Mary Daly thinks more hikes would be beneficial

Claire Peterson on March 6, 2023

Mary Daly – This year has been overshadowed by a succession of upheavals, but the impacts of inflation may still be felt today.

While it has fallen slightly, the Federal Reserve is on track to raise interest rates to address the underlying concern.

The necessity of another rate increase was also emphasized by Mary Daly, President of the San Francisco Fed.

The news

On Saturday, Mary Daly proposed that the Federal Reserve not only raise but also maintain interest rates at their present levels.

She said that doing so would allow them to deal with inflation-related pricing increases.

“There is more work to do,” said Daly at Princeton University.

“In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”

“Restoring price stability is our mandate, and it is what the American people expect. So, the FOMIC remains resolute in achieving this goal.”

Mary Daly also admitted that excessive inflation and the Fed’s aggressive rate rises to reduce prices scared both Main Street and Wall Street.

“The responses range from fearing these actions will tip the economy into a recession to fearing they won’t be enough to get the job done.”

The revelation of new economic data caused significant market volatility, as uncertainty motivates investors to seek immediate solutions.

Nonetheless, Daly believes that reaching the stated aim would take time and “a broader view.”

But still, Mary Daly noted that, given the volume and duration of high inflation readings, the Fed’s current tightening strategy was (and continues to be) reasonable.

Daly also puts into doubt the disinflationary trend, citing high inflation in the products, housing, and associated sectors, as well as solid economic indices.

Mary Daly is a member of the Federal Open Market Committee and attends policy meetings, although she does not vote on Fed policy at the moment.

Federal Reserve warnings

The Federal Reserve expressed similar worries a week before Mary Daly’s address.

Minneapolis Federal Reserve President Neel Kashkari stated last Wednesday that he is open to a larger interest rate rise during the Fed’s March policy meeting.

“Whether it’s 25 or 50 basis points,” said Kashkari.

Similarly, Atlanta Fed President Raphael Bostic suggested that at the next meeting, the Fed’s policy rate should be raised by half a percentage point.

The next day, Fed Governor Christopher suggested that interest rates might climb faster than expected.

He stressed a series of economic data that were stronger than expected.

Interest rate progress

The Federal Reserve has done a lot in the last year to keep inflation under control.

It increased its goal range from close to zero to 4.5% to 4.75%.

After a half-point drop in December, they lowered increases to a quarter-point cut in February.

In 2022, inflation hit a four-decade high, although it began to recede in the last quarter.

Yet, January inflation figures revealed that the rate of price rises was progressively increasing once more.

Gold price

Gold prices have stalled as a result of the fresh concerns.

Prices fell from a two-and-a-half-week high on Monday as traders looked for indications about future rate rises from US Federal Reserve Chair Jerome Powell’s decision.

Spot gold reached a high of $1,858.19 per ounce on February 15, but it is presently down 0.3% at $1,849.33 per ounce.

Similarly, gold futures in the United States climbed little to $1,855.10.

Also, the dollar index rose 0.1%, making greenback-priced bullion more costly for foreign purchasers.

Awaiting testimony

Many people are anticipating Powell’s congressional testimony on Tuesday and Wednesday, followed by the February employment data, which is expected Friday.

“Currently, gold is in a wait-and-see mode,” said UBS analyst Giovanni Staunovo.

“There’s unlikely to be a change of script from Powell, reiterating the need for further rate hikes to bring inflation under control.”

While gold is commonly used as an inflation hedge, increasing interest rates may reduce demand for the zero-yielding metal.

Mary Daly speculated on the likelihood of interest rates rising (and staying there) if Saturday’s report is hotter than predicted.

According to Reuters technical expert Wang Tao, current gold prices may increase further into the $1,867 to $1,876 per ounce range if resistance at $1,853 is broken.

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Mortgage applications advance as interest rates decline

Jason Robinson on December 15, 2022

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As homeowners and prospective buyers look for cheaper mortgage rates, the number of mortgage applications has been steadily declining for several months.

Changes

The Mortgage Bankers Association’s seasonally adjusted index shows that applications rose 3.2% over the prior week.

The 30-year fixed-rate conforming mortgage average contract interest rate increased by 0.1 percentage point last week, reaching 6.42%.

The points for loans requiring a 20% down payment consequently increased from 0.63 to 0.64.

Since last month, rates have been declining as a result of official claims that inflation is falling.

Tuesday interest rates

Interest rates dropped as a result of the announcement of the November consumer price index on Tuesday.

According to Mortgage News Daily, the average rate for a 30-year fixed mortgage has dropped to 6.28%.

The rate is currently at its lowest since the middle of September.

The fall has been timed to coincide with a lower-than-expected report on the consumer price index for November.

Investors flocked to US Treasury bonds once the study was published, which reduced yields.

