Weekly Focus: FOMC Minutes & Housing
FOMC Minutes Serve as Another Attempt to Boost Optimism for June Rate Hike
April’s FOMC meeting minutes (Wednesday) may be
lagged but they have the potential to shift expectations on another rate
increase in the near future. While June remains a “live meeting”, the
FOMC has not yet given us a strong signal that they are ready to raise
rates again next month. The fact that April’s statement was deceivingly
hawkish (removing the word “risk” from the entire announcement) could
ignite some public optimism if the minutes more clearly convey the
positive focus on the economy. Many are concerned that the latest sub-
200K employment report may damper any plans for June, but in reality,
job growth remains healthy and very much on track with the Fed’s outlook
for lower unemployment. Along with the positive movement in inflation,
U.S. economic conditions alone should warrant a continuation of the
Fed’s gradual normalization process. Esther George (FRB Kansas City) –
the notoriously hawkish voting member of the FOMC – recently noted that
“I support a gradual adjustment of short-term interest rates toward a
more normal level, but I view the current level as too low for today’s
economic conditions.” However, lingering uncertainty from the global
economy and low market expectations may have the power to force another
delay (as was the case back in September 2015). Even still, some of the
more dovish voting members have come out in support of a rate hike in
the near future, including Eric Rosengren (FRB Boston) who argued that
“the market remains too pessimistic about the fundamental strength of
the U.S. economy, and the likelihood of removing monetary accommodation
is higher than is currently priced into financial markets based on
current data.” Yellen and her colleagues have emphasized the importance
of the overall path of interest rates rather than just each individual
move, but the longer they wait to hike again, the more weight they are
putting on the 25 basis point moves and making each nearly as important
and anxiety-fueled as the first hike back in December.
Housing Starts and Existing Home Sales Expected to Rise in April
April’s housing starts (Tuesday) are expected to break above 1.15M units SAAR, after they disappointed somewhat in March, when they stood at 1.09M. Builder confidence in April remained solid, especially due to a significant gain in prospective buyers’ traffic compared to the same time last year. The 1.15-1.2M level of housing starts is in line with the current rate of household formation, which contributes to a balanced, although still somewhat tight market, especially in the lower price ranges. Existing home sales for April (Friday) are expected to come close to 5.39M SAAR, which would be 4.9% higher YoY. The gain will be supported by the still favorable interest rate environment and a solid gain in the pending home sales index in March. The inventory of both new and existing homes for sale increased in the previous months, which should help sales in April and onwards.
