The fourth quarter is typically a festive time on Wall Street. The stock market tends to sell stocks in anticipation of consumer shopping. Businesses typically spend more as well to flush out those yearly budgets. In October major companies can give rosy guidance about earnings expectations.
The bear markets have ended in October since World War II. There have been seven market bottoms during the election years.
If Republicans take control of the House, traders will keep a close watch on Washington. Some investors like the idea of DC being more gridlocked.
Corporate America and investors will have to think about whether or not they are going to be so bullish in October. After all, October is also famous for huge crashes, most recently in 2008 but also in 1987 and, of course, 1929.
Christopher Wolfe is chief investment officer of First Republic Private Wealth Management. “A lot of quality companies are on sale. It’s a time to be patient and reposition.”
The Last Days of the Great Recession: An Outlook for the US Labor Market After 5 Years of Inflationary Growth and Implications for the Fed
Thursday: US weekly jobless claims; earnings from ConAgra
(CAG), Constellation Brands
(STZ), McCormick
(MKC) and Levi Strauss
(LEVI)
When the Bureau of Labor Statistics releases its October jobs report on Friday, it will be the last major read of the economy before the midterm elections — and it will cap a week of new data signaling that the white-hot labor market is showing only tentative signs of cooling off.
Economists expect the headline figure to show 250,000 jobs were added in last month. That would be the smallest monthly gain in nearly two years, and well below the average of more than 510,000 for the past 12 months.
Despite a robust recovery from the Covid-19 pandemic, the US economy has been weighed down by a months-long bout of historically high inflation. The Federal Reserve has been increasing its interest rates to bring down high prices.
Wages pose a particular conundrum for the Fed. It wants us to shop just a little less – but not a lot less. Unfortunately, there’s no magic formula for how much wages need to go down to make a dent.
If it comes in under 250K, you might see renewed hope that the Fed’s policies are having their intended effects and won’t have to make more pain in the economy.
The Fed is poised to continue raising interest rates: The case of the F-150 Lightning, driven by supply chain constraints and material cost constraints
The situation is delicate and hard to overstate. Kristalina Georgieva, the managing director of the International Monetary Fund, said today that the world was currently in a period of economic fragility, as a result of shocks over the last two and a half years.
It is a recipe for globe-spanning turmoil and even recession. Despite that, the Fed is poised to continue raising interest rates. That’s because the Fed, like central banks around the world, is in charge of domestic economy goals: It’s supposed to keep inflation slow and steady while fostering maximum employment. The Fed is called a central bankers to the world because of the Dollar’s main position but goes about its day to day business focused on America.
Ford has raised the price of its electric pickup, the F-150 Lightning. The company said supply chain constraints, rising material costs and other factors have led to the increased price of the entry-level model.
Nightcap Jobs: Why we shouldn’t rely on Artificial Intelligence to make the most of what we sell and how we can protect ourselves
According to state media, Alexander Lukashenko banned consumer price increases across the economy. From today it is impossible to have a price increase. Prohibited! The president was quoted as saying
(CNN Business) Lawyers for Elon Musk and Twitter have agreed to postpone Musk’s deposition in the court fight over their $44 billion acquisition agreement, a source familiar with the negotiations told CNN. Musk was originally scheduled to give a deposition today, but he threw a curveball earlier in the week, offering to buy the company under the original terms of the deal in exchange for scrapping the litigation. The two sides are still talking.
(Axios) Boston Dynamics, the company behind those viral videos of its creepily agile four-legged robots, is pledging not to weaponize their products and encouraging others in the industry to do the same. The company is worried that customers will not believe them if they say they are not building an army that will destroy humanity, according to a letter reviewed by the website. Thankfully though, they’ve now said they’re not doing that. Oh my!
