The Fed knows skyrocketing home prices are a problem, but doesn’t know what to do about it

Condo for sale sign
  • Federal Reserve policymakers have an eye on surging US home prices, meeting minutes showed.
  • Some officials “saw benefits” to tapering mortgage-loan purchases to cool the red-hot market.
  • While members chose to hold policy steady, the minutes signal the Fed may want to curb home-price inflation.
  • See more stories on Insider’s business page.

Of the various items surging in price through 2021, homes are possibly the most extraordinary.

Price growth is the strongest it’s been in more than 30 years. While demand remains elevated, builders have struggled to bring more supply to market. America’s central bank played at least some role in this incredible price inflation.

The Fed’s emergency policies dragged mortgage rates to record lows and helped spark the sharp increase in homebuying. But as prices climb to dizzying heights, some experts have called on the Fed to rein in its support. Officials at the Fed are tuned in to the problem, minutes from the Federal Open Market Committee’s June meeting showed.

Several of the meeting’s participants “saw benefits to reducing the pace” of the central bank’s purchases of mortgage-backed securities, citing “valuation pressures in housing markets.” They also suggested tapering MBS purchases earlier than Treasury purchases, a move that would counter the Fed’s past signals.

The FOMC meeting ended with policymakers electing to hold rates near zero and keep buying at least $80 billion in Treasurys and $40 billion in MBS each month.

The outlook echoes comments made in recent months by a handful of Fed officials. Dallas Fed President Robert Kaplan said in May that MBS purchases could be having “some unintended consequences” that should be weighed against their benefits.

“We don’t want to get back to the housing bubble game that cost us a lot of distress in the 2000s,” St. Louis Fed President James Bullard said on CNBC in mid-June.

Other FOMC members, however, saw reason to stay the course. Several said synchronized tapering of Treasurys and MBS purchases would be preferable, since that “would be well aligned with the Committee’s previous communications,” the minutes showed. They also noted purchases of both Treasurys and MBS helped the Fed achieve its goal of easing financial conditions.

For the moment, any policy shifts are likely months away. FOMC participants agreed to continue assessing the housing market and discussing plans for eventual tapering. Fed Chair Jerome Powell has repeatedly said that “substantial further progress” toward the Fed’s goals of maximum employment and inflation averaging 2% was required for policy adjustments.

Officials generally agreed in June the threshold hasn’t yet been met, according to the minutes. For now, then, the Fed is set to keep house prices booming. But there’s a crack in their thinking.

Read the original article on Business Insider

US stocks trade mixed as investors await inflation outlook from the Fed

Trader NYSE green

US stocks were mixed Wednesday as investors paused before a key decision by the Federal Reserve coming later in the day.

The Federal Open Market Committee is expected to hold interest rates unchanged and announce no changes to its asset purchases when the decision is released at 2 p.m ET. Robertson Stephens Wealth Management chief economist Jeanette Garretty expects the central bank to continue to avoid announcing a concrete plan to change its bond-buying program.

“This FOMC meeting is likely to be the most important step, signaling to markets that the reduction of QE is conclusively on the discussion agenda, while avoiding any indication of ‘when’ or ‘how,'” she said. “I believe that economic conditions allow, perhaps require, the Fed to scale back QE but I believe that the Fed wishes to still keep this action firmly in ‘maybe’ territory. As such, the wordsmithing of the meeting announcements will be considerable – and tricky.”

Here’s where US indexes stood at the 9:30 a.m. ET open on tk:

The Fed is also expected to speak on the state of the US economy.

“In the last meeting, there was an expression of cautious optimism. In this meeting, I would expect the language to be more one of confirmed optimism, albeit continuing to emphasize the still-large number of unemployed and partially employed and the incomplete vaccination of the population. Investors may be looking for some statement regarding inflation, but I believe the Fed will maintain its viewpoint that current price pressures are transitory,” Garretty added.

Michael Burry is back on Twitter and warning of the biggest market bubble in history. It seems Burry’s concerns only grew during his 10-weak hiatus from Twitter.

Initial public offerings in the US this year have already broken 2020’s record with six months still go in the year. In the first half of this year alone, IPOs have raised $171 billion, surpassing last year’s record $168 billion, with the help of the Federal Reserve’s low interest rate policies.

The low rate environment has also helped the rise of mergers and acquisitions activity, said Goldman Sachs global head of M&A structuring. In a Monday interview, David Dubner he is seeing no signs of stopping for a “superbloom” of M&A activity and separation activity.

