Navigating the Economic Currents: Insights and Outlook - Week of August 21, 2023

Week of August 21, 2023 in Review

As the summer draws to a close, critical market insights are shaping the trajectory of the economy. From Fed Chair Jerome Powell's words on rate hikes to the prevailing challenges in the housing market, here's a comprehensive overview of the week's top stories:

Are Further Fed Rate Hikes Ahead?

Fed Chair Jerome Powell's recent speech at the Jackson Hole Symposium offered valuable insights into the Federal Reserve's future decisions. While acknowledging progress in battling inflation, Powell's statements hinted at a continued hawkish approach, aimed at curbing inflation:

• Powell emphasized that despite the decline in inflation from its peak, it remains too high. The Fed is prepared to raise rates further if needed, maintaining a restrictive policy until sustainable inflation reduction is achieved.

• The recent series of Fed rate hikes, aimed at taming inflation, might continue based on evolving data and economic outlook.

What’s the bottom line? Powell's remarks signal a cautious approach to rate hikes, balancing economic growth with inflation control. The Fed's attention to labor market dynamics and its impact on inflation remains a key factor in policy decisions.

Existing Home Sales Constrained by Low Inventory

The housing sector continues to grapple with supply constraints, impacting existing home sales:

• Sales Decline: Existing home sales dropped by 2.2% from June to July, reaching an annualized pace of 4.07 million units.

• Low Inventory: While inventory levels increased slightly, housing supply remains significantly below the norm, with just 3.3 months' worth of inventory available. Many listed homes are already under contract, further tightening the market.

What’s the bottom line? Despite the increase in inventory, the shortage of available homes for sale continues to limit sales activity. The fast pace at which correctly priced homes are sold underscores the persistent demand in the market.

New Home Sales Reach 17-Month High

New home sales have surged, reflecting the growing demand for available housing options:

• Sales Surge: New home sales increased by 4.4% from June to July, reaching an annualized pace of 714,000 units, the highest level in 17 months.

• Supply Challenges: While demand for new homes remains robust, the supply of new construction lags behind, with a limited number of completed units compared to those under construction or not started.

What’s the bottom line? The scarcity of both existing and new homes for sale maintains a supportive environment for home prices, making homeownership a sound investment option.

Tame Unemployment Claims

Jobless claims present a mixed but relatively stable picture of the labor market:

• Steady Initial Claims: Initial Jobless Claims fell by 10,000, signaling that layoffs remain subdued and employers are focused on retaining their workforce.

• Continuing Claims: Continuing claims dipped by 9,000, indicating a balance between new job placements and benefits expiration.

What’s the bottom line? The labor market's performance will significantly influence the Fed's upcoming rate hike decision. The trend of moderate jobless claims suggests a measured approach to potential policy changes.

Mortgage Rate Outlook: Expected Stability

Given the current economic landscape and the Federal Reserve's cautious stance, mortgage rates are anticipated to remain relatively stable. Key factors shaping this outlook include:

• Market Dynamics

• Economic Indicators

• Fed Policy

• Supply and Demand

External Links, Resources, and References:

1. Mortgage News Daily: Stay informed about the latest mortgage market trends.

2. Freddie Mac's Primary Mortgage Market Survey: Access weekly mortgage rate data and historical trends.

3. Bankrate: Explore mortgage rate calculators and educational resources.

4. The Federal Reserve: Gain insights into monetary policy and its potential impact on mortgage rates.