June 29, 2021
Investors and the stock market as a whole did not seem to be fully prepared for the announcement from the Federal Reserve. On Wednesday, June 16, 2021, it announced it would begin to reduce its levels of bond purchases and add some interest rate hikes to its forecast for 2023. In fact, the previous forecast from the Federal Reserve had zero anticipated rate hikes in 2023, but their most recent outlook called for two in that year. The US dollar jumped against all major currencies on the news, but the stock markets got a lot choppier as a result. CNBC reported on the response from one investment officer as such:
"It's the end of peak dovishness," Bleakley Global Advisors chief investment officer Peter Boockvar said. "It's not going hawkish. It's just we're past peak dovishness. This market response is as if they were already tapering."
Peter Boockvar believes that while the Fed appears poised to peel back from its policies on bond purchases and incredibly low interest rates, the stock market seems to already be pricing many of these factors in. Truthfully, that does seem to be what the Federal Reserve is signaling at this time. The market's reaction to that, and if the market will continue to drift lower, as a result, is anyone's guess.
The job of Chairman of the Federal Reserve is never an easy title to hold, but it is particularly a challenge in the volatile and uncertain times we are all experiencing. You don't have to tell Chairman Powell that. He is well-aware the spotlight is set squarely on him and his actions at any given time. Even as the Federal Reserve announced changes to its forecasts for bond purchases and interest rates, Powell attempted to calm fears in the markets by emphasizing that these changes are still far off in the distance. Conditions may change that could alter the policies that the Fed feels are necessary going forward.
The Chairman continued to state that he and the other board members of the Federal Reserve hold regular conversations about their plans to alter their asset purchases going forward. He very much wants to ease off of the purchase of various assets such as bonds, but he wants to do so responsibly. In other words, he wants to make sure that any moves that the Fed makes are done with careful consideration for how they may impact the broader economy both now and years into the future.
During most periods in American history, the ebbs and flows of the economy are generally things measured only by those with significant sums of wealth and assets. The interest rates set by the Federal Reserve are indeed very important, but such details are rarely tracked closely by laypeople in the United States. That has started to change as certain economic conditions have begun to have impacts that are more definable and more visible to the average individual.
It is pretty difficult to miss headlines these days about the ripple effects being experienced by people throughout the economy as a result of a labor shortage that continues to plague certain industries. The restaurant and service sectors have experienced these shortages most acutely as they have had incredible difficulty attracting workers to traditionally low-paying jobs. Workers who were laid off or began to work-from-home as a result of COVID-19 lockdowns in 2020 are very slow to accept low-wage jobs after this experience. Many have re-evaluated their relationship with work and have determined that they will not accept low wages for what is truly difficult work. Others simply see a bounty of available job opportunities at the moment and are weighing their options. Either way, the labor shortages in these industries are forcing wages up and forcing fewer services to be consistently available on-demand.
Chairman Powell and the Federal Reserve as a whole surely have to be kept up at night by the knowledge that the United States housing market is inflating at a rate rarely seen in history. According to the Associated Press, the average selling price of a new home on the market this year compared to last year is simply jaw-dropping:
...On Tuesday, new data further illuminated the red-hot nature of the housing market: Prices rose in March at the fastest pace in more than seven years. The S&P CoreLogic Case-Shiller 20-city home price index jumped 13.3% that month compared with a year earlier — the biggest such gain since December 2013. That price surge followed a 12% year-over-year jump in February.
Rates of growth like this are fabulous for sellers, but they are a worrying sign for those looking to get into the housing market. Millions of people may be priced out, and slow-moving changes to Fed policy are unlikely to assist them in these fast-moving markets.
Speaking of housing, there is a looming eviction moratorium that is set to expire on June 30th, 2021 barring any last minute extensions. Homeowners and renters alike have been protected by federal law if they are unable to pay their mortgage or rent for well over a year now. However, those protections are about to expire, and the eviction notices could soon come flooding in. Various estimates peg the number of Americans at risk of receiving an eviction notice at anywhere between 8 and 20 million, but the underlying message is clear: There are a lot of people in trouble.
This is not to suggest that all of those millions of individuals are going to be thrown from their living quarters on July 1st, but those who are significantly behind on their payments must surely be worried about what the future holds for them. They will not have much standing in court when they are unable to explain why they are so delinquent. It is absolutely something that the Federal Reserve must keep an eye on and do all that it can to stem the tide of potential homelessness as a result.
The future, as always, is unclear. The economic challenges that we face today are surely being monitored closely by the Federal Reserve and others, but no one knows with absolute certainty where things will land. It is ideal to continue to watch closely for signs of policy changes in the Federal Reserve, but it is also a good idea to see how those changes filter down into the real economy. For all the latest updates, please contact us and let us inform you about the powerful insights that Garnet Capital can provide.