West Texas Intermediate crude paused its rally and was down 0.2% to $71.98. Brent crude, oil’s international benchmark, climbed 0.6%, to $74.73 per barrel, at intraday highs.

Gold climbed as much as 0.1%, to $1,863 per ounce.

Read the original article on Business Insider

US stocks slip from record highs as investors mull weak retail-sales data ahead of Fed decision

Stock Market Bubble
A trader blows bubble gum during the opening bell at the New York Stock Exchange (NYSE) on August 1, 2019, in New York City.

  • US stocks slipped from record highs as investors mulled the disappointing retail sales ahead of the FOMC’s two-day meeting.
  • The 10-year Treasury yield has hovered near 1.5% for most of the day.
  • Crude oil traded at the highest level since 2018, while lumber, gold, and copper slipped.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US stocks slipped from record highs Tuesday as investors mulled the disappointing retail sales ahead of the Federal Open Market Committee’s two-day meeting.

Spending at US retailers for the month of May slumped for the first time since February as more economic restrictions were reversed and Americans settled into a new sense of normal.

US retail sales fell 1.3% in May, the Census Bureau. Economists surveyed by Bloomberg held a median estimate for a 0.7% decline. The decline places monthly sales at $620 billion and just below the record-high seen in April.

Meanwhile, investors continue to weigh inflationary pressures ahead of the FOMC decision due Wednesday. Most economists are anticipating that the central bank will leave its policy mostly unchanged. Investors will be focusing on tapering discussions, the latest economic projections, and inflation.

“Despite the ‘transitory’ message regarding inflation, some on the Committee must be twitching a little uncomfortably,” said Marcus Dewsnap, head of fixed income strategy at IGM, which is part of Informa Financial Intelligence.

Hard data so far hasn’t quite suggested the sort of second-quarter that will force economic growth to hit the Fed’s 2021 projection, Dewsnap added.

The 10-year Treasury yield hovered near 1.5% for most of the day.

In March, Fed officials saw consumer prices rising 2.4% in the fourth quarter of 2021 from a year earlier. That pace, they said, would be consistent with their goal of 2% average annual inflation over the long run.

Here’s where US indexes stood at the 4:00 p.m. ET close on Tuesday.

Online gaming company DraftKings plunged as much as 12% on allegations by a short seller of illegal activity. A report from Hindenburg Research, a short seller, claimed DraftKings is hiding “black market operations.”

Meanwhile, short-sellers betting against meme stock AMC Entertainment lost $512 million on Monday when the movie theater chain rallied 15%, according to Reuters, citing data from analytics firm Ortex.

Solid Power, an electric-vehicle battery producer, announced it’s going public by merging with blank-check firm Decarbonization Plus Acquisition Corporation III in a deal valued at $1.2 billion.

In cryptocurrencies, bitcoin finally hit the $40,000-level on Monday after trending below that level to date in June.

Still, a new survey found that hedge fund bosses are planning to ramp up their holdings of cryptocurrencies, predicting that an average of 7.2% of their assets under management will be held in digital tokens by 2026.

Crude oil traded at the highest level since 2018. West Texas Intermediate crude was up 1.96% to $72.27 per barrel. Brent crude, oil’s international benchmark, gained 1.78% to $74.16 per barrel.

Gold slid 0.45% to $1,858.92 per ounce.

Copper also tumbled to a seven-week low amid concerns that China will gradually release its stockpiles in the coming months.

Lumber joined the downturn, sliding for the 10th straight day before mounting a recovery as the pandemic-driven boom in the commodity continues to show signs of weakness.

Read the original article on Business Insider

US stocks hover near record high as investors await Fed comments on inflation

Happy Stock Market Investor
  • US stocks hovered near record high Tuesday as investors await comments from the Federal Reserve.
  • The FOMC decision is due Wednesday after a two-day policy meeting, with most economists anticipating the central bank will leave its policy mostly unchanged.
  • Bitcoin rose past $40,000 after Elon Musk tweeted about Tesla and payments.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US stocks hovered near record highs Tuesday as investors await comments from the Federal Open Market Committee about a timetable for scaling back on its accommodative policies.

The FOMC decision is due Wednesday after a two-day meeting, with most economists anticipating the central bank will leave its policy mostly unchanged. Investors will be focusing on tapering discussions, the latest economic projections, and inflation.

