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The last week of July was jam-packed with news, including a Fed rate hike, hot inflation numbers, crucial housing data and a negative reading for second quarter GDP. Here are the key headlines:
As expected, the Fed hiked its benchmark Fed Funds Rate by an aggressive 75 basis points at its meeting last Wednesday. This follows the 75 basis point hike they made at their June meeting, and marks only the second time the Fed has hiked by 75 basis points since 1994.
Note that the Fed Funds Rate is the interest rate for overnight borrowing for banks and it is not the same as mortgage rates. The main tool the Fed uses to curb inflation is hiking its benchmark Fed Funds Rate, so counterintuitively Fed rate hikes can be good for mortgage rates if they’re perceived to curb inflation.
What’s the bottom line? During his press conference, Fed Chair Jerome Powell said that another “unusually large increase could be appropriate” at their meeting on September 20-21, but it will depend on the data received between now and then. This includes the July and August Jobs Reports, as well as key inflation numbers. Unusually large means they are leaving another 75 basis point hike on the table for September, but they may have to moderate the amount based on data we receive.
Consumer Inflation Reaches 40-Year High in June The Fed was certainly watching on Friday when its favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that inflation rose a hotter than expected 1% in June. The year over year reading rose from 6.3% to 6.8%, which was higher than the 6.7% expected and the highest reading since 1982. Core PCE, which strips out volatile food and energy prices, rose by 0.6%, pushing the year over year change from 4.7% to 4.8%.
Signed Contracts on Existing and New Homes Slowed in June Pending Home Sales fell 8.6% from May to June, coming in much weaker than the 1% decline expected. Sales were also 20% lower than they were in June of last year. This is a critical report for taking the pulse of the housing market, as it measures signed contracts on existing homes, which represent around 90% of the market.
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