Key Headlines to Watch Ahead of the September Fed Meeting

As the next Federal Reserve meeting approaches, there’s a lot of anticipation surrounding the upcoming economic data that could sway the Fed’s decision on interest rates. While many believe a rate cut in September is inevitable, this week's labor market and housing numbers could give us clearer insights. The big question on everyone’s mind: will the Fed start with a 25-basis-point cut or go for a 50-point one?

Key Economic Data to Watch

Wednesday: July JOLTs Job Openings Data
This report provides a snapshot of labor market demand by tracking job openings across the country. We’ve seen several downward revisions in labor market data recently, which makes me think this could go in any direction. Job openings are expected to decline, which could lead to improvements in mortgage rates.

Thursday: August ADP Nonfarm Employment Data & Initial Jobless Claims
ADP’s report offers a preview of private sector job growth, while the jobless claims give us insights into layoffs.

• Expectation: 145K new jobs.

Friday: August Jobs Report
This is the big one. It includes nonfarm payrolls and the unemployment rate, giving us a comprehensive picture of the labor market.

• Expectation: 165K new jobs, with unemployment dropping to 4.3%. If you’re curious why it’s expected to go down, check out my last two newsletters.

Labor Market Trends

Although the economy is close to full employment with a 4.3% unemployment rate, recent data shows some worrying signs. In July, unemployment increased in 90% of U.S. cities, with big metropolitan areas seeing significant job losses. However, this uptick might be more about an increased labor supply than a drop in demand, as layoffs are still low. Plus, the Fed will likely consider the 818,000 jobs that were removed from previous BLS reports spanning March 2023 to March 2024.

Wage Growth

Wage growth is a key concern. Average weekly wages have fallen in 43% of metropolitan areas, even in regions known for higher pay. This signals challenges ahead in the labor market. Even though inflation is easing, the cost of goods and services continues to rise. If wage growth doesn’t keep up, affordability will become an even bigger issue.

As we head into this crucial Fed meeting, this week’s data could have a major impact. While the overall economy still looks strong with growth and cooling inflation, underlying labor market issues and stagnant wages might influence the Fed's decision. We need a rate cut to avoid a deep recession, but remember, a cut can also stimulate the economy, which could be tough on families living paycheck to paycheck.

What Buyers and Sellers Need to Know

Milton Friedman once said, "Inflation is always and everywhere a monetary phenomenon." His idea that inflation is caused by too much money chasing too few goods, usually due to excessive government spending, is still relevant today. If you're thinking about buying a house, it’s important to understand how this works.

The Fed’s Revisionist History on Inflation

Think of it like setting a house on fire, pouring lighter fluid on it, and then blaming the wind for it burning down. That’s basically what the Fed is doing with its explanation for the recent surge in inflation—the highest we’ve seen since the early 1980s.

At the annual Jackson Hole conference, Fed Chair Jerome Powell attributed inflation to "rapid increases in demand, strained supply chains, tight labor markets, and rising commodity prices." But is that really the full story? Powell conveniently leaves out two major drivers: the national debt and the expansion of the money supply.

The Role of Government Spending and Money Supply

Over the last few years, the U.S. government borrowed $6.4 trillion during the pandemic, raising the national debt by 28%. At the same time, the money supply grew by 40% from 2020 to 2021. This massive surge of money, combined with record government spending, caused inflation to rise sharply. Friedman would have called this a textbook case of "too much money chasing too few goods."

Yet, the media and policymakers avoid pointing fingers at the Fed for its role in fueling inflation. In FOMC press conferences, questions about the national debt or money supply are rarely asked. Instead, they want us to believe that inflation magically spiked in 2022 due to external factors.

A Convenient Narrative

By focusing on supply chain issues, labor markets, and commodity prices, the Fed is avoiding its own responsibility for the inflation spike. It’s a convenient narrative that absolves policymakers and shifts the blame to external forces. But ignoring key factors like government spending and money supply doesn’t change the facts—it only hides them.

Housing and Inflation: What You Should Know

Inflation erodes the value of money, making everything more expensive, from building materials to labor. This means home prices are likely to stay high, even as mortgage rates rise. While demand for housing hasn’t surged because of high mortgage rates, prices are still inching upward.

Housing Inventory Trends and Mortgage Rates in 2024

In 2024, housing inventory has been a key focus. While higher mortgage rates have helped slow down the pace of home depletion, we’ve recently seen a slight decline in available homes. This is despite a traditional seasonal slowdown in new listings, making 2024 the second-lowest year on record for new listings.

Currently, 39.3% of homes have seen price cuts, compared to 36% last year, as sellers adjust their expectations. And with mortgage rates dropping over 1% recently, we could see more activity in the market soon.

The Impact of Falling Mortgage Rates and Economic Outlook

The recent dip in mortgage rates, combined with a weakening labor market, could bring more buyers into the market. However, inventory remains low compared to pre-pandemic levels. If demand picks up, we might see a quick depletion of homes, keeping prices high. Keep in mind, though, that rates aren’t likely to return to the ultra-low 2-3% range we saw in recent years.

Next Steps for Homebuyers

Take a deep breath—rates are improving! But while this is good news, you still need to be mindful of your financial situation.

• The Best Time to Buy a House is When You’re Buying Within Your Means
  Make sure your home purchase fits your budget and long-term financial goals. Mortgage rates are improving, but it’s crucial to have a clear understanding of your income, savings, and potential expenses. Don’t wait for the "perfect" moment—if you’re ready and the numbers make sense, now could be the right time for you.

• The Best Time to Refinance is When the Benefit Outweighs the Cost
  Refinancing could lower your payments or shorten your loan term. But make sure to weigh the costs against the potential savings. With more rate improvements likely on the way, it’s smart to stay informed and calculate whether refinancing makes sense for you.