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@Katadori09
7 ай бұрын
The Fed is doing the right thing by keeping interest rates high. The second they let up, prices are going to surge. We need to wait until the sentiment is so beaten that no one ever wants to touch investments again. That’s when they can let up and speculators won’t drive the market up. Otherwise, we’ll just be starting rate hikes again in a year or two. There should be no rate decreases until housing prices have declined to a price:earnings ratio of 4. Anything before that is premature.
@TheEducatedHomebuyer
7 ай бұрын
It's very simplistic to think Fed policy could target housing, one segment of a massive and complex economy, effectively and without causing far more damage than the hoped for positive effect could ever create. It's surprising to see the number of commenters use the logic of: Fed caused problems by being much too stimulative for much too long (TRUE), so the solution is the Fed being much too restrictive for much too long (FALSE). Thanks for watching and commenting. We appreciate it.
@Katadori09
7 ай бұрын
@@TheEducatedHomebuyer I never said it would be damage-free. We need a reset. That comes with damage. I’ve lived through previous downturns, so I’m not a spring chicken who does not know what it’s like. I am also in the top couple percent of income earners, and have a lot of money in the stock market. I could live with higher prices and I’m not suffering, in fact I an benefitting from it. But this is not about me. Society cannot go on like this, and the bottom is going to fall out on our situation, one way or another. Our choice at this point is whether we reset it on our own terms, with a controlled demolition, or whether it happens to us without a say in the matter. The latter is a worse alternative, because then it breaks in ways we can’t prepare for, and with timing that could be very bad. It’s a national security vulnerability as well. We need to engage in long-term, strategic thinking even if it’s bitter in the short term. That is my opinion.
@TheEducatedHomebuyer
7 ай бұрын
I think we agree more than we disagree but we don't see the government voluntarily kick starting its own reset. Thanks for watching and sharing your thoughts!
@peaslead
7 ай бұрын
100%% there is no need to pivot right now. We need to get back people understanding that high rates aren't going away.
@Koushi82
7 ай бұрын
Never higher for longer. Until houses crash to 3x median local hh income max for 1500 sqft
@Truebaconluver
7 ай бұрын
Lol
@TheEducatedHomebuyer
7 ай бұрын
Fed policy won't be causing a housing market crash. The average loan to value for those with mortgages is 46%. 80% of those have rates under 5%. Nearly 40% own their home free and clear. You've seen over the last 18 months, they will sit in their homes with no, or small, cheap mortgages before they will ever sell at the massive discount most propose. We can certainly continue to see ultra low sales volume but there won't be a crash in prices and if Fed policy were to pursue that, it would do 10x the damage relative to the hoped for positive of more affordable homes. We understand the desire (and the overall good lower home prices would bring) but there's no reasonable mechanism to cause it.
@Katadori09
7 ай бұрын
@@TheEducatedHomebuyer there’s equity, and then there’s liquidity. Doesn’t matter how good the loan rate is if you get laid off and run out of savings. A market event, of the sort that freezes liquidity and causes massive layoffs, would be entirely indifferent to people’s equity or locked in interest rates. Can’t cash out that equity if no one’s lending or buying.
@angleazero1275
7 ай бұрын
You are right us the buyers feel that we are confused and pulled in different directions. Thanks for this video!
@TheEducatedHomebuyer
7 ай бұрын
You're not alone. It's been a tough market for pros and consumers to project since March of 2020....Hoping we get back to whatever the new normal is in the next 12-24 months.
@nonexistent5030
7 ай бұрын
If fed pivots without unemployment spiking they'll lose the bond market. If they lose the bond market this gets way worse. Nothing wrong with waiting for clear economic pain before pivoting. Better than speculating and pivoting too soon.
@nonexistent5030
7 ай бұрын
Real rates aren't high relative to pre-GFC. These rates are pretty close to sweet spot.
@TheEducatedHomebuyer
7 ай бұрын
Spiking unemployment is already there. The government adjustments are the only thing that made the January NFP data positive. Every report that isn't significantly "adjusted" is showing jobs and hours worked continually decreasing month over month. Powell has cover to hold off at the March meeting absent a big downturn in the data over the next 6 weeks. It's important to remember that it's wise for the Fed to talk up the current policy (meaning literally the decision from the previous meeting) until they are ready to cut. We've already seen the market front run a cut on about 4 different occasions. If he actually signaled a cut at the next meeting, the markets would go nuts and he absolutely doesn't want that. March is still in play but it would take a weak February jobs report and 2 really good CPI readings. The futures market has it at 20% chance as of today. I'd say that's about right in light of the data released since last Wednesday and the positive way it's been spun despite weak internals for anyone actually willing to look under the hood. Thanks for watching!
