Why did the Federal Reserve Pivot? – An Analysis of the Federal Reserve’s Change in Stance
Welcome, today I’ll be sharing my insights on the abrupt pivot of Federal Reserve’s stance on their monetary policy and why it sparked a lot of questions in the economic world today. I’m Victor Menasce, an expert in real estate investing, and today, we take a deeper dive into the topic: Why Did The Federal Reserve Pivot?
The Federal Reserve’s Change in Stance
The Federal Reserve has recently shifted its stance, a significant change that has sparked debates and discussions. The Federal Reserve Chair, Powell, testified in front of a congressional committee about how they are near their stated goal of 2% inflation target while dealing with elevated inflation numbers.
Decisions are now being made on a meeting-by-meeting basis. It’s a markedly different approach from the last two years, during which inflation was the dominant narrative, and interest rates were seeing consistent increases in an attempt to combat it.
The Somm Rule and the Housing Market
In addition to inflation, unemployment and the housing market are also crucial factors in the discourse. The unemployment rate has gradually increased to 4.1% over the last six months which, according to the “Somm Rule” developed by former Federal Reserve economist Claudia Somm, is enough to declare an economic recession. The rule is a recession indicator by tracking shifts in the U.S. unemployment rate, comparing three-month averages with the previous 12-month’s data.
In addition to this, the housing market metrics, which make up forty percent of the core personal consumption expenditure metric, also play a crucial role in calculating the measure of inflation. Factors such as inventory level, weeks of inventory on the market, days on the market, and the proportion of homes selling above or below asking price, are essential metrics. With a recent shift from a seller’s market to a buyer’s market, the housing market also serves as an indicator to the state of the economy.
Checklist for Understanding Fed’s Change in Stance |
---|
Monitor the rise and fall of inflation |
Watch out for significant increases in unemployment rates |
Observe the fluctuations in the housing market |
Frequently check for interest rate adjustments |
Stay informed about the Federal Reserve’s communications and announcements |
The Federal Reserve has a goal of not surprising the market with its announcements, which means they will telegraph their intentions gradually. Given this expectation, the cooling housing market appears to have influenced the changed stance towards potential lower interest rates. We will likely hear more in the meetings to come.
Stay connected and discover more about my work in real estate and by visiting and following me on various platforms:
Real Estate Espresso Podcast:
- 🎧 Spotify: The Real Estate Espresso Podcast
- 🌐 Website: www.victorjm.com
- 💼 LinkedIn: Victor Menasce
- 📺 YouTube: The Real Estate Espresso Podcast
- 📘 Facebook: www.facebook.com/realestateespresso
- 📧 Email: [email protected]
Y Street Capital:
- 🌐 Website: www.ystreetcapital.com
- 📘 Facebook: www.facebook.com/YStreetCapital
- 📸 Instagram: @ystreetcapital