Bond market

“The second consecutive month of reassuring CPI data continues to build a case that inflation has turned a corner,” said Mortgage News Daily CEO Matthew Graham on Tuesday.

“But rates will be careful about reading too much into that potential shift given the volatility of the data in recent months.”

“The bond market will also want to see what the Fed does with this info in tomorrow’s updated Fed rate forecasts in the dot plot.

Rate movement

Beginning in January 2022, mortgage rates increased quickly throughout the spring and summer.

By the end of October, the 30-year-fixed rate had jumped from 3% to almost 7%.

According to the National Association of Realtors, existing home sales have fallen for nine consecutive months and decreased by 24% in October compared to the same month last year.

However, rates significantly decreased in November due to a weaker inflation signal from the October CPI.

In the end, the rate for November came to 6.63%.

Cautiously, some people said the lower costs would make people want to revisit the market.

The temporary August rate drop was announced by Doug Yearley, CEO of luxury homebuilder Toll Brothers, during the call with investors to discuss the company’s quarterly results.

“There are some very very modest green shoots over the last few weeks, as rates have come down,” said Yearley.

“But I am not ready to get sucked back into the conversation we had in August when we felt better.”

Demand

Redfin, a real estate website, reports that in November, homebuyers’ desires started to rise.

The firm’s demand index grew 1.5% from the previous month.

However, it was also down 20% from the same time last year over the four weeks that ended on November 27.

“There have been a handful of pieces of relatively good news for the housing market lately, but we’re far from out of the woods,” said Taylor Marr, the deputy chief economist for Redfin.

“Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release that comes out related to the Fed’s path to eventually bringing rates down.”

Rate locks

Consumers did not lock in higher mortgage rates due to optimism, a standard indicator of future home sales.

Black Knight, a provider of mortgage technology and data, observes a 22% decline in rate locking from October to November.

Additionally, this year saw a 48% decrease in rate locking compared to last year.

“It’s still extremely unaffordable even with rates coming down, even with prices coming down in each of the last four months,” said Andrew Walden, the vice president at Black Knight.

“We’re still less affordable than when we were at the peak of the market in 2006, and you’re seeing that play out in the rate lock numbers.”

Walden highlights that inventory is still 40% below ideal levels despite homebuilders’ ongoing exodus and the scarcity of eager sellers.

Even if prices and rates have decreased, they are still significantly higher than they need to be when compared to wages that, historically speaking, make housing accessible.

“As we move throughout 2023, you’re going to see prices continue to soften. You’re going to see incomes hopefully continue to grow and eat up some of that gap,” said Walden.

“I think, likely, we are going to see rates come down from where they are today, but it’s going to take an extended period of time to get there.”

Mortgage applications

Last week, 3% more mortgage applications for refinancing home loans were submitted.

They were still 85% lower than they had been the previous week despite this.

The rate decline from a high of nearly 7% in October broadened the tiny group of prospective borrowers who might benefit from a refinance.

The overall number of applications to buy a house for the week was 4% more than the week prior and 38% lower than in 2021.

The annual comparison is currently decreasing as rates fall.

MBA economist Joel Kan said the following in a press release:

“The ongoing moderation in home-price growth, along with further declines in mortgage rates, may encourage more buyers to return to the market in the coming months.”

Rates and demand

Mortgages with adjustable rates are now available due to the decline in demand brought on by lower interest rates.

Applications for ARMs dropped from 13% in October to 7.7% last week.

ARMs involve greater risk despite having lower rates because, after their fixed maturities, they return to the prevailing market rate.

Mortgage rates decreased after the release of the CPI statistics on Tuesday, but they can increase again after the Federal Reserve publishes its most recent interest rate change on Wednesday.

“A friendly enough Fed could easily break the range, but we have our doubts as to how much fuel the Fed will want to add to the fire,” said Mortgage News Daily chief operating officer Matthew Graham.

“If anything, the Fed is more likely to try to temper the exuberance because the exuberance is counterproductive to the Fed’s goals.”

References:

Mortgage rates drop after CPI report, but the housing market is far from out of the woods

Mortgage demand inches higher as interest rates move lower

Bank of America predicts high unemployment rate in 2023

Edward Anderson on October 13, 2022

Efforts to curb inflation have prompted the Federal Reserve to act, but the Bank of America warns that this could lead to mass unemployment.

Bank of America noted the Fed’s aggressive rate hikes and said the US economy will lose tens of thousands of jobs each month early into 2023.

While September showed a strong job market, the Fed is doing everything it can to turn things around by raising interest rates.

Aggressive interest increases will therefore lead to a decrease in the demand for cars, homes, and household appliances.

Inflation pressure

The Fed’s fight against inflation is adding pressure, which means nonfarm payrolls will begin to decline in early 2023.

As a result, Bank of America said more than 175,000 jobs were lost each month in the first quarter of the year.

