Amidst Uncertainty, This Month's Fed Meeting Provided Some Economic Clarity

The Weekly Recap

The Fed held interest rates steady while J. Pow said a March rate cut was highly unlikely. US consumer confidence rises to a two year high, a softer US jobs data report out today could challenge the Fed’s wait and see approach to lowering rates, Punxsutawney Phil didn’t see his shadow so we’re in store for an early Spring and in a sign that we are getting closer to being enslaved and run by robots, Elon Musk’s Neuralink successfully completed its first brain tech implant.

And if you missed last week’s newsletter, here are some tips on how to prepare for your home search as the buying market heats up.

Amidst Uncertainty, This Month’s Fed Meeting Provided Some Economic Clarity

After their January meeting, the Fed left rates unchanged for the fourth time in a row. Stocks took a bit of a hit on Wednesday as the outlook for a policy of rate cuts beginning in March looks tenuous at best. The biggest reason for the lack of commitment to the cut in rates is that Chairman Powell stated the economy is unlikely to hit the level of confidence needed from an inflationary standpoint as the CPI is still above the 2% Fed threshold at 3.1%. But, their preferred inflation gauge, Core PCE (which does not include food and energy components), fell below 3% for the first time in three years. The news is sure to make Treasury Yields tick up which will make mortgage rates a little bit higher in the short term by a tenth of a percentage point or so.

Although markets did not get to rejoice with a clear announcement of imminent rate cuts (a level of clarity that in my experience the Fed has never offered), the fact that rates remained unchanged is great news. It’s even better news that there seems to be more confidence in the economy that the necessity to raise rates again is something that does not need to happen.

The biggest fear from the Fed in lowering rates too quickly comes from taking a page from the 1970’s playbook where record inflation created all sorts of problems for every facet of American life. The Fed wants to see more proof of inflation coming down while trying to time the quantitative easing measures without hampering the economy or reigniting inflation.

Biggest takeaway should be that we are out into the light that was at the end of the tunnel and now we’re just waiting for the clouds to part before we can bask in the glory of the sun, aka, lowering rates.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan.

Mortgage Rate Update

Although affordability continues to impact homeownership, the combination of a solid economy and lower mortgage rates are setting the stage for a more robust housing market. Mortgage rates have been stable for nearly two months, but with continued deceleration in inflation, rates are expected to decline further. The economy continues to outperform due to solid job and income growth, while new construction inventory increasing at pre-pandemic levels. These favorable factors should provide strong fundamental support to the market in the months ahead.

News You Can Use

• Fed’s Preferred Inflation Gauge Falls Below 3% for First Time Since March 2021 Yahoo Finance

• Fed to Hold Interest Rates Steady But Start Considering Cuts Bloomberg

• Fed Chief Jerome Powell Says a March Rate Cut is Not Likely CNBC

• Plummeting Inflation Raises New Risk for Fed: Rising Real Interest Rates Wall Street Journal

• US Jobs Report to Show Slower Hiring Pace After Annual Revisions Bloomberg

• Sen. Elizabeth Warren Pushes Fed Chair Powell to Cut Rates, Ease Housing Pressure CNBC

• US Consumer Confidence Rise to Two-Year High in January Yahoo Finance

• The Real-Estate Downturn Comes for America’s Premier Office Towers Wall Street Journal

The Deep Insight

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