Source: https://www.cnn.com/2022/10/06/business/nightcap-jobs-report/index.html
The fate of Peloton, the only unionized company that can survive under the next century: Amazon’s work stoppage after a fire broke out Monday
After letting go of another 500 people, Peloton will be left with around 3,800 employees — less than half the number of employees it had at its 2021 peak. The company said Barry McCarthy had made major changes to restore the brand. And if it fails, McCarthy told The Wall Street Journal, Peloton likely isn’t viable as a stand-alone company. He’s giving it another six months.
(CNN Business) Amazon suspended roughly 50 workers at its only unionized warehouse Tuesday after they organized a work stoppage following a fire at the facility. A fire broke out Monday at the Staten Island facility, known as JFK8, and workers reported that parts of the building still smelled of smoke and that it was difficult to breathe. An estimated 100 workers walked off the job.
Meteorologists tell us that global warming has created new problems for forecasters. With hurricanes getting stronger and intensifying more rapidly, it is difficult to issue early warnings for communities in their path. Notably, officials in Florida’s Lee County waited for definitive evidence that they would be hit hard by Hurricane Ian before ordering evacuations — and by then it was too late for many people.
Does the Fed Break Too Hard to Compensate? The Case Of The S&P 500 and Other Large-Scale Economists
Does the same thing happen with economic policy? Recently I wrote about the growing buzz from economists and businesspeople to the effect that the Federal Reserve, which has been trying to slow the economy to fight inflation, is braking too hard. The buzz intensified after that. I think the Fed is getting behind the curve despite an inflation report that looks good and a robust job market.
Here’s where another problem comes in: When spending drops, companies aren’t selling as much stuff and they’re not making as much money. They tend to react by laying people off. Raising interest rates can be hard on jobs.
How much pain today’s moves will ultimately cause remains unclear: So many countries are raising rates so quickly — and so in sync — that it is difficult to determine how intense any slowdown will be once it takes full effect. Monetary policy will take months or years to kick in.
But many economists and several international bodies have warned that there’s a pronounced danger or overdoing it, including a United Nations agency that warned the damage could be particularly acute in poorer nations. Developing economies had already been dealing with a cost-of-living crisis because of soaring food and fuel prices, and now their American imports are growing steadily more expensive as the dollar marches higher.
The Federal Reserve will raise interest rates again next month, and investors worried as they saw fresh data about the health of the labor market.
The S&P 500 fell nearly 3 percent on Friday, dragged down by interest rate-sensitive sectors like technology stocks. Government bond yields, indicative of the future path of interest rates, rose and the dollar strengthened.
Inflation, Jobs, and Price: The Case of the U.S. Federal Reserve in the Light of the Powell-Federal-Regime
Typically a sign of economic strength, at the moment a resilient labor market is bad news for investors, as it points to the need for the Fed to raise interest rates even more than it already has. Higher rates, in turn, raise costs for companies, weighing on stock prices.
However, the Fed is currently being challenged in a way it hasn’t been in over 40 years. And as it tries to do one part of its job it is hurting the other. The two different parts of its mandate are at each other’s throats.
But a few weeks ago, I sat next to a woman on an airplane. She described herself as knowing “zero” about the economy and then proceeded to ask me whether I thought the Federal Reserve would continue raising interest rates to help fight inflation.
A central bank can only do two things: maximize employment and ensure price stability. Ideally, the Fed would like everyone to keep their jobs while damping demand just enough to take the heat off consumer prices, which have been hovering at 40-year-highs and currently sit at 8.2%. Powell still considers it possible, but most economists now think that’s remote.
The Fed is mandated to deploy its formidable powers to watch and protect both areas as they are considered the most important elements to a strong economy.
“Economic security depends on both jobs and stable prices. The San Francisco Federal Reserve Bank’s head said in a recent speech the pillars were the foundation for everything else.
“If your family is one where you spend most of your paycheck, every paycheck cycle, on gas, food, transportation, clothing, basics of life, and prices go up the way they’ve been going up, you’re in trouble right away,” Powell said. “We’re hearing from people is very much that inflation is really hurting…it would be nice if there were a way to just wish it away but there isn’t.”
