Danielle was a guest with Jim Goddard on Talk Digitial Network, talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.
A world of bullish commentators asserts that Fed pauses are positive, even though the worst economic and stock market downturns have always come after the Federal Reserve stops tightening.
After ten consecutive rate increases and the sharpest rate of change since 1980–yesterday, Fed Chair Powell announced a “skip” with ongoing quantitative tightening (QT) and possibly further hikes in 2023. When asked about rate cuts, Powell said they would likely be “a couple of years out.”
Forecasts are hard and it’s worth remembering that historically, the Fed’s been wrong on its rate predictions 2/3rds of the time. But even if no further hikes happen, the rate “skip” and ongoing QT is not bullish; not easing for two years would be the harshest monetary medicine in decades.
Longer-term, an extended cleansing out of speculative behaviours, zombie debtors and irrationally high asset prices will set up a secular period of rising productivity and prosperity, unlike anything we have seen since 1982. In the meantime, however, the pain is set to be plentiful as increasing unemployment and insolvency test the Fed’s resolve. The discussion in the clips below is worth a listen.
Danielle DiMartino Booth, CEO and Chief Strategist at QI Research, returns to Forward Guidance to share her views on the Federal Reserve’s decision to pause its hiking of interest rates. Filmed on June 14, 2023, after Fed Chair Jay Powell’s press conference for the June meeting of the Federal Open Market Committee (FOMC). Here is a direct video link.
Fed: GDP for 2023 is at 1%, Projecting 2 Additional Rate Hikes, DiMartino Booth Joins #charlespayne of #foxbusiness. Here is a direct video link.
Shelter costs account for a whopping one-third of the US consumer price index (CPI). Ex-shelter, the other two-thirds of CPI components deflated 0.1% month over month in May and were a tame +2.1% year-over-year (close to the official 2% CPI target).
Higher home and rent prices were significant factors in spiking inflation between 2020 and 2023. But high prices and rising interest rates started to weaken housing demand in the second half of 2022, as people moved in with family/other roommates and relocated to cheaper locations. Mean reversion is now underway.
Underlying data collected by the Labor Department suggests shelter inflation will fall toward zero in the months ahead. This will help central banks stop tightening and eventually bring much-needed price relief to the masses. For many landlords, though, the trends are not so rosy. Forty-eight of the 100 largest U.S. cities saw negative year-over-year rent growth for new leases in May (Apartment List data). See, Renters are about to get the upper hand:
A year-long drop in rent would be a potential problem for the many investors who took out large loans to buy buildings where they thought they would be able to keep raising rents. They are facing a softer market, falling property values and interest rates that have roughly doubled from early last year.
One of the rent measures, from real-estate brokerage Redfin, already shows asking rents turning negative with a decline of 0.6% in May, compared with the same month last year. The data includes both apartments and single-family rental homes, Redfin said.
Cory’s Chart Corner
