Understanding This Weeks Economic News and Fed Rate Decision

The Weekly Recap

Good Morning! It was a big week for economic data as the May jobs report, consumer price inflation reports and the Federal Reserve’s latest interest rate decision all came to light. Inflation slowed for the second straight month. Mortgage rates fell again this week. Manhattan apartment rents dropped even as leasing activity picked up, Apple overtook Microsoft for just a moment as the worlds most valuable company coming off the heels of Apple’s announced integration with OpenAI and orange juice is getting really expensive.

Understanding This Weeks Economic News and Fed Rate Decision

When new lagging economic data enters the marketplace, talking heads and pundits alike try their best impression at being fortune tellers for what that information will mean in the short, medium and long term. Whether its for the overall economy, how the data will shift consumer behavior or how the Federal Reserve will respond with rate cuts and outlook. Here are some key takeaways from the busy news week and how it impacts the real estate market:

Jobs Report- the addition of 272,000 jobs in May shows that workers are still in demand and came in higher than economists had anticipated. Even with the added jobs, unemployment ticked up slightly higher to 4%. These mixed numbers are a good sign for the Federal Reserve as the labor market comes into more of an equilibrium. Data this week also showed that employers are posting fewer jobs.

Consumer Price Index Report- good news coming out of this report is that CPI showed that inflation slowed for the second straight month which is very welcome news. It was a report and data point that was better than almost anybody expected.

Federal Reserve Rate Decision- the biggest news to come from Jerome Powell’s press conference was not that the Fed decided to keep interest rates unchanged but it was in the updated projections that show that policymakers see potentially only one rate cut this year. Back in March of this year, there was talk of as many as four rate cuts. The Fed has continued its hawkish policy with the belief that the economy will continue to see good, but not great inflation data for the rest of the year.

Outlook for Rest of 2024- with European and Canadian central banks lowering rates last week and the US taking a position of higher for longer, we should see the value of the dollar increase over the next 3-6 months. The Fed now believes that by the end of the year, inflation will reach a level of 2.6%, still a tad higher than their 2% target goal. Even with policymakers teasing a single rate cut this year, institutional investors believe that we could still see two rate cuts before the year is out if data keeps trending in the current direction. Prediction market Kalshi says the odds are up to 35% from 21% upon this most recent CPI report with cuts potentially occurring in September and December.

Effect on Real Estate- as better CPI numbers come out and we start to see an equilibrium in the job market, we should see a continued softening of treasury yields which will continue to slowly lower rates. This is the third week in a row the 30-year fixed rate mortgage has lowered due to the direct tie to treasury yields. Once we get that first official 25 bps drop, you can expect buyers who have been idling on the sidelines to come back into the market with a renowned purpose and motivation.

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

Mortgage rates fell again this week as incoming data suggest the economy is cooling to a more sustainable level of growth. Top-line inflation numbers were flat but shelter inflation, which measures rent and homeownership costs, increased showing that housing affordability continues to be an issue for some buyers.

News You Can Use

• Manhattan Apartment Rents Drop Even as Leasing Activity Picks Up Bloomberg

• Powell Says Fed Viewed Upbeat CPI Data as ‘Progress’ Bloomberg

• Fed Holds Rates Steady, Indicates Only One Cut Coming This Year CNBC

• US Inflation Broadly Cools in Encouraging Sign for Fed Officials Bloomberg

• Wholesale Prices Unexpectedly Fall in May CNBC

• Inflation Shows More Signs of Easing As Wholesale Prices Drop for May NY Post

• The Fed Is Winning its Battle Against Inflation. So Why Isn’t it Cutting Rates? CNN

• Homeownership Costs in US Jumped 26% Since Pandemic Began Bloomberg

• Inflation Slows in May, with Consumer Prices Up 3.3% From a Year Ago CNBC

• US Job Market Resembling Pre-Pandemic Environment Reuters

• US Economy Adds 272,000 Jobs in May as Hiring Stays Hot Axios

• Homes for Sale Are Piling Up, Just Not Where the Buyers Are Bloomberg

• Fed’s Higher-for-Longer Stance Hits Firms The Expected Rate Cut Bloomberg

• AI-Powered Apple Overtakes Microsoft as World’s Most Valuable Company Yahoo Finance

• US Household Wealth Soars to New Record As Stocks March Higher Fox Business

• PIMCO Warns of More Regional Bank Failures of Property Pain Bloomberg

• Orange Juice is Expensive Axios

The Deep Insight

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