Daly points out that this level of inflation hits everyone. It’s particularly hard on the country’s most vulnerable. Those with a low and moderate income are hardest hit by the toll. The corroding of wages is more than just painful. It also undermines the basic American promise, which says that if you work hard, you can get ahead. Inflation traps people in an endless loop of running fast and falling behind, unrelated to effort or input.”
The Smith family’s “big breakfast” and “big trip to the beach”: When Paul Volcker became the first central banker to bring inflation under control
Smith’s wife and their four children enjoy a big Sunday breakfast together, but Smith will sometimes purchase cinnamon rolls as a treat. “It’s something I have bought periodically for years and it was eight bucks for a package of six cinnamon rolls.” He immediately realized it was double the amount he usually paid. He said it felt dramatic.
As it turned out, the Smith family hadn’t done anything differently or gone anywhere unusual, the prices of their normal purchases and activities had just risen and it had added up fast in a family of six. So Smith and his family started making a bunch of cutbacks: no more eating out, no summer road trip to Utah to see relatives.
“My kids complained, ‘We, didn’t do anything this summer!'” he said. “They were right and it was largely because gas that used to cost us, you know, maybe $150 to travel somewhere now costs three or $400.”
When the Fed raises interest rates, it becomes more expensive for people and businesses to borrow money, so they buy less stuff, demand goes down and that (eventually) brings prices down.
In the 70’s and 80’s inflation was very high in the U.S. The head of the central bank at the time, Paul Volcker was determined to bring prices under control. He pushed interest rates high–rates peaked at about 20% (to give a little perspective, the current interest rate is around 3%).
The result was a big economic shock. The economy fell into a terrible recession, unemployment spiked to 11% and people and politicians unleashed all kinds of wrath onto Chair Volcker. But Volcker was totally focused on bringing inflation under control. It worked, and inflation came down. But it took years of serious economic pain and millions of people lost their jobs.
Source: https://www.npr.org/2022/10/09/1127650735/federal-reserve-dual-mandate-inflation-jobs-employment
In Code: The Fed’s First Call to Address Inflation and the Struggle for Stable Prices in the Large, Small, and Medium-Sized Economy
Actually, he seems to have already made the call… in code. The Federal Reserve has a history of communicating in code (or, basically, not communicating and leaving everybody to desperately try and interpret things like tie color choice and body language).
“Reducing inflation is likely to require a sustained period of below-trend growth and softening of labor market conditions,” Powell said Wednesday. “Restoring that price stability is essential to set the stage for achieving stable employment and stable prices in the longer run.”
Powell made it clear in the press conference that he was prepared to tolerate some pain from a slower economy and softer labor market because inflation was too bad for families.
Hopefully the inflation report that’s coming this Thursday will show prices coming down and if unemployment stays low, the dual mandate will never have to duel. My airplane conversations can go back to complaining about legroom and we can all have our cinnamon rolls and afford them, too.
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to the audio version of the newsletter by clicking here.
Timing Fed Inflation and the Decline of the Bond Market: What Do Markets Really Need to Predict Next-to-Leading Fed Rates?
These mercurial markets come as investors overreact to data in eager anticipation of the Federal Reserve’s next interest rate policy decision, said Alan Blinder, former Fed Vice Chair and Princeton University economist.
Expect the swings to continue until the Fed declares “mission accomplished” in its fight to lower inflation and pivots away from its current regime, likely some time in 2023, he told me.
Federal Reserve Chair Jerome Powell knows this, he said, and has been “very aggressive” in his attempts to signal that a pivot away from interest rate hikes won’t happen anytime soon. But that doesn’t mean investors will listen.
Blinder said that investor memory is very short. It was only a year and a half ago that policymakers were worried about inflation being too low. Inflation is young, so we’re a long way from the inflation expectations of the 70s and 80s, that became deeply entrenched into economic activity. So while Wall Street may be shouting fire, there’s no reason yet for Main Street to worry about the economic meltdowns seen the last time inflation was this elevated.
