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Economic Policy is as simple as FOMO

I never realized how much of monetary policy is like a poker game but I really should have. Markets moved this week based on commentary that there are two more rate hikes on the horizon, however – most analysts feel the Fed is straight up bluffing. You see, they know that markets are watching them and pricing in their moves ahead of time. And they wany to keep the fixed income markets and the equity markets in line. Which is why they might be pretending to be extra-hawkish.

Not a bird enthusiast?

Let me explain what hawkish and dovish mean in the first place. These terms are used to describe the central bank’s policy stance in relation to interest rates. When they are controlling inflation, they are hawkish. When they are stimulating economic growth, they are dovish. Hawkish commentary or posturing involves both a strict and aggressive approach to monetary policy with the goal of achieving or maintaining price stability. Dovish is when they are lenient and cool, they want to inject funds into the economy to support growth and employment and keep everyone fat and happy, but also active – at least with their wallets.

Smart Money is trying to skip FOMO

Investors want to be able to sell at higher prices, right? So Wall Street pushes FOMO but the Fed is aware of this and might be why they have to go all in on being hawkish even if the face of increasing happier inflation numbers. The University of Michigan’s latest consumer survey showed that Americans in general are feeling much better about inflation. The Federal Reserve Bank of New York also did a consumer survey which showed that near-term inflation expectations were the lowest they’ve been in the past two years.

So if main street is already celebrating inflation cooling then the Fed is concerned Wall Street will already be capitalizing on the next shift. So using stern language is their strategy to keep fixed income markets from assuming their next move is down and secondly to ensure that equity markets don’t push higher. Because those two dynamics have the ability to curb our progress towards deflation.

Basically, if everyone starts buzzing around again dropping coin because inflation is under control, prices will shoot back up. To avoid this the Fed wants us to believe it’s not as under control as it really is.

Main Street

Let’s talk more about what’s actually happening on main street. The Realtor Confidence Index came out for May. This report measures outlook, will-to-live and overall sentiment in our industry, amongst our colleagues and how they vary from the previous month. It showed that while mental health has been a serious concern, it seems that we’ve turned a corner….kidding. The Realtor Confidence Index actually polls realtors for real time information on the trends they are seeing as boots on the ground. The May report showed that there were 3.3 offers per sale. The all time high on this reading was 5.5 offers per sale and that was in April of 2022. May numbers also showed that 31% of homes sold above list price. Nationwide, there is a 3-month supply of homes. Two months ago, homes were on the market 29 days. One month ago, 22 days. May’s data shows 18 days.

If you’ve been feeling trapped in your current home, for whatever reason, those numbers indicate it’s a real good time to be a seller. I also don’t think we will see a huge movement in interest rates over the next month or two. The Fed is not going to get a ton of new information before their next meeting to discuss a rate hike, one more jobs report and one more inflation report (which is likely going to show very good numbers). So it’s highly unlikely they reason to end their “pause.” But I bet their commentary will be super hawkish while their actions are really dovish.


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