Current position: Floating
Stocks and mortgage bonds are both higher to start the day as the markets digest the Fed meeting.
Yesterday, the Fed hiked the Fed funds rate by 25 basis points, as expected by the markets. In their statement, they said:
Job gains have picked up, and unemployment remains low.
Inflation remains elevated.
The banking system is sound and resilient.
Recent developments will result in tighter credit conditions and weigh on economic activity, hiring, and inflation.
The Committee anticipates that some additional policy firming may be appropriate.
Will continue QT
Projections were largely a nonevent, as they did not change much for the end of 2023:
GDP 0.4% from 0.5%
UR 4.5% from 4.6%
Core PCE: 3.6% from 3.5%
FFR 5.1% unchanged
No cuts in 2023
Goods inflation has been coming down for six months.
Housing services are a matter of time passing (44% of core PCE).
Non housing services sector still has not seen progress (56 percent of the index).
SVB management failed badly; it did not hedge risk.
See likelihood of credit tightening , which is why they had a less stiff statement.
Powell made several mistakes during his press conference. He said that shelter made up 44% of Core PCE, which it doesn't. It makes up roughly half of that, but does make up 43.2% of Core CPI. He also said that services minus shelter make up the remaining 56%, which is also untrue. It's a bit scary that the Fed chair has such a bad handle on the reports he is following to dictate monetary policy.
He is also wrong that inflation has not been coming down; we have seen substantial progress. It is nice to see he finally agrees with us about shelter just being a matter of time before it cools down in the reports, but he seems so concerned with services, such as shelter. So, what is still rising in that category? Airline fares, pet services, cable and live streaming, and motor vehicle insurance, maintenance, and repairs So Powell wants to kill the economy and jobs over persistent inflation in these areas.
New Home Sales
New Home Sales, which measure signed contracts on new homes, rose 1.1% in February to a 640,000-unit annualized pace, which was stronger than estimates of a 3% decline.
While this looks positive, there was a big negative revision to January's number, which was revised lower from 670,000 to 633,000. It is still positive to see a rise in February, even though rates moved higher. Year over year, sales are down 19%.
There were 436,000 new homes for sale at the end of February, and at the current pace of sales, there is an 8.2 months' supply. However, only 72,000, or 16.5%, are completed. When looking at the pace of sales vs. the number of homes that are completed (available supply), there is only a 1.4-month supply.
There was a huge jump in homes sold but not started, which means they are selling air and builders have a huge backlog.
The median home price rose 2.7% last month to $427,500, but this can be skewed due to the mix of sales. Year over year, the median home price is up 2.5%.
Overall, this was the third strong report in a row. So how are builders having success? Many are using incentives and 2-1 buydowns. Do what the builders are doing—make sure you are using the seller contribution tool under Loan Advisor.
Initial Jobless Claims
Initial Jobless Claims, which measure individuals filing for unemployment benefits for the first time, were nearly unchanged from the previous week at 191,000. Continuing claims, or those that continue to receive benefits after their initial claim, rose 14,000 to 1.694M. The labor market still appears tight; employers are trying to hold on to workers while at the same time hiring less. All those that were laid off in tech received nice severance checks, and the most skilled are finding new jobs quickly.
Mortgage bonds are moving higher and are now at the highest level they have been since the beginning of February, when we got the "strong" jobs report. They are now testing a formidable ceiling of resistance at the 200-day moving average, which we have to watch closely. Begin the day floating.