Pre-Market Stocks: The Fed Could Dampen the Housing Market

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A Growing Area of ​​Concern: Housing. Rising interest rates can lead to higher mortgage rates, making people think twice about buying a home.

So far, sales are declining, but prices remain constant. But some economists warn that the Fed’s continued historic rate hikes could put the housing market at risk, highlighting the tough task ahead for the central bank.

What’s happening: Home prices rose 0.7 percent in August and rose 6.2 percent year over year, the biggest increase since 1991, according to Tuesday’s consumer price index report.

That increase was due to higher-than-expected inflation in August. Coupled with a tight labor market, those higher rates will give the Fed a reason to remain tight-fisted at its policy meeting next week and beyond, Marvin Loh, senior strategist at State Street, told me.

The Fed should ease housing costs by half a percentage point to reach its ultimate inflation target, Loh added.

The task will not be easy. Home prices are likely to remain stubbornly high as the Fed works to deal with them.

Housing prices are “the kind of sticky inflation that’s not going to ease anytime soon,” RSM US chief economist Joseph Brusuelas told me. “That’s why the Fed needs to make a show of commitment by raising its policy rate by 75 basis points at its September meeting, despite cuts in transportation and energy stimulus.”

The Concerns: Some economists see weakness in the housing market. Home sales fell in July for the sixth month in a row. Housing starts, a measure of new home construction, fell that month as the price of building materials rose and buyers were out of the market.

So should the federation continue its historic journey? The central bank should tread a cautious line — the housing slowdown preceded nine of the past 12 recessions, and investors haven’t forgotten America’s worst housing crisis in 2008.

Remember: The CPI report on housing lag has some reason to suggest what’s going on in the market.

Still, the Federal Reserve officials face a tough decision in the coming months. Do you use the housing market’s resilience as a mandate to drive rapid growth and risk exposure?

Americans should prepare for a heating bill shock this winter

Gas prices are falling in the US. But summer is coming and the CEO of Chevron, one of the world’s biggest energy companies, has warned that the relief at the pump will soon be offset by sweaty heating bills.

Chevron Chairman and CEO Mike Wirth said in an interview with CNN’s Poppy Harlow, “There is certainly a risk of increased costs for American consumers.”

“Russia’s exports are limited, and it is not talking about the weight gain seen in Europe, where natural gas prices have risen,” reports my colleague Paul R. La Monica.

But Wirth warned in an interview Tuesday that U.S. prices “could go up significantly” this winter.

Fuel prices are still there. It is up more than 15% this year. This has helped boost sales, earnings and the stock price of companies like Chevron. The oil producer’s shares are up 36% year-to-date, while the broader S&P 500 is down 17.5%.

Wirth admits his company is making huge profits while Americans struggle.

“I understand that high energy prices are difficult for consumers. That’s why we talked about increasing production, trying to increase supplies to the market in commodity trading,” he said. “You go through these cycles. Two years ago we were losing a quarter of a billion dollars. Now we’re turning a solid profit.”

Bearish investors flock to cash

A more bearish and pessimistic fund manager on Wall Street is selling stocks and piling on cash, according to a Bank of America survey published Tuesday.

Bank of America chief investment strategist Michael Hartnett wrote in a survey of 212 fund managers that “investors’ perception of the global economy is weak in September.” In September, more than half a trillion dollars in assets under management.

72% of respondents expect a weaker economy in the next 12 months, up 5 percentage points from August. The share of investors who say the economy is in recession rose to 68 percent in September, the highest since May 2020.

Unsurprisingly, Wall Street is encouraging corporate earnings to soften and stocks to continue to decline, the survey found. Investors’ cash level rose to 6.1% from 5.7% last month, the highest ever. Since the September 11 attacks in 2001.

Next

The August producer price index, a key gauge of US inflation, is due at 8:30 am ET.

Join CITIZEN on CNN at 2pm ET with inflation, jobs and economy reporters Paul LaMonica, Phil Mattingly, Christine Roman and Vanessa Yurkevich. Answer here.

Coming tomorrow: Focus will be on the meeting between Russia’s Vladimir Putin and China’s Xi Jinping.

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