Yellen’s optimism comes amid growing concern from economists and finance officials that a recession is likely at some point in the next year, but was based in part on elements of the latest data that showed signs a necessary slowdown in key areas of the economy leaves open a pathway to a “soft landing” as the Federal Reserve prepares to continue its rapid pace of rate increases.
The Bank of England’s moves send more signals to investors that the central bank is prepared to do whatever it takes to restore more normal trading conditions to the bond market, which is necessary to keep down borrowing costs for UK households and businesses.
Extra assistance will be given to banks beyond the end of this week even though the bond-buying program will end Friday.
The Bank of England and the Banks of England: How bank failures make financial markets less safe: The 2009-2011 UK bond price collapse and the 2008 financial crisis
See here: The UK government sold index-linked gilts due in 2051 at a yield of 1.55%. That’s the highest yield since October 2008, according to Reuters.
The Bank of England announced its initial actions in late September but long-dated government bonds’ yields have been climbing again since.
The central bank said it had to take action after the market experienced historic selling in the wake of the budget plans.
The Bank of England stressed on Monday that funds have made “substantial progress” over the past week, but that it would continue to work with them to ensure the “industry operates on a more resilient basis in future.”
The prize was given for research that showed bank failures make the financial system less safe.
Bernanke presided over the Fed during the 2008 financial crisis that led to the collapse of Lehman Brothers and took other “too big to fail” banks, including JPMorgan Chase
(JPM), Goldman Sachs
(GS), Bank of America
(BAC) and Morgan Stanley
(MS), to the brink of catastrophe. Those banks were partially saved by an emergency government bailout.
In 2009, the Federal Reserve implemented a policy of “stress tests” for major US banks to assess if they can survive a severe recession and upheaval in financial markets. The tests are used to determine whether banks can increase dividends or repurchase shares.
The research is especially relevant today as rapid interest rate hikes to combat inflation have sent markets into turmoil, drawing comparisons to 2008.
The research papers offered important insights into the beneficial role that banks play in the economy but also into how their vulnerabilities can lead to devastating financial crises.
The Global Economy is Going Through a Season of Perturbations: Market Behavior versus Economic Stability and the Effects of Rate Increases
▸ Third quarter earnings season begins. Expect reports from big banks like JPMorgan Chase
(JPM), Wells Fargo
(WFC), Citigroup
(C), Morgan Stanley
(MS), PNC
(PNC) and US Bancorp
(USB) and consumer staples like Pepsi
(PEP), Walgreens
(WBA) and Domino’s
(DMPZF).
Mr. Biden said the report showed “some progress” in combating the increases, noting that costs have climbed by less over the past three months than they had in the prior three months. But he acknowledged that inflation was very high.
This year’s adjustments to the Fed policy will not pull inflation dramatically lower yet due to the time it takes to work. The effects of rate moves on consumer demand will show up first in everyday consumer goods and services. That hasn’t happened yet. From restaurant meals to cigarettes to stationery products, prices continue to climb briskly, suggesting consumers are still willing to pay up.
During a tumultuous week in the global economy, Mr. Bullard spoke about monetary policy and issues of financial stability. The news media would typically be able to attend the speaking event if they chose to, but Mr. Bullard and his staff did not alert reporters.
Kocherlakota was the former president of the Federal Reserve Bank of Minneapolis. With a bank’s clients involved, he added, “the optics are terrible.”
The United States stands out for its weak economic performance as well as high inflation, due in part to the fact that a lot of other economies are suffering. We have unemployment at a 50-year low. … We saw in this morning’s report – consumer spending and investment spending continued to grow. We have solid household finances, business finances, banks that are well capitalized,” she said.
So what gives? Nomi Prins argued in her book “Permanent Distortion: How the Financial Markets Abandon the Real Economy forever” that the Federal Reserve created two economies with free-flowing money. Wealthy Americans and corporations benefited directly from years of low rates, which kept money flowing into businesses and stocks high while Main Street suffered from decelerating wages and little support. We are now dealing with a permanent distortion, where market behavior and economic prosperity have nothing to do with each other.
