The notes from the FOMC’s most recent meeting were released this week, in the which was emphasized the data-dependent approach to fiscal policy and the firm commitment to getting inflation back down to two percent. That means, the Fed reiterated, that they may elect to keep interest rates higher for longer. There was no talk at this point of yet another hike, as Committee members themselves are still digesting the effects of the previous 11 straight rate increases over the last 16 months. But they may elect to protract the current 5.5% overnight lending rate until the current wave of stronger-than-expected data recedes to the awaited levels before implementing a heavily-anticipated rate drop.
Incidentally, Mr. Powell understands inflation first hand (pun intended); the watch on Jerome’s wrist has tripled in value over the last three years. One wonders if he chose it as a savvy investor anticipating the value to increase or merely because the timepiece’s slogan is “Bravery Under Pressure” and he’s got a bit of a high intensity job. The choice does seem fitting for the guy taking all the heat for driving affordability through the roof in an effort to stabilize it long term, and for that I suppose that deserves a little something.
China is on the other side of the pendulum. After a decade of record expansion where the construction industry has accounted about 1/4 of their GDP, housing sales, home prices, and investment returns are now in a downward spiral. The People’s Bank of China has been cutting rates to stimulate growth, but their shrinking population can only be spread so thin.
Back in the U.S., mortgage rates have been ticking upward and now sit at 15 year highs. I naively believe that they in fact will not go higher from here over the short term, but if they do, it will most likely be a big jump.