No Pivot, No Rate Cuts – Fed to pause or raise rates Fall 2023…They already told us this!

Mortgage rates were up last week. This is sorta par for the course right now as bond traders, investors, Central banks and governments grapple with inflation, the reality that monetary policy may have to remain in place for longer than they initially intended, and remain at elevated levels. It’s become abundantly clear that there are no rate cuts on the horizon and if there’s another pause it’s not totally because everything is turning the right direction swiftly. It took us a long time to get here, so it’s gonna take us a long time to get out of this. It’s creating the perfect storm of trying to fix a problem on this side while allowing certain problems on the other. And right now mortgage rates are in for some continued pain in the weeks and months ahead, because they’re on the side of things that are semi-sacrificed while we battle the inflation headwinds.

As we near the end of summer and turn our focus into the fall, housing data and statistics aren’t historically on the side of a super strong real estate market in the months coming up. In fact, one recent report from Altos research revealed that available inventory in 2023 is the second worst it’s been in the last 6 years, only second place to 2021, when most of the nation was still hunkered down trying to avoid moving by all means necessary. So this chart of available inventory signals that we are in for fewer existing homes hitting the market this fall, which then means values are most likely to stick right where they’re at. And with no substantial mortgage rate correction to the downside, it could be choppy waters for some communities. Buyers who are serious will still be able to find a desirable place, but it will be their persistence and grit that gets them into a home, not just their qualifications.

Remember the Philly Fed Manufacturing Index I told you about last week and how it could come in with its 12th consecutive month in the negative?  Well to most people’s surprise it came in with a positive +12 reading, which was nice to see. Not only did it break it’s 11-month streak in the negative, but the distance from the previous months reading of -13.5 to +12 marks a pretty health resurgence. But wait, you know what surprised on the ugly end of the news last week? The Empire State Manufacturing index, which missed by a Lot! It missed BIG TIME! The expectation was -0.9 reading, and it was -19. So now we have BOTH of these to look at to forecast the health of manufacturing as it relates to overall economic health, productivity, and GDP – which all weigh in on the data the Fed’s watching leading up to their next meeting in September.

And about those FOMC meeting minutes that came out last week. In summary, the Fed is still worried about an upside risk to inflation and that a failure for inflation to recede is possible. This goes hand in hand with the revelation that only a few fed members admit they see an end to tightening. So here we go again, all the market speculation about a Pivot, an end to the Fed raising rates, and possible rate cut by the end of 2023 are ALL out the window. By the way, if you’re new to this show, we TOLD you this. Months ago the Fed signaled on their own charts that they don’t envision rate cuts until 2024 at the earliest. So please don’t act surprised that numerous Fed members aren’t on board with what the TV market analysts are calling for…that’s just a case of the tail trying to wag the dog.

So with that, let’s take a quick look at what’s coming up in the markets this week.

Monday: There’s no data coming out

Tuesday: The BRICS Summit begins, For those of you who have had your eyes on the emergence of a new joint currency, it’s actually been underway for well over a decade, but only recently begun to get more attention as it’s making some people fear that it will make a move against the dollar even harder than it is already this early on in it’s lifespan. We also have 3 Fed members speaking ahead of the annual 3-day Jackson hole symposium that begins later this week.

Wednesday: Flash Manufacturing & Flash Servies come out, along with New Home Sales. I’m personally hoping for healthy signs out of all these reports – we could honestly use more good news as often as we can get it.

Thursday: Unemployment claims will be released, another Fed member speaks, and the 3-day Jackson Hole Symposium kicks off

Friday: 2 more Fed members speak, Revised Consumer sentiment is released, and Fed king Jerome Powell will speak about the economic outlook from the Jackson Hole Symposium.

This week is wall to wall jam packed with data the Fed needs and WE NEED to gauge the pulse of what to expect leading up to the September Fed meeting.

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