“It is going to be increasingly difficult for the Fed to soothe markets with its dovish stance, as they probably will be discussing tapering and will have to revise up forecasts for economic growth and inflation,” Bank of America said in a note on Tuesday.

While the central bank can exhibit patience this time, the situation will not be the same by the July and September FOMC meetings, Bank of America added.

In March, Fed officials saw consumer prices rising 2.4% in the fourth quarter of 2021 from a year earlier. That pace, they said, would be consistent with their goal of 2% average annual inflation over the long run.

The S&P 500 closed at a record high on Monday for the second trading day in a row. The tech-heavy Nasdaq also closed at a record.

Here’s where US indexes stood at the 9:30 a.m. ET open on Tuesday.

Meanwhile, US retail sales fell 1.3% in May, the Census Bureau said Tuesday. Economists surveyed by Bloomberg held a median estimate for a 0.7% decline. The decline places monthly sales at $620 billion and just below the record-high seen in April. The April sales data was revised higher to a 0.9% jump from an initially unchanged reading.

Bitcoin finally hit the $40,000-level on Monday after trending below that level to date in June. Still, many, including investment adviser Rich Bernstein, believe that bitcoin is in a bubble, and the crypto mania is making investors ignore other asset classes that have more potential.

Bitcoin bull Michael Saylor’s MicroStrategy for its part plans to sell as much as $1 billion in common shares with an eye to adding to its huge holding in the cryptocurrency, it said in a filing with the Securities and Exchange Commission.

Oil edged higher. West Texas Intermediate crude was up 1.17% to $71.71 per barrel. Brent crude, oil’s international benchmark, gained 1.02% to $73.60 per barrel.

Gold slid 0.12% to $1,865.09 per ounce.

Read the original article on Business Insider

Billionaire Paul Tudor Jones says to go ‘all in’ on the inflation trade if the Fed stays nonchalant about rising prices

Paul Tudor Jones

Billionaire investor Paul Tudor Jones told CNBC on Monday he’ll bet big on rising inflation if the Fed remains unconcerned about recent economic data showing soaring consumer prices.

The Federal Reserve’s policy meeting this week could be the most important one of Jerome Powell’s career, Jones said, because there’s been so much data that has challenged the Fed’s current stance that inflation is transitory.

The last two consumer price index readings put inflation well ahead of the Fed’s 2% target, the hedge fund manager said.

“If they treat these numbers – which were material events, they were very material – if they treat them with nonchalance, I think it’s just a green light to bet heavily on every inflation trade,” the founder of Tudor Investment Corporation said.

“If they say, ‘We’re on path, things are good,’ then I would just go all in on the inflation trades. I’d probably buy commodities, buy crypto, buy gold,” he added.

Jones has been bullish on bitcoin as an inflation hedge for over a year. While he has insisted that he’s no bitcoin expert, he sees the cryptocurrency as a portfolio diversifier.

“The only thing I know for certain, I want 5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities. At this point in time I don’t know what I want to do with the other 80% until I see what the Fed is going to do,” said Jones.

Economists are anticipating that the central bank will hold its policy stance steady at the conclusion of the two-day meeting and reaffirm the pace of asset purchases. If the Fed were to roll back its accommodative stance, the market could wobble, Jones said.

“If they course correct, if they say, ‘We’ve got incoming data, we’ve accomplished our mission or we’re on the way very rapidly to accomplishing our mission on employment,’ then you’re going to get a taper tantrum,” he added. “You’re going to get a sell-off in fixed income. You’re going to get a correction in stocks. That doesn’t necessarily mean it’s over.”

Read the original article on Business Insider

Fed’s Powell says it’s not yet time to consider shrinking emergency asset purchases

jerome powell
Federal Reserve Chairman Jerome Powell.

  • It’s “not yet” time for the Fed to even consider pulling back its policy support, Chair Powell said.
  • Fed policymakers ruled to hold interest rates at historic lows and maintain its asset purchases.
  • The recovery is “highly uncertain” and the economy is far from hitting the Fed’s goals, Powell said.
  • See more stories on Insider’s business page.

The Federal Reserve expects a strong economic recovery through 2021, but it still aims to maintain ultra-easy financing conditions well into the future.

Members of the Federal Open Market Committee ruled on Wednesday to hold interest rates at historic lows following the conclusion of its two-day meeting. The central bank will also maintain its pace of purchasing at least $80 billion in Treasurys and $40 billion in mortgage-backed securities each month, according to a press release.

