Help by the Beatles!

By
Real Estate Broker/Owner with Hamm Homes
 
 

A Look Into the Markets

 

This week, Fed Chair Jerome Powell spoke, and interest rates touched the lowest level in almost 3 months. Let's discuss what happened and look into the week ahead.

"Help me get my feet back on the ground, Won't you please, please help me" - Help by The Beatles

"Time To Moderate Pace of Rate Hikes May Come as Soon as December Meeting" - Fed Chair Powell Nov 30, 2022.

On Wednesday, November 30th, the anniversary of the Fed flip-flopping on inflation and telling us they were wrong about its high nature, Powell delivered the most "dovish" speech in a year.

The quote above is the one that really sent the markets soaring, as it confirms the Federal Reserve will lower the size of rate hikes going forward.

Since June, The Fed has raised the Fed Funds Rate by .75% four times. Now the markets are pricing in a smaller .50% rate hike at the Fed meeting in two weeks.

"Growth in Economic Activity has Slowed to Well Below Longer-Run Trend, and This Needs to be Sustained" - Powell.

This quote highlights the Fed's desire to slow demand and thereby lower inflation/prices. Many critics of the Federal Reserve have been saying the Fed needs to slow down the size of rate hikes for this very reason as the economy has materially slowed down. And, the Fed is going to have raised rates by 3.50% in the back half of 2022...none of which has impacted the economy. There is a lag of anywhere from 6 to 9 months for rate hikes to make an impact on the economy, so seeing the Fed acknowledge that conditions have slowed is seen as further confirmation to slow the size of rate hikes.

"The Federal Reserve has been pretty aggressive already with its interest rate hikes and won't try to crash the economy with further sharp increases just to get inflation under control faster" - Powell.

This quote came from the question-and-answer session and confirms what market conditions are saying. We have seen inflation peak and we must direct our attention toward not putting the economy into a deep recession through overly strict monetary policy.

Remember, long-term rates only go higher if the economy can absorb the Fed rate hikes. Watching the 10-yr Note fall from 4.30% to 3.57% over the course of the last month tells us long-term rates are sensing the economy can't absorb much more Fed rate hikes without going into a recession.

Consumer Inflation May Have Peaked

On Thursday, the Core Personal Consumption Expenditure (PCE) Index for October came in lower than expectations and lower than September. With the economy slowing as the Fed Chair acknowledged, we should expect lower inflation readings going forward.

Bottom line: Home loan rates have improved a bit. With more inventory coming to market and many sellers eager to make deals, now could be a great time to consider taking advantage of the opportunities in housing.

Looking Ahead

Next week the economic calendar is a little lighter, with only some medium impact reports set to be released. Additionally, the Federal Reserve members are in the quiet period where they do not speak one week prior to the next Fed Meeting. This all leads to the next Fed Meeting on Dec 13-14, where it is now widely expected the Fed will raise the Fed Funds Rate by .50% to a range of 4.25 to 4.50%.

Comments (8)

Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Hello Will... unfortunately the Fed, still under Yellin, helped get us in this pickle. I don't think they have a clue what they are doing and if rates are down somewhat it has to do with lack of demand and any improvement is not something the Fed can take credit for.

Dec 05, 2022 12:16 PM
Andrea Bedard
Thompson Company, REALTORS® 240.593.2860 - Silver Spring, MD
Fluent in Real Estate & German, M.A. ABR ASP CIPS

I have a few buyers who breathed a cautious sigh of relief, Will. Our inventory is still extremely low, so any increase in purchasing power is welcomed! 

Dec 05, 2022 01:36 PM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good evening Will,

I agree with Nina Hollander, Broker ,

I don't think they have a clue what they are doing and if rates are down somewhat it has to do with lack of demand and any improvement is not something the Fed can take credit for! 

Dec 05, 2022 03:57 PM
Wanda Kubat-Nerdin - Wanda Can!
Red Rock Real Estate (435) 632-9374 - St. George, UT
St. George Utah Area Residential Sales Agent

Unfortunately, the decisions the Feds are making impact them little to none but the buying consumer is burdened with that higher rate and many just cannot afford it! Hoping for better news in 2023, definitely not holding my breath.

Dec 05, 2022 06:05 PM
Jana Holmstrup
Jana Holmstrup - CCO - Kings Mortgage Services, Inc. - Visalia, CA

Remember, he said "rates only go higher if economy can absorb it" = lack of demand.

I agree they will start slowing the pace of rate hikes as the comps are higher, resulting in a lower CPI.  Really needs to get energy prices under control, it affects everything.

Dec 05, 2022 07:20 PM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Hi Will - it certainly is a roller coaster.  Markets don't like uncertainty.

Dec 06, 2022 03:53 AM
Ray Henson
eXp Realty of California, Inc. (lic. #01878277) - Elk Grove, CA
Realtor

I fear Powell and the Fed have already gone too far.  I wish they would show as much caution with rates going up as they did when they were reducing rates.  It seems as though they panicked after misreading the inflation numbers for so long.

Dec 06, 2022 06:23 AM
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

I am working with a couple of buyers who are glad the rates came down "ever so slightly" but enough that it made a difference on their final outcomes.  Not holding my breath to see what happens in 2023.

Dec 07, 2022 06:27 PM