With the Fall weather moving into many parts of our country, Chairman Powell did his best impersonation of “Old Man Winter” on Thursday afternoon. While we all generally welcome some cooler temperatures, a downright chill is something I can hold off on! In a widely anticipated speech delivered by the Chairman to the Economic Club of New York, Powell “acknowledged recent signs of cooling inflation, but said Thursday that the central bank would be ‘resolute’ in its commitment to its 2% mandate.” I’ve said this before and will reiterate that a 2% target rate for inflation seems unreasonable in the current economic environment.
While 2% would be welcomed, that level remains far from the historic average of 3.3% (measured from 1914 – 2023). I believe there are many reasons why this may be difficult to achieve, but a primary driver is the fact that the cost to produce goods is simply much higher today than a few years ago. As nearshoring becomes more prevalent, these costs (labor, materials, etc.) will likely only increase. You might be wondering what exactly is meant by nearshoring.
Nearshore (verb) - to move offshored jobs or business activities from a distant country to a country that is much closer to the home territory.
If there is one thing we have learned over the last several years, it’s that we need to depend more on ourselves and rely less on others to produce the goods and services we require. The “cost” to bring these manufacturing roles closer to home may be higher but the security that move provides likely outweighs the added expense in the long run. The Fed seems content to walk a fine line between economic growth, full employment, and tight policy controls for now.
Last week we saw mortgage rates continue to creep up for the sixth week in a row. This has led to the lowest home loan demand since 1995. The 30-year mortgage rate currently sits around 7.70%, over double where it was less than 20 months ago. That’s the highest rate we’ve seen since November 2000. Although the current rate is closer to a long-term historical average, it’s the manner in which we got back to this level that is concerning. The housing market is one of the most interest rate sensitive parts of our economy. As mortgage costs become a higher share of consumers’ monthly expense, that will leave less for discretionary spending, ultimately leading to lower inflation in the future which is the main goal of our federal reserve.
This week we also received the weekly jobless claims report which showed 198,000 for the period, marking a decline of 13,000 from the previous week and falling below estimates of 210,000. Claims have shown a deceleration pattern since this summer and the labor market continues to remain tight. It is important to understand the number of claims can be volatile from week to week; however, the overall market remains strong.
Looking forward we have many big S&P 500 companies reporting earnings next week. Google, Amazon, and Meta are a few of the companies. It is a little early to say whether or not the momentum is ticking up. We’ll keep an eye out for any hints!
As we keep an eye on the market here, we hope you and your families can get outside and enjoy some cooler weather wherever you call home!
Have a great weekend!!
Christopher E. Wasson, CFP®
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
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