Markets are at multi-month highs again after taking a beating this year. Prins told me that it is pointless to try to apply economic rationale to stock markets.
The bulk of this stimulus flowed upwards into markets and not outward into the economy at large and created a world where investors became dependent on the Fed while the larger economy suffered, said Prins.
The credibility problem stems from how important it is for the Federal Reserve to successfully lower inflation rates. Americans would need to believe in the Fed’s ability to bring down prices if it succeeds.
She says Main Street is feeling the effects of the interest rate hikes through increased mortgage and borrowing rates and a slowing jobs market.
The Rise and Fall of the UK Economy: Rishi Sunak, the Shadow of a Depression, and the Challenge of Getting Through a Recession
Shortages of raw materials and labor continue to hinder businesses’ operations, according to the survey. The percentage of respondents who reported shortages remained near all-time highs.
Rishi Sunak, Britain’s third prime minister in seven weeks, will face the huge challenge of projecting stability after a period of historic political and financial market chaos. But his other task — shepherding the country through a recession — is poised to be just as daunting, reports my colleague Julia Horowitz.
Sunak campaigned for the job over the summer with promises to help households tackle the rising cost of living, which is causing many to pull back spending. He said he would cut taxes, but only once price pressures eased.
Yet the economic outlook has deteriorated sharply since then — not least because of the market turmoil unleashed by Truss’ now-abandoned plan to slash taxes as soon as possible and boost government borrowing.
Plus: The Conference Board is expected to release October Consumer Confidence which measures the level of confidence consumers have in the economy at 10 a.m. ET.
The US economy rebounded from six months of contraction, with the treasury secretary saying in an interview with CNN that there were no signs of a recession in the near term.
During a one-on-one interview with CNN in Ohio, where the third quarter GDP data was released Thursday, she said that the economic strength of the US is underscored by the fact that policy makers have to move to cool off pervasive and soaring inflation.
Gross domestic product — the broadest measure of economic activity — rose by an annualized rate of 2.6% during the third quarter, according to initial estimates released Thursday by the Bureau of Economic Analysis. In the first and second quarters of the year, the decline was 1.6% and 0.6%.
The Giant Democrat Recession Violating (Gdp) Recession: When the US Economy Grows, and How Private Sector Investments Can Become More Competitive
As they seek to highlight a rapid economic recovery and major legislative victories while also pledge to tackle soaring prices, President Joe Biden and his top economic officials have tried a complex balancing act over the course of this year.
It is a reality that has undermined the administration’s attempts to take advantage of what officials view as a robust record. Republicans accused Biden of being mean when he said that the economy was strong as hell.
Yellen also acknowledged frustration inside the administration that the efforts to pull the US economy out of crisis haven’t received the credit officials believe is merited.
Many families could have faced difficulties, and there were several issues that we could have had. The Biden administration did a great job of eliminating these problems. So, often one doesn’t get credit for problems that don’t exist.”
The major legislative wins have led to tens of billions of dollars of private sector investment in the manufacturing sector, and as part of an effort to highlight those victories, Yellen traveled to Cleveland.
It is a key piece of an economic strategy designed to address many of the vulnerabilities and failures that were laid bare as Covid-19 ravaged the world.
Listing off a series of major private sector investments, including the $20 billion Intel plant opened a few hours drive outside of Columbus, Yellen said they were “real tangible investments happening now,” even as she acknowledged they would take time to full take effect.
“But you’re beginning to see repaired bridges come online – not in every community, but pretty soon. Many communities are going to see roads improved, bridges repaired that have been falling apart. We’re seeing money flow into research and development, which is really an important source of long term strength to the American economy. And America’s strength is going to increase and we’re going to become a more competitive economy,” she said.
