Inflation and Fed day: A crucial moment for the housing market

By Housing News

Today’s
double
event
of
the

CPI
inflation
report

and
the

Fed
meeting

gave
us
something
that
I
have
been
waiting
for:
a
hint
from
Fed
Chairman
Jay
Powell
that
the
labor
market
has
softened.
Today
he
acknowledged
what
I
have
been
talking
about
for
months:
the
Fed’s
key
data
lines
are
at
pre-COVID-19
levels
today.

Before
the
Fed
held
its
press
conference,
we
got
a
softer-than-anticipated
CPI
report,
which
sent
the
10-year
yield
(and

mortgage
rates
)
lower
at
first.
Then,
the
Fed
announced
its
policy
and
bond
yields
headed
higher
as
Powell
spoke.
However,
the
10-year
yield
finished
the
day
lower.
We
have
had
some
wild
moves
on
key
data
lines
lately,
but
we
have
itchy
fingers
from
crowded
trades,
as
shown
in
the
10-year
yield
below.

The
ten-year
yield,
vital
for
mortgage
rates,
closed
at
a
critical
technical
level
today.
However,
we
must
remain
vigilant,
as
we
need
to
see
softer
economic
data
or
a
much
softer
PPI
inflation
print
tomorrow
morning
to
confirm
this
trend.

The
PPI
inflation
report
is
critical
because
it
filters
more
into
the
PCE
inflation
report
later
in
the
month,
and
that
is
the
Fed’s
preferred
inflation
data
to
track.
As
you
can
see
below,
we
are
again
at
this
crucial
level
for
the
10-year
yield,
so
we
shall
see
if
this
breaks
lower.

We
discuss
Fed
day
in
more
detail
on
the

HousingWire
Daily

podcast
that
drops
tomorrow
morning,
but
let’s
first
look
at
today’s
inflation
report
because
the
CPI
inflation
report
was
a
big
surprise
today.

From


BLS
:

The
Consumer
Price
Index
for
All
Urban
Consumers
(CPI-U)
was
unchanged
in
May
on
a
seasonally
adjusted
basis
after
rising
0.3
percent
in
April,
the
U.S.
Bureau
of
Labor
Statistics
reported
today.
Over
the
last
12
months,
the
all
items
index
increased
3.3
percent
before
seasonal
adjustment.

The
month-to-month

inflation

data
shocked
bond
traders,
hence
the
big
waterfall
dive
with
the
10-year
yield
right
after
the
report.
It
wasn’t
like
rent
inflation
drove
this
lower
either

the
shelter
inflation
grew
monthly,
but
other
inflation
data
came
in
lower
than
anticipated.
As
you
can
see
in
the
chart
below,
we
have
made
some
good
progress
on
the
year-over-year
inflation
data
heading
lower. 

However,
going
out
for
the
second
half
of
the
year,
the
base
effects
of
the
CPI
data
means
it
will
be
harder
for
these
year-over-year
gains
to
show
progress.
This
is
one
thing
Jay
Powell
discussed,
which
is
a
huge
deal.
This
means
the
Fed
will
be
more
focused
on
the
month-to-month
data
reports,
as
they
should
be,
going
out
for
the
rest
of
the
year. 

The
big
takeaway
from
the
Fed
meeting
is
that
although
they
talked
about
the
inflation
data
being
good,
the
key
talking
point
wasn’t
about
inflation
at
all

it
was
about
the
labor
market.

The
Fed
believes
the
labor
market
data
is
back
to
balance
enough
to
publicly
say
we
are
at
levels
we
had
before
COVID-19.
This
is
very
big,
as
I
feared
Powell
would
wait
for
the
job
openings
data
to
get
back
toward
7
million
or
the
wage
growth
data
to
get
back
to
3%
before
he
said
this.
The
fact
that
he
made
this
public
is
enormous.

So,
what
do
we
make
of
today’s
double
event?
The
inflation
data
was
cooler
than
expected,
but
that
won’t
move
the
needle
for
Fed
rate
cuts.
However,
Powell’s
labor
talking
points
are
a
big
deal.
I
recently
talked
about
this
on
the

podcast
covering
all
the
reports
on
jobs
week
.

The
fact
that
the
Fed
is
open
to
talking
about
labor
supply
data
being
balanced
means
they
know
that
the
labor
market
is
softening.
If
we
see
labor
data
breaking,
they
will
find
the
cover
needed
to
cut
rates
without
worrying
so
much
about
inflation
because
they
will
be
back
to
a
dual
mandate
Fed.
On
the
mortgage
rate
side,
this
means
mortgage
rates
can
go
lower
and
stay
lower
when
the
labor
data
gets
weaker.

I
see
this
as
a
sea
change
because
one
concern
I
had
was
the
Fed
would
wait
too
long
before
admitting
that
the
labor
market
is
back
to
pre-COVID-19
trend
data.
It
has
been
at
that
level
for
months
now,
so
better
late
than
never!
As
Powell
said
today:
the
best
thing
we
can
do
for
housing
is
get
inflation
lower
so
we
can
cut
rates.
My
argument
has
been
that
the
labor
data
will
dictate
this
and
today,
we
can
finally
see
the
path
to
a
Fed
pivot,
but
it
does
require
the
labor
market
getting
weaker.

 

Leave a Reply

Your email address will not be published.