Why Hot Inflation and Mixed Job Data Are Worrying The Fed
Published: 2024-11-01
Status:
Available
|
Analyzed
Published: 2024-11-01
Status:
Available
|
Analyzed
Predictions from this Video
Incorrect: 0
Prediction
Topic
Status
Wall Street anticipates the Federal Reserve will cut interest rates, driven by a belief that inflation is no longer a concern and as a means to stimulate the economy.
"Wall Street believes that the Fed is going to cut interest rates again because number one, they believe that you no longer have to worry about inflation. And number two, as a way to continue stimulating the economy."
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US GDP grew at a 2.8% annualized rate in Q3 2024, indicating strong economic expansion.
"our GDP grew by a 2.8% annualized rate in the third quarter of 2024 which is still very fast."
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Major stock market indices (Dow Jones, NASDAQ, S&P 500) have recently reached new record highs.
"Over the last few days, we saw many indexes in the stock market break new record highs. The Dow Jones, the NASDAQ, the S&P 500 have all been booming."
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US layoffs in October reached a three-month low.
"layoffs in the United States in October fell to a three-month low."
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The number of individuals receiving unemployment benefits for over a week has reached a three-year high.
"the number of people that are still drawing unemployment checks after one week is now at a three-year high"
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The job market is characterized by employers retaining existing talent rather than aggressively hiring or laying off staff, focusing on maintaining a lean payroll.
"employers are not necessarily hiring more people, but they're also not necessarily laying more people off where it's kind of this holding game where a lot of employers are just trying to keep their good talent, but they don't want to have a bloated roster on their payroll"
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Due to rising mortgage rates, a typical home buyer's purchasing power has decreased, reducing the affordable home price from $475,000 to $442,000 in a short period.
"in September, a typical home buyer could afford a $475,000 home. Today with mortgage rates jumping up, that same home buyer can only afford a $442,000 home"
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Home buyers have experienced a loss of approximately $33,000 in purchasing power over the past six weeks.
"Redfin says that home buyers have lost around $33,000 of purchasing power in just the last 6 weeks."
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30-year mortgage rates dropped below 6% in September, but subsequently rose as the Federal Reserve indicated a less aggressive approach to interest rate cuts, leading to an increase in the 10-year yield.
"The 30-year mortgage rate fell a little bit below 6% in September. But then after the Federal Reserve Bank cut interest rates and said that maybe they won't be as aggressive with their interest rate cuts, we saw the 10-year yield begin to rise."
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Some individuals on the internet believe the Federal Reserve might make politically influenced decisions regarding interest rate cuts, potentially favoring one political party over another.
"many people on the internet who believe that the Federal Reserve Bank may make a political decision. What does that mean? Well, they may be more inclined to cut interest rates if one person is in power versus the other."
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The United States national debt is reported to be $35 trillion.
"We have $35 trillion worth of national debt."
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Continuing to print money and accumulate debt could lead to a significant economic tipping point, resulting in a deep recession or hyperinflation.
"if we continue printing more money and going down this route, we're eventually going to hit a tipping point. And that's going to put us into a deep recession or potentially even hyperinflation"
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Higher interest rates tend to depress asset prices because the increased cost of debt for asset acquisition necessitates a higher rate of return, making assets less attractive.
"higher interest rates pull asset prices lower because if you need more debt to go out to buy an asset, and the debt is going to cost you more dollars, you're going to need a better rate of return to buy this asset. So generally higher interest rates pull asset prices lower"
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Lower interest rates have the effect of increasing asset prices.
"lower interest rates can inflate asset prices."
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The Federal Reserve typically cuts interest rates to stimulate the economy and boost inflation; however, the question arises whether continued rate cuts are necessary if inflation remains high and the economy is strong.
"The Fed generally would want to cut interest rates as a way to stimulate the economy and as a way to continue boosting inflation. But if inflation is still high and the economy is strong, do we need to keep cutting interest rates?"
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A recession is predicted to occur at some point in the future, and opportunities will arise for those who can identify market shifts.
"There will be a recession. Nobody knows when, but there will always be opportunities if you can identify those market shifts."
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