@TheEducatedHomebuyer
7 ай бұрын
2.5%, roughly where we sit right now, is close to neutral but inflation will be at 2% in the next 6 months and you'll have 3.5% real rates. Also, pull up the chart of real rates on Fred and look at the long term trend which has been lower. fred.stlouisfed.org/graph/?g=1eWa1 It's not unreasonable to expect the neutral Fed funds rate to be lower than it was from 1980-2000. If we're looking for pre-GFC, no Fed intervention normal, that period from 1960-1980 is probably it. Real rates ranged from -2.5% to 5.0% with the peaks immediately preceding recessions. That was all 45-65 years ago, so be careful with comparisons but 1980-present has been primarily characterized by a heavy Fed thumb on the scale.
@nonexistent5030
7 ай бұрын
@@TheEducatedHomebuyer Yeah I saw that, definitely not GAAP accounting! Markets don't seem to care but markets often don't seem skeptical enough. While I appreciate there's way more weakness in the labor market than is being reported, not sure the current state counts as the level of pain Powell promised back in 22 during Jackson Hole. I think he wants more confirmation that labor market is truly in need of saving before cutting. I agree he's hesitant to cut because the bond market is so demanding on the level of easing and I don't think he feels he has to or wants to give it that much. Especially so soon, think it's possible we might see a fed reaction function wildly different from the last 2-4 decades of a more steady slope down, maybe with some Alphabet Soup facilities to stabilize without truly cutting, like with BTFP. One of the reasons for this is Powell acknowledged that treatment of QE/QT is going to be considered totally separate from rate policy. That's inconsistent with the last 20 years of fed behavior and suggests they may be shifting in how they think about managing rate markets. But it's still too early to tell. While real rates rise as inflation falls, if fed rate comes down to 4% even and stabilizes there, 10 year can't stay where it is and mortgage rates cant stay where they are. That's why I say they seem close to sweet spot. Course I could be totally wrong! I also think one may want to be cautious in assuming compression of the MBS vs the 10 year to historical averages. Seems like with Powell's most recent remark that the housing market is not part of the Fed's mandates that they may continue allowing MBS to roll off even while cutting rates and so that spread may likely stay higher than historical norms at least until that business is through. Keep up the great content.
@TheEducatedHomebuyer
7 ай бұрын
We definitely live in interesting times. Far too much to keep track of and we definitely need a different approach from the Fed, and more importantly the Federal Government, going forward versus the last 20 years. Thanks for the support, questions and insights. We appreciate it!
@20250ai
7 ай бұрын
Inflation increase is measured by comparing to last year's rate. But we have been having hyper inflation accumulation since 2021 for the last 3 years, so even when the inflation rate slows down this year at "only" at 2.9% compared to the record high of last year, we all are seeing the huge pain of everything from insurance, rent, foods and housing, going up by over 100%compared to the affordable standard in 2020. Plus they use core CPI that excludes food and energy prices, which is so bullshxx bc who on earth can survive without foods and energy?!!! So the second the Fed lowers interest rate, inflation and cost of living will be skyrocketed again for sure!
@TheEducatedHomebuyer
7 ай бұрын
You are 100% correct that the growth rate of inflation is entirely different than the level of prices. It simply means prices are no longer increasing at an unacceptably high level. It doesn't fix the pain of $20 fast food meals or 50% increases for insurance. They focus on core when setting policy, not because those categories don't impact you, but because Fed policy has little to no impact on food and energy prices. If the Fed were to take real rates back negative, you are correct that the inflationary trend from 2021-2023 would likely return. Cutting Fed Funds to keep real rates in the 2.5% range won't have the same result. It will simply prevent the economy from falling into recession and causing more pain. Thanks for watching and commenting.
@20250ai
7 ай бұрын
@@TheEducatedHomebuyer it's the delicate balance between inflation/cost of living and high interest rate/recession, but there is no significant sign of recession so what is the hurry to lower the interest while inflation and cost of living are still very high and unaffordable.
@TheEducatedHomebuyer
7 ай бұрын
There are many signs of a rapidly slowing economy. For some reason, the media wanted to spin last week's NFP data as sign of a strengthening economy when a cursory ready shows exactly the opposite. No net new FT jobs in the last 12 months. Less hours worked. Low labor force participation. No increase in weekly wages. Huge adjustments (that the gov't makes every year) that take negative job creations and make it a 2x beat while ADP, based off of actual payroll data shows massive weakening. The Fed should have hike before they got slammed in the face with a huge inflation spike. They should also cut before they run the economy aground. We agree that it is not the Fed's job to be exceptionally stimulative like they have been for the better part of 20 years. That's very different than being restrictive as we walk in to a low/no growth economy.
@20250ai
7 ай бұрын
@@TheEducatedHomebuyer Stock markers and corporate profits are at the record high. GDP growth at 3.3% annually and 4.7% quarterly. Unemployment rate at record low of 3.7%. There are really no signs of recession, so why would the Fed exacerbate the inflation pain by lowering interest rate to prevent something that is remotely and unlikely to happen?