Buying such assets accommodates smooth market functioning and thereby supports “the flow of credit to households and businesses,” the Fed said in a statement.

Yet investors and economists alike have looked to Fed officials in recent weeks for any hints at when the central bank will taper its purchases. An unexpected withdrawal from the Fed could spark a sell-off in Treasurys, rapidly lift yields, and prematurely raise borrowing costs while the economy is still rebounding.

Policymakers’ newly improved projections for growth and employment place new pressure on the central bank to tighten monetary policy. Still, it’s “not yet” time to even consider tapering due to lasting risks to the economic outlook, Powell said during a press conference.

Concerns of a rate hike coming earlier than the Fed’s signaling also overlook the lasting risks to the US recovery, the central bank chief added.

“The state of the economy in two to three years is highly uncertain and I wouldn’t want to focus too much on the timing of potential rate increase that far into the future,” Powell said.

Staying on target for inflation and maximum employment

The statement underpins previous commentary from the Fed emphasizing it will patiently wait to reach its goals of above-2% inflation and maximum employment. Economic reopening and stimulus might drive a sudden rise in inflation, but the increase isn’t likely to be permanent, Powell said.

Inflation would then need to steadily trend above 2% before the Fed fully retracts its policy support, he added.

Reaching maximum employment is set to be a similarly lengthy process. While Fed officials now see the unemployment rate falling to 4.5% in 2021, the central bank is also tracking wage growth and labor force participation to determine the labor market’s health.

“No matter how well the economy performs, unemployment will take quite a time to go down and so will participation,” Powell said. “The faster the better. we’d love to see it come sooner rather than later.”

Maintaining loose monetary policy for such a long period marks a paradigm shift for the central bank. Decades-old tenets of economic theory held that unemployment could only drop so much before lifting inflation.

That dynamic is antiquated, at least according to the Fed chair. The previous expansion showed that, even with unemployment below 4% and inflation trending below 2%, hiring and wage growth could improve in historically underserved communities. Failing to give those groups a shot at a robust recovery would set the country back as it emerges from the pandemic, Powell said.

“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” he said. “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”

Read the original article on Business Insider

Fed lifts estimates for US economic growth and employment as vaccination speeds up

Federal Reserve
  • The Fed boosted its estimates for economic growth in its projections since December.
  • US GDP is forecasted to grow 6.5% this year, up from the prior estimate of 4.2%.
  • The Fed also sees the unemployment rate sinking to 4.5% by the end of 2021.
  • See more stories on Insider’s business page.

Federal Reserve policymakers boosted their projections for the US economic recovery on Wednesday as new stimulus and vaccine rollouts pave the way for a summer reopening.

The Federal Open Market Committee’s median estimate for 2021 gross domestic product growth rose to 6.5% this year, and 3.3% for 2022. That compares to the previous forecasts of 4.2% and 3.2%, respectively. The unemployment rate is now expected to dip to 4.5% this year, an improvement from the prior forecast of 5%.

The FOMC released its quarterly summary of economic projections following the second day of its March meetings. The central bank elected to hold interest rates at historic lows and maintain its pace of asset purchases at $80 billion in Treasurys and $40 billion in mortgage-backed securities per month.

The estimates are the first to be published since December, and therefore are the first to include the impact the $900 billion stimulus package passed late last year, the $1.9 trillion plan signed earlier this month, and the improved pace of vaccination. The developments have all been viewed as major boons to the economic rebound and prompted several economists to lift their own growth forecasts.

The nation’s fight against the coronavirus has also shifted significantly since the December FOMC meeting. Daily case counts surged to a peak above 300,000 in early January but have since tumbled to around 50,000 as distancing measures and vaccination curbs the pandemic’s spread.

New stimulus has been criticized by Republicans for risking runaway inflation through the recovery. Fed officials have countered such concerns in recent weeks. Jerome Powell has repeatedly said that, although reopening and stimulus can produce a quick jump in inflation, the effect will likely be temporary and give way to a similarly sharp decline.

The FOMC’s latest estimates reflect such an outlook. Members see personal consumption expenditures inflation – the Fed’s preferred price-growth gauge – reaching 2.4% in 2021, up from the previous 1.8% estimate. Inflation will then fall to 2% in 2022 and reach 2.1% the following year.

Read the original article on Business Insider