I know Groundhog Day was several weeks ago, but this week feels like we are on rewind and stuck in an ongoing loop of sorts. At some point, we have all been in a place where it’s two steps forward and one step back. This is where our markets stand right now as the battle to not only fight inflation but understand where we are economically rages on. This morning, the core personal consumption expenditures price index (PCE for short) increased by 0.6% for the month and up 4.7% from a year ago. This is a key Fed inflation measure and was slightly higher than estimates. The Fed follows the PCE measures more closely than it does some of the other inflation metrics because the index adjusts for consumer spending habits, such as substituting lower-priced goods for more expensive ones. This generally provides a more accurate view of the cost of living and suggests that inflation accelerated to start the year. The Federal Reserve now likely sits in a more precarious position as considers the next few sequences of rate increases.
Interestingly enough, the underlying economy still appears to be cranking along. Well respected JP Morgan CEO, Jamie Dimon, spoke about this in comments he made during a CNBC interview on Thursday. His belief is that the Fed still has more work to do, but he sees the economy as showing signs of strength. He also expressed his belief that a recession is not a certainty at this point as corporate earnings remain relatively healthy. Companies continue to lower forward looking expectations. With much uncertainty ahead, near-term demand remains healthy. What I think we can expect for now is that the uptick in interest rates remains on the horizon and the goalpost for lowering inflation is moving further out. Simply put, higher rates for a longer period seems to be the likely scenario. At least for now.
All is quiet on the housing front as the typically busy spring season is around the corner. Mortgage rates have stabilized, price declines are moderating and inventories are building slightly. As expected, the biggest price declines have occurred in those cities that soared in 2021 in the “post-covid, low-rate boom”. I have read several articles recently addressing these issues and have even spoken to a few real estate agents and mortgage brokers. It seems that the consensus right now is that we are going to settle into a much slower, and probably more normal housing market for at least the next year or two. A lot of this will be predicated on prevailing interest rates, but the likelihood of buyers moving to upgrade or downgrade is probably on hold for much longer now. Unless there is a specific reason to move, like relocation, there is little incentive or need to make a change right now. Most of us have either moved or refinanced in the last several years and there are few reasons to make a change unless forced to for some reason. The historical reality is that even with the 30-year rate sitting between 6-7% today, that is still a bargain. It’s hard to think that given what we just came through in the last year, but we have been spoiled. Easy, cheap money comes with a cost. Time to pay the tab and move forward!
Have a nice weekend.
https://fred.stlouisfed.org/series/MORTGAGE30US
Christopher E. Wasson, CFP®
President
Mosaic Asset Partners, LLC
1122 Kenilworth Drive, Suite 310
Towson, MD 21204
410.821.0089 fax 410.821.5993
MosaicAssetPartners.com
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Mosaic Asset Partners, LLC is not affiliated with Kestra IS or Kestra AS. Investor Disclosures: https://www.kestrafinancial.com/disclosures
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.