The bank’s charts suggest there will be job losses for the majority of 2023.

“The premise is a harder landing than a softer one,” said Michael Gapen, the head of US economics at Bank of America.

Ideally, the Fed would have dampened the labor market enough to bring inflation back to healthy levels without causing significant and permanent job losses.

However, Bank of America does not believe the Fed will make such a decision.

“We are looking for a recession to begin in the first half of next year,” Gapen said.

Unemployment peak

Friday’s jobs report showed the United States added more than 263,000 jobs in September despite the market slowdown.

It brought the unemployment rate down to 3.5%, the lowest level since 1969.

However, Gapen expects unemployment to rise between 5% and 5.5% next year.

Meanwhile, the Fed forecasts an unemployment rate of 4.4% in 2023.

The US Federal Reserve is raising interest rates at the fastest rate in four decades to curb inflation.

Fed officials said they were in no rush to exit inflation-fighting mode to help the economy avoid a slowdown or recession.

“They’ll accept some weakness in labor markets in order to bring inflation down,” said Gapen.

Fed officials say interest rates need to remain at “restrictive” levels for some time.

Gapen said that while recessions have “quick snapbacks,” the Fed’s stance on keeping interest rates high for an extended period suggests the situation is protracted.

“We could see six months of weakness in the labor market,” he said.

Recession

Meanwhile, some forecasters are optimistic about the state of the job market.

On Monday, the Conference Board announced that the September Employment Trend Index had been ticked.

The index is a combination of leading labor market indicators.

They said that this meant employment growth in the coming months, but that employment growth would likely slow from its recent pace.

On the bright side, however, people calling for a recession won’t see unemployment rise like in 2008 or 2020.

Bank of America expects the unemployment rate to peak at 5.5% in 2023, after peaking at nearly 15% in 2020.

“Although nobody wants to be callous about someone losing their job, this could be classified as a mild recession,” said Gapen.

Reference:

US economy will soon start losing 175,000 jobs a month, Bank of America warns

Federal Reserve hits fifth interest rate hike this year

Leah Cooper on September 26, 2022

On Wednesday, the Federal Reserve approved a third consecutive 75 basis point hike to curb inflation plaguing the US economy.

The benchmark

The rise was considered unfathomable by the markets months earlier.

However, it raised the central bank’s benchmark rate to new highs with a target range of 3% to 3.25%.

The latest increase makes it the highest official rate since the 2008 global financial crisis.

Wednesday’s decision is the Fed’s toughest policy move since the 1980 decision, which also aimed to tackle inflation.

Rising rates are likely to cause economic hardship for millions of US businesses and households by increasing the cost of home, automobile, and credit card loans.

Economic pain

Jerome Powell, the chairman of the Federal Reserve, acknowledged the economic pain the rapidly tightening regime could cause.

A press conference was held on Wednesday afternoon following the announcement of the central bank’s monetary policy following a two-day monetary policy meeting.

“No one knows whether this process will lead to a recession or, if so, how significant that recession would be,” said Powell.

The Fed also released an updated summary of its economic plans, reflecting the pain.

Growth prospects

The quarterly report showed a less optimistic outlook for economic growth and the labor market.

The median unemployment rate rose to 4.4% through 2023, higher than the 3.9% originally forecast by Fed officials in June.

It is also well above the current rate (3.7%).

The main measure of economic output in the United States, GDP, was revised down from 1.7% to 0.2% in June.

The numbers are lower than analysts’ estimates, as Bank of America economists initially expected GDP to be revised down to 0.7%.

Inflation forecasts

Meanwhile, inflation expectations have also increased.

The Fed’s SEP showed that main personal consumption expenditure is expected to reach 4.5% this year and 3.1% next year.

The figures are higher than the June forecast of 4.3% and 2.7% respectively.

The Fed Funds Rate Projection is the most important element for investors looking for a Fed forecast.

It outlines what officials say is the right political path for future rate hikes.

Figures released Wednesday show the Federal Reserve expects interest rates to remain high for years.

The median projection for the federal funds rate was also revised from 3.4% to 4.4% in June.

This number is expected to rise from 3.8% to 4.6% next year.

The interest rate forecast has also been revised from 3.4% to 3.9% for June 2024 and is expected to remain high at 2.9% in 2025.

Overall, the new projections show a growing risk of a hard landing – monetary policy should tighten ahead of a possible recession.

Projections also show that the Fed is willing to bear certain difficulties in economic conditions in order to reduce ongoing inflation.

According to Moody’s Analytics, higher prices would mean consumers spent about $460 per month on groceries last year.

However, the labor market and consumer spending are strong areas.

In many places, it appears that real estate prices are still high despite high mortgage rates.

The government may believe the economy can continue to support aggressive rate hikes.

Reference:

Fed goes big again with third-straight three-quarter-point rate hike