16 Jun FED STATEMENT AT 2:00 PM
Some have commented the outcome of today’s FOMC meeting will create FRB Chair Powell’s legacy. Yesterday’s PPI was stronger than expected, rising 6.6% in May on an annual basis, the most on record.
Moreover, single family rents were up 5.3% year over year, the largest annual gain in almost 15 years. OER or what someone could rent their house for if it was indeed rental comprises about 32%-33% of all inflationary indicators. After falling dramatically in 2008-09, it has since floundered and is/was a major reason for inflationary pressures being “well anchored.”
As noted many times, OER historically follows home prices. Home prices in the secondary and tertiary markets are now greatly accelerating, the inverse of the last 10-12 years. According to Zillow, home prices in 143 neighborhoods where the average home cost at least $1 million are down from a year earlier. The biggest drops are occurring in some neighborhoods of NYC and San Francisco, prices which are down between 12% and 21%.
Conversely the average annual gain in equity on mortgaged real estate in the first quarter in homes under $1 million was $33,400 per borrower according to Core Logic.
Most people gauge their financial health by the value of their home not their stock account.
Is inflation transitory? In my view the answer to this question is perhaps more significant than the wrong assumption the issues in the subprime market were/are contained. Interest rates impact everything and inflation over 3% or 4% will have a dramatic impact on the debt service of our burgeoning federal debt.
Commenting on yesterday’s market activity, led by technologies, equities were soft. Oil surged in the highest level since mid-2018 on strong demand and reduced supplies.
Last night the foreign markets were mixed. London was up 0.15%, Paris up 0.23% and Frankfurt up 0.03%. China was down 1.07%, Japan down 0.51% and Hang Seng down 0.70%.
The Dow should open flat but the closing could be radically different if the Fed begins to telegraph to the market that “tapering” might commence sooner than expected. The 10-year is up 1/32 to yield 1.49%.