Stocks ahead of the market: The Fed could crash the housing market

An area of ​​increasing concern: housing. Rising interest rates can mean higher mortgage rates, which can make you think twice about buying a home.

So far, sales are declining, and prices are holding steady. But some economists have warned that the Fed’s continued historic rate hikes could risk crashing the housing market, underscoring the central bank’s difficult task.

What’s Happening: According to Tuesday’s Consumer Price Index report, home costs rose 0.7% in August and are up 6.2% year-to-date, the largest increase since 1991.

This increase was higher than the expected rate of inflation in August. Combined with a tight labor market, those high prices give the Fed reason to stay tight-lipped at its policy meeting next week and beyond, Marvin Loh, chief strategist at State Street, told me.

The Fed needs to see housing costs fall by about half a percentage point to meet its ultimate inflation target, Loh added.

The work will not be easy. Home prices may remain very high, even as the Fed works to address them.

Home prices are “the kind of sticky inflation that’s not going to ease anytime soon,” Joseph Brusuelas, chief economist at RSM US, told me. “That’s why the Fed will have to show a show of resolve by raising the policy rate by 75 basis points at the September meeting despite encouraging declines in transportation and energy.”

Risks: Some economists are noticing weakness in the housing market. Home sales fell for the sixth month in a row in July. Housing starts, a measure of new home construction, also fell that month as the cost of construction supplies remained high and prices for prospective buyers pulled out of the market.

So should the Fed maintain its historic hike? The central bank needs to be careful: a housing slowdown has preceded nine out of 12 recessions, and investors haven’t forgotten America’s catastrophic housing crisis in 2008.

Keep in mind: While there are some reasons to suggest that the housing CPI report is lagging what’s happening in the market, and to suggest that home prices are already falling, we’re nowhere near a market collapse.

However, Federal Reserve officials will face a tough decision in the coming months. Are they using the resilience of the housing market as a mandate to go ahead with aggressive rate hikes and risk a crash?

Americans should prepare for a heating bill shock this winter

Gas prices are falling in the US. But winter is coming and the CEO of Chevron, one of the world’s largest energy companies, is warning that the relief at the pump could soon be offset by sweaty heating bills.

Chevron Chairman and CEO Mike Wirth said in an interview with CNN’s Poppy Harlow that there is a “risk of rising costs” for American consumers.

Wirth doesn’t foresee an increase of the magnitude seen in Europe, where natural gas prices have risen because Russia has curbed exports, says colleague Paul R. La Monica.

But in an interview published Tuesday, Wirth warned that U.S. prices could be “significantly higher” this winter.

Oil prices are still there It has increased by more than 15% this year. This has helped boost sales, profits and stock prices for companies like Chevron. The oil producer’s shares are up 36% for the year, while the broader S&P 500 is 17.5% lower.

Wirth acknowledged that his company is making big profits while Americans are struggling.

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

Bearish investors go to the money

On Wall Street’s doom and gloom, pessimistic fund managers are selling stocks and piling on cash, according to a Bank of America survey released Tuesday.

“Investors’ perception of the outlook for the global economy remains murky in September,” Michael Hartnett, chief investment strategist at Bank of America, wrote in a report that surveyed 212 fund managers. assets under management in excess of half a trillion dollars as of September.

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

Not surprisingly, Wall Street is bracing for corporate earnings to soften and stocks to continue falling, the survey showed. The level of money held by investors increased to 6.1% from 5.7% last month, their highest. level since the attacks of September 11, 2001.

the next

The August Producer Price Index, another important measure of US inflation, was released at 8:30 am.

Join CITIZEN by CNN at 2pm ET with reporters Paul LaMonica, Phil Mattingly, Christine Romans and Vanessa Yurkevich for a panel on inflation, jobs and the economy. Answer it here.

It will come tomorrow: The focus will be on the meeting between Russia’s Vladimir Putin and China’s Xi Jinping.