The Economy is Great, Inflation is Down, Confidence is Up... So, When Will Rates Drop?

The Weekly Recap

Happy Barbenheimer weekend everyone! Fed Governor says he still expects two more rate hikes this year, banks started reporting their Q2 earnings, speaking of, the biggest competition to big banks now is not each other but private equity firms, Goldman Sachs cuts the probability of US recession in the next 12 months and Morgan Stanley thinks the slow deal flow has hit bottom. Blackstone is about to be the first PE firm to manage $1 trillion in assets. Only 1% of US homes have changed hands in 2023 but the housing recession has showed that it’s already over and Senators in the US are looking to ban lawmakers from trading stocks since it’s super strange that Nancy Pelosi outperforms Warren Buffett sometimes.

The Economy is Great, Inflation is Down, Confidence is Up... So, When Will Rates Drop?

By almost every metric that economists use to decipher the direction in which the economy is heading, we’re seeing a myriad of positive indicators that we are heading towards a more dovish monetary policy as slowing inflationary pressures are throwing out the concept of a hard landing a.k.a the Fed tipping us into a recession with rate hikes.

The below CPI chart shows just how quickly we’ve been able to cut the inflationary pressures from over 8% to 3% in such a short time. John Hopkins Economist Steve Hanke believes that regardless of what the Fed says about the US being in a sticky situation, that the “US no longer has an inflation problem.” Mainly because money supply has contracted due to all the quantitative tightening efforts (raising rates) by the Fed.

Well if we don’t have an inflation problem, let’s drop those rates! Not so fast unfortunately. We’ve seen a slight decrease in mortgage rates week over week but traders are betting that there is a 92.4% that in its July meeting, the Fed will raise rates again according to the CME FedWatch.

Goldman Sachs has reduced the probability that the US sees a recession in the next 12 months from 25% to 20% as consumer spending and confidence are up, stocks are booming (as of this writing the Dow is up for the 9th day in a row), individual investors are bullish, retail sales continue to rise and coming off the heels of some incredible Q2 earnings reports from banks, its a near universal macroeconomic sentiment that the nation might avoid a recession altogether.

The Fed normally likes to see a track record of stable data points before reversing course but the light at the end of that tunnel keeps getting bigger and brighter. Even with the higher rate environment, more evidence is being seen that the housing recession has already happened. The recession occurring not necessarily due to affordability issues, but because inventory rates have been so low. Builder confidence continues to increase month over month.

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. This is the first time in over a year where Urban Digs has classified the NYC market as a Sellers market.

Mortgage Rate Update

As inflation slows, mortgage rates decreased this week. Still, the ongoing shortage of previously owned homes for sale has been a detriment to homebuyers looking to take advantage of declining rates. On the other hand, homebuilders have an edge in today’s market, and incoming data shows that homebuilder sentiment continues to rise.

News You Can Use

• John Hopkins Economist Says Inflation is History CNBC

• Yellen Sees Disinflation Pressures at Work as Hiring Surge Fades Bloomberg

• Housing’s Recession Already Happened Wall Street Journal

• Goldman Sachs Cuts Probability of US Recession in Next 12 Months Reuters

• Americans Haven’t Felt This Good About the Economy in Almost Two Years Yahoo Finance

• Retail Sales Rose in June as Inflation Eased Wall Street Journal

• The Economy is Officially Doing Better Than We Thought Axios

• Only 1% of US Homes Have Changed Hands So Far This Year Bloomberg

• US Consumer Sentiment Near Two-Year High in July Reuters

• Bank CEO’s on Soft Landing Prospects Axios

• On Wall Street, These are Unprecedented Times CNN

• US Banks Warn Stricter Capital Rules Will Raise Prices Reuters

• The Stock Market is Up Big This Year, But Not Because of Earnings Growth Axios

• Investors are Feeling Bold Again Wall Street Journal

• Blackstone Reaches Record $1 Trillion In Assets Reuters

• NY Fed Report Fins Americans Increasingly Facing Borrowing Headwinds Reuters

• Private Equity Titans Tap Sovereign Wealth to Get Deals Done Bloomberg

• Renters are Getting Squeezed Axios

• Senators to Propose Ban on US Lawmakers, Executive Branch Members Owning Stock Wall Street Journal

• Barbenheimer Opening Weekend Could Top $200 Million CNBC

The Deep Insight

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