Bostic Foresees Future Discussions Over Inflation Target
May 23, 2024 05:12 PM EDT
Atlanta Federal Reserve Bank President Raphael Bostic pushed the same message on Thursday that he and his colleagues have hammered home in recent days—it will take time for interest rates to reach their full impact and bring interest rates down.
In a virtual question session with a Stanford Graduate School of Business class, he said one reason interest rates were working more slowly to bring down inflation could be because officials are still understating the “neutral rate.” The neutral rate is the level interest rates settle at once inflation has been brought down to the goal, Bostic said.
His comments reflect similar discussions officials had in the most recent Federal Open Market Committee meeting according to minutes released Wednesday.
While he stressed that the Federal Reserve must accomplish its goal of bringing the inflation rate down to 2%, Bostic opened up the possibility that in the future, the inflation target could need to be set at a different rate.
“Is our target the right target? The honest answer is that it could be. It could also be something else,” Bostic said.
Once inflation is down to target, officials could begin to entertain discussions about what the target rate should be. Bostic noted that in 2025, officials will begin discussions over a new “framework” for Federal Reserve policy, where the issue of changing the inflation target could be reviewed.
“We’re not going to move the policy rate until we’re past the crisis,” he said.
-Terry Lane
Mortgage Rates Drop Below 7% as Inventory Rises
May 23, 2024 12:50 PM EDT
Potential home buyers may get some relief this week as mortgage rates dropped below the 7% threshold for the first time in more than a month.
The average 30-year fixed-rate mortgage as of today was 6.94%, according to data from federal mortgage backer Freddie Mac. Rates are still higher than they were at this time a year ago when they averaged 6.57%. The 15-year fixed-rate mortgage was at 6.24% this week.
This is the third week in a row that mortgage rates fell. Data this week also showed that even though sales dipped, the total inventory of both new and existing homes was higher.
“Greater supply coupled with the recent downward trend in rates is an encouraging sign for the housing market,” said Freddie Mac Chief Economist Sam Khater.
Despite the improvement, home buyers still need both prices and mortgage rates to come down, something that’s not likely to happen until the Federal Reserve cuts interest rates, Realtor.com Economist Jiayi Xu wrote.
“In a balanced market, buyers with an income of $125,000 should be able to afford 72% of the listings. Yet, at a 6% mortgage rate, these buyers can only afford 55% of today’s available listings,” Xu wrote.
-Terry Lane
New Home Sales Stuck in Holding Pattern
May 23, 2024 11:33 AM EDT
The housing market overall is limping along, and that included sales of new homes in April.
If new homes sold at the pace they did in April, 634,000 would be sold all year, a 4.7% drop from March, and 7.7% from April last year, the Census Bureau said Thursday, continuing an up-and-down pattern of recent months. That was below the 675,000 forecasters had expected, according to a survey of economists by Dow Jones Newswire and the Wall Street Journal.
The latest data on new home sales highlights how high mortgage rates are stifling the housing market in pretty much every way except prices. Sales of existing homes stayed in the doldrums in April, and homebuilding also fell short of expectations. The average rate for a 30-year mortgage fell last week, but stayed over 7% according to Freddie Mac, remaining a major drag on affordability, especially for first-time buyers.
Housing economists expect mortgage rates to fall substantially at some point, especially if and when the Federal Reserve gains enough confidence that inflation is under control to lower its influential fed funds rate, which affects rates for mortgages and other loans. But that hasn’t happened yet, and may not anytime soon, going by the recent public statements of Fed officials.
Many economists say a surge of homebuilding, which has yet to materialize, will be needed to solve a longstanding shortage and help with affordability.
“Lower interest rates will help both builders and buyers, but especially because we need robust building to make up for weak construction in the 2010s,” Robert Frick, corporate economist with Navy Federal Credit Union, wrote in a commentary. ”We’re not making headway in solving the nation’s housing crisis.”
Labor Market Stays Strong As Initial Jobless Claims Fall
May 23, 2024 09:40 AM EDT
The number of people filing claims for unemployment insurance fell by 8,000 last week.
The fall was more than economists expected and highlights the continued strength of the labor market.
“Job growth is likely to moderate further as the labor market rebalances, but we expect that will continue through a slowdown in hiring, not a notable pickup in layoffs,” wrote Oxford Economics’ Deputy Chief U.S. Economist Michael Pearce.
The previous week’s numbers were revised to 223,000, up 1,000 from the prior week’s tally. The four-week moving average, often seen as less volatile than the week-to-week measure, increased by 1,750 to 219,750.
