The Fed Minutes signaled that a formal decision on a reduction of its massive bond paying program could happen in 2021.  Many, including me, thought the Fed would make comments at next week’s annual symposium but such is now a low probability.  As noted yesterday the topic of this year’s annual event is income inequality.  The Minutes made no mention of raising the overnight rate, emphasizing there is no connection between the two (tapering and overnight rate).

Volatility rose as equities fell immediately following the release, reversed and then ended around session lows.   Treasuries ended essentially unchanged.

Changing topics, I think yesterday’s housing data was significant.  The data clearly indicates the ability of landlords to increase rents throughout the country for the exception of the mega sized cities.  According to the data, rents on newly signed leases surged 17% in July when compared to what the prior tenant paid, reaching the highest level on record.

The data also indicates the number of occupied rental apartment units jumped by about half million in the second quarter, the biggest annual increase in data going back to 1993.  Occupancy hit a record 96.9%.

Many times, I have commented about OER or Owners Equivalent Rent, the data point that comprises about 30% of most inflationary indices and is what a homeowner thinks they could rent their home for if it was indeed rental.

In July OER rose by a modest 2.4% and is a major reason why officials believe inflationary expectations are “well anchored.”  Is this about to change?

This record jump in rents is similar to the data collected in similar fed data.

Similar to wages, OER is systemic.  It is not one and done.  It takes time to work its way through the economy.

What will happen today?

Last night the foreign markets were down.   London was down 1.98%, Paris down 2.45% and Frankfurt down 1.69%.  China was down 0.57%, Japan down 1.10% and Hang Seng down 2.13%.

The Dow should open moderately lower on concerns that the Fed will remove stimulus by year’s end.  The 10-year is up 6/32 to yield 1.24%.


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