Source: https://www.cnn.com/2022/10/27/politics/janet-yellen-gdp-recession-cnntv/index.html
In support of raising the debt ceiling after the yelm showdown, Rep. Yellen reiterates her desire to stay with the White House
House Republicans have pledged to use leverage should they take the majority in the upcoming election, making it all the more ironic that the battle lines are drawn this week over raising the debt ceiling.
But Yellen, who has long highlighted the “destructive” nature of the showdowns, has also backed doing away with the debt limit altogether through legislation. A group of House Democrats wrote to Democratic leaders to ask for that action during the final weeks of the congress, but they were ignored by Biden.
She made it clear that she did not plan to be one of them as the administration moves towards a time period that usually leads top officials to leave. Asked about reports she had informed the White House she wanted to stay into next year, Yellen said it was “an accurate read.”
“I feel very excited by the program that we talked about,” Yellen said. “And I see in it great strengthening of economic growth and addressing climate change and strengthening American households. And I want to be part of that.”
The Fed’s Rate hike is coming, and it’s going to take a long while to come. Fed Federal Reserve Interest Rates Hike, Increase Inflation Unemployment Powell
Wednesday’s rate hike may be the last big one for a while. Markets will be watching for any signals that the Fed is likely to scale back its December rate hike. But McBride argues that in order to curb inflation, borrowing costs will likely have to remain elevated for an extended period.
“Interest rates have risen at a whiplash-inducing speed, and we’re not done yet,” said Greg McBride, chief financial analyst at Bankrate. “It’s going to take some time for inflation to come down from these lofty levels, even once we do start to see some improvement.”
The Fed’s preferred measure of inflation was 6.2% for the month of September, unchanged from the previous month. The better known consumer price index shows prices rising even faster, at an annual rate of 8.2%.
“We see today that there is a bit of a savings buffer still sitting for households, that may allow them to continue to spend in a way that keeps demand strong,” said Esther George, president of the Federal Reserve Bank of Kansas City. “That suggests we may have to keep going for a while.”
George was on the rate-setting committee of the Fed and she is determined to control inflation. Shecautioned against raising rates too quickly at a time of economic uncertainty.
“I have been in the camp of steadier and slower [rate increases], to begin to see how those effects from a lag will unfold,” George said last month. “My concern being that a succession of very super-sized rate hikes might cause you to oversteer and not be able to see those turning points.”
Source: https://www.npr.org/2022/11/02/1133195996/fed-federal-reserve-interest-rates-hike-increase-inflation-unemployment-powell
The Pain of Inflation: Job Vacancies, Jobs, Quotients, and Layoffs in the U.S.
The Fed raised rates less than five months ago, but Shawn Woods said his company has stopped selling houses in Kansas City.
Woods said he would have never expected the mortgage rates would go from 3% to 7.0% within six months.
“We’re in for a rough six to eight months,” Woods said. Housing leads to downturns and the other way around, it leads out of downturns. And I think from a housing perspective, we’ve probably been in a housing recession since March or April.”
Take the latest monthly JOLTS survey on job vacancies, quits and layoffs. The report shocked economists who had predicted that the number of vacancies in the United States would go down due to the Fed slowing growth. It jumped to 10 million instead of 10 million.
There are currently 1.9 jobs for every one person looking for work, a margin that the Fed worries is keeping inflation uncomfortably high. With lots of options, workers are demanding a higher wage; and with few applicants, managers are willing to make more money due to the increase in demand for goods and services.
The pain of inflation seems to be overshadowing any positive sentiment about job security in the minds of people trying to hold on to power next week. According to a new CNN poll, three-quarters of likely voters already feel like the country is in a recession.
The Rise and Fall of First-Time Home Buyers in the Age of Boomers: More Bad News for Millennials and Gen Zers
More bad news for the younger Millennial and Gen Zers hoping to buy their first home: The typical age of a first-time homebuyer is now a record 36 years old, up from 33 last year.
Baby Boomer parents with large investment portfolios were happy to pass along some of the gains from the stock surge to their kids.
As that 2020 housing boom begins to go bust, those who managed to close on a home in the crush of competition fed by rock-bottom mortgage rates should count themselves extremely lucky.
