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Aftershocks have the most impact. Powell and Co. filled the airways this week with post-FOMC meeting chatter. The take-away from Federal Reserve Chair Jerome Powell’s two-day testimony before the House Financial Services Committee and the Senate Banking Panel was the desire for rates to go higher but slower this time. As Powell explained it, “Earlier in the [tightening] process, speed was very important…it is not very important now.” Nearly all the FOMC members expect to increase rates “somewhat further this year” to move inflation closer to the 2% target. Throughout the Q&A discussions with politicians, Powell positioned himself more in favor of multiple rate hikes than he expressed during last week’s press conference. At one point during the Q&A sessions, Powell was finally pushed to suggest it’s a “pretty good guess” there will be two additional hikes this year.
To be fair, not everyone conveyed the same aggressive sentiment. Atlanta Federal Reserve President Raphael Bostick said he is in the “wait and see camp.” He would like to let the previous rate hikes work through the economy for a little while and see if that brings down inflation. Chicago Federal Reserve President Austan Goolsbee has not decided what to do at the July meeting. Goolsbee said more time is needed for rate hikes to play out and that could take several months.
As Powell laid out the groundwork for higher rates, so did central banks across the waters, intensifying the global fight against inflation. The Bank of England unexpectedly raised its benchmark interest rate by a half percentage point, stepping up its fight against the worst bout of inflation since the 1980s and warning it may have to hike again. The Turkish Central Bank raised the benchmark rate 650 basis points to 15.0%, its first rate increase since 2021. The Swiss National Bank hiked a quarter point to 1.75%, with a promise of more to come. Norway’s central bank, Norges Bank, increased its benchmark rate 50 basis points to 3.75%.
Key Indicators this Week
Housing – The housing market remains a tale of opposite forces. Dwindling inventory and higher interest rates are pushing buyers to the new home market. Builders are doing their best to meet demand. Construction on new homes surged 21.7% in May, the biggest monthly jump since 2016. On the other side, sales of existing homes rose just 0.2% in May as the number of homes for sale was 6.1% lower than a year ago. The median price of a previously owned home fell 3.1% from a year earlier but is 46% higher than before the pandemic.
Strategically for Credit Unions
Interest rates surged this week as the bond market absorbed the central banks’ agendas. Treasury securities across the curve rose seven basis points in one day. The yield curve closed at -99bps. The curve has been toying with -100bps this week for the first time since March, when the curve inverted by 108bps. If it closes above -100, it will be the fourth time since 1981 to be inverted by triple digits.
Note: Behind the Numbers will not be published next week. The report will resume on July 7 with the Monthly Overview and Data Report.
Sarina Freedland – Senior Investment Officer
Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.
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