The Federal Reserve Signals Longer-Term Rates
While unsurprising, last week’s vote from the Federal Reserve FOMC (Federal Open Market Committee) to keep interest rates steady came with a significant change to projections, indicating their intention to keep rates higher for longer. The FOMC’s June meeting was the last time they released economic forecasts, and the main differences are as follows:
- Strong GDP growth is expected in 2023 and 2024, higher than expected in June.
- The unemployment rate is projected to be lower in 2023-2025 compared to June’s estimates.
- Inflation, both headline and core, would be slightly higher in 2025 than expected in June.
However, the most interesting change was the expected Federal Fund rate. For 2023, the Fed continued to project one more rate hike to 5.6%, but now anticipate interest rates to remain 50 basis points, or half of a percentage point higher, in 2024 and 2025 compared to June. In June, they expected to cut rates by one percentage point (four cuts) in 2024, and then another five cuts in 2025, but in September they halved those expectations.
A Decline in Existing Homes Sales & Housing Starts
In other economic news last week, existing home sales and housing starts continued their decline, and median price also declined. The decline in the numbers resulted in the existing home supply rising to still be tight at 3.3 months.
Understandably, those who purchased and refinanced their mortgages before the rise in interest rates are increasingly unwilling to sell when they have locked in a lower mortgage rate.
Housing starts also saw a month-over-month decline of 11.3%, shown strongest in the multi-family sector (apartments). However, this is less surprising given reports suggesting that migration back into cities has reached its saturation point, resulting in a decline in apartment construction.
Looking Ahead
As we move forward, upcoming data points on new home sales, durable goods, inflation, income, and a revised look at last quarter’s GDP will assist us in further understanding the current economic landscape.
Stay tuned for future updates as we navigate the ever-changing economic landscape to help you make better-informed decisions. Contact our trusted wealth management advisors with any questions at the link below.
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