The number one topic in real estate is Rates. Everyone wants to know when they will drop and what is going to make them drop. Inflation is down, consumer spending is pulling back, the job market is showing small signs of softening, the stock market is still strong and the housing market is remaining resilient with these 20-year high-interest rates. If all the data shows cooling, why are rates still going up and why is the FED not pivoting?
The work is NOT done for the FED, they know that if the job market is still HOT, 157MM people in the US are employed, which means they have a job, and money to pay the bills and they feel good. On top of that, their 401K/retirement account looks good and if they own a home, they most likely have lots of equity, and let’s not forget they most likely have a low rate/payment on their house as well.
What is the FED looking for then? They want pain, they want inflation lower, they want the consumer to consume less, they want prices to still come down and they want people to lose jobs. WAIT, WHAT? Yes, they might not come out and say it, but they need millions of Americans to lose jobs because if employment is this good, that is not going to help inflation come down to levels they are comfortable with.
What does the FED watch to know this is happening? They look at the weekly initial jobless claims that come out every Thursday and that number has been too positive. BAD news means good news these days. They are looking for that number to be somewhere north of 324K for weeks and weeks in a row. That number has been coming in lower than expected around 200K and on top of that there are 9M job openings. This is not helping rates and not making the FED comfortable with inflation and pivoting.
See the charts below and remember that something can still break, other data could change that makes them uncomfortable and the FED could change their course. Today, as the FED looks at the current data this is what they are seeing, and they are waiting for a change before they change. Rates for higher for longer are here for now. Seems like the Feds want a slowdown/recession to feel like their job is done and raising rates fast worked. Time will tell, data does not lie and we will keep watching it every day, week, month and at some point, we will see something break.