First-timers accounted for just 26% of all buyers in the year ending in June, the lowest level since the National Association of Realtors started measuring it in 1976, according to a report released on Thursday.
“They have to save while paying more for rent, as well as student debt, child care and other expenses,” said Jessica Lautz, NAR’s vice president of demographics and behavioral insights. This year was marked by increasing home prices and rising mortgage rates.
Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s regime of interest rate hikes. The Fed raised the interest rates by another 75 basis point last week, the sixth hike of this year and the fourth in a row.
Land use and housing production policies made it hard to add more homes in desirable locations, argues Jenny Schuetz, an urban economist.
Rather than rebuilding within existing neighborhoods, housing supply has expanded through “sprawling single-family subdivisions at the urban fringe.” That’s putting more people and homes in environmentally vulnerable areas, such as wildfire-prone regions of the West.
As affordability reaches crisis levels, now is a good time for federal and local governments to rethink the way we frame the American Dream. But that will only happen if those who stand to benefit — Millennials and Gen Z — are better represented in elected office. As Schuetz argues, the upper-middle class Boomers in power now are, understandably, reluctant to change the system that got them where they are.
Wall Stability in a Fed-dominated Market: The Implications of Wall Street Bubbles and Inflationary Cycles for Cryptocurrencies
Hot on the heels of the Fed’s fourth-straight 0.75 percentage point rate hike, the Bank of England followed suit Thursday, raising its own key interest rate by the same amount — its biggest hike in 33 years. The European Central Bank did the same thing last week.
(Side note: “Basis points” are how central bankers talk about rate moves, which usually happen in tiny increments. One basis point = one-tenth of a percentage point.)
That is the kind of news that is worth celebrating in normal times. In the up-is-down economics of 2022, it is a cause of concern as it suggests the economy is overheating. That’s partly why the Fed announced its fourth-straight three-quarter-point hike, the latest in a series of aggressive moves that would have been unthinkable just a few months ago.
“If the Fed doesn’t have to tighten as aggressively, the economy will weaken less, and headwinds for stocks will be smaller,” wrote Bill Adams, chief economist for Comerica Bank in a note.
Stocks surged on Thursday in their best day since 2020 after a key inflation indicator came in softer than expected. As they interpreted the report to mean that peak inflation was behind us, investors dressed up in their party hats. It could mean the Federal Reserve will be less aggressive with rate hikes.
The odds of a rate hike by the Fed in December are 80%, as of Thursday afternoon. It would be a deceleration after four consecutive hikes of three-quarters of a percentage point.
If investors get their hopes up, they are crushed by another piece of Negative data or messaging from a Fed official.
It has been a difficult year for the criptocurrency. The value of Bitcoin has dropped nearly 75% since last November and the spectacular implosion of cryptocurrency exchange FTX, a so-called unicorn startup that was recently valued at $32 billion, is just the latest bit of bad news for investors in digital currencies.
Unfortunately, those assets have gotten hit just like stocks and bonds, proving there really is no place to hide in a market where worries about rate hikes and recession reign supreme.
Bitcoin Price Rises in 2020, and the Cost of a Home Mortgage has Dropped in the Past 8 Months: An Empirical Study by Fannie Mae
The Covid-era saw near-zero interest rates, and a big influx of investors from large-scale institutions. In November it reached a record high of over $70,000.
Then, central banks started raising rates to fight inflation, and the dollar strengthened significantly, seducing investors as the ultimate safe haven. At the same time, the economy began to sour and those new investors who still viewed bitcoin as a risky asset exited in droves.
Just look at bitcoin prices since the summer of 2020. They’re up more than 80%…even though it has been far from a smooth ride. The July 2020 levels of the index are about 1% higher than the July 2020 levels of the index.
Because of this drastic change in the cost to finance a home, sales have dropped for eight months running, according to the National Association of Realtors. A survey from Fannie Mae showed that only 16% of people think this is a good time to buy a home, a record low.