@TheEducatedHomebuyer
7 ай бұрын
Hopefully you stay tuned the rest of the year. We can revisit the conversation about this incredibly robust economy you are enjoying that can withstand ever increasing real interest rates as inflation drops back below 2%.
@chrisginoc
7 ай бұрын
You guys remember how the FED took too long to raise rates into 2022? They'll do the same by keeping them high too long
@TheEducatedHomebuyer
7 ай бұрын
VERY real possibility, especially in light of Powell's comments after the meeting last week and on 60 Minutes. Several Fed members out speaking yesterday and reading from the same playbook. We'll have far more insight after the March meeting as they won't have all the "strong data" they have been pointing to as justification for higher for longer. Thanks for sharing your thoughts.
@angleazero1275
7 ай бұрын
Thanks!
@duanesmith3144
7 ай бұрын
So let me understand this correctly, you all believe that the best thing to do to address demand in this economic environment is to reduce the fed rate and introduce more money supply? How does this slow demand and too much money chasing too few goods? This is only going to usher in more inflation.
@TheEducatedHomebuyer
7 ай бұрын
Reducing rates does not increase money supply in any way. M2 spiked during the pandemic because of QE where the FEd purchased nearly 100% of treasury and MBS issuance. The narrative of too much money chasing too few goods is about 2 years out of date, which is why we've seen inflation at 2% over the last 8 months. Give it 4 more readings and core inflation will be right at 2%, before summer. Negative savings rate: fred.stlouisfed.org/series/W207RC1Q156SBEA Excess savings from pandemic exhausted: www.frbsf.org/research-and-insights/data-and-indicators/pandemic-era-excess-savings/ Record credit card debt and delinquencies: www.cbsnews.com/news/credit-card-debt-record-high/ So, the supply/demand stuff has been worked out. Keep Fed funds elevated as inflation continues to contract and the dream of a soft landing will be history. Keeping rates too high for too long not only doesn't solve the problems created by taking rates too low and keeping them too low for too long, it creates a whole new set.
@duanesmith3144
7 ай бұрын
A genuine thanks for your reply! I’m going to have to respectfully disagree with you again however. In the United States, the Federal Reserve Bank implements monetary policy (money supply) through a dual mandate to achieve maximum employment while keeping inflation in check. The central bank may change the interest rates or the required collateral that it demands. In the U.S., this rate is known as the discount rate. Banks will loan more or less freely depending on this interest rate. It is painstakingly factual that lowering interest rates would result in banks and credit agencies increasing their appetite for risk and therefore introducing more cheap money (“debt”) back into the market and cause more inflation. If the Fed lowered interest rates the way in which you’re suggesting, in 4 more readings we would be back where we started if not worse. You want to lower the interest rate while also keeping inflation in check? Fine, but that is not going to happen without increasing reserve requirements to keep the banks in check. But it’s no secret that the banks don’t want this because they know it lessens their ability to lend money; and we all know it is not the banks’ responsibility to keep inflation in check - they’re their to make profit. And they can’t do that without lending more money. Therefore, no pivot.
@TheEducatedHomebuyer
7 ай бұрын
Thanks Duane. We are always open to respectful disagreement. Let's say we agree to disagree. Come back in 90 days and let's compare notes...maybe every 90 days for the rest of the year. It's going to be an interesting one. Thanks for watching and commenting. And to clarify....we are not suggesting accommodative rate policy in any way, simply stating that as inflation recedes, it will be appropriate to keep real rates in the current range. More importantly, we hope to not see negative real rates again in our lifetime...probably wishful thinking.
@duanesmith3144
7 ай бұрын
Looking forward to it. Subscribed.
@duanesmith3144
6 ай бұрын
@@TheEducatedHomebuyer Any thoughts on the most recent inflation report? How do you interpret the data signaling higher inflation and has your stance remained the same about lowering rates sooner rather than later?
@Love4puppies
7 ай бұрын
That's interesting Josh! I have not heard anyone say a possible 1/4 point rate cut in March. But the way you explained it makes sense:)
@TheEducatedHomebuyer
7 ай бұрын
Odds are lower now in light of the absurd January payroll numbers but we should have 2 really good CPI reads and a more reasonable jobs report before the next meeting. It's possible but certainly looking less likely than when we recorded the episode.
@Love4puppies
7 ай бұрын
@@TheEducatedHomebuyer I forgot it was recorded prior to Friday's job numbers.
@TheEducatedHomebuyer
7 ай бұрын
If we planned ahead a little better, we would have recorded the episode this week in light of last week's Fed meeting and Friday's NFP. The overall take is still the same but all of that definitely impacts the timing of cuts. May is very likely right now simply bc March is so soon and there are no meetings in Feb or April so doing nothing in May would be way outside of the norm historically and would only happen if the magical "strong" economic data keeps coming for 4+ months.
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