07/05/2024
I hope you had a fantastic 4th! Let's catch up on the latest in the economy.
Thanks to Branch Manager Heather Devoto of First Home Mortgage here’s what you need to know:
With the new non-farm payroll report, we now have a clearer picture of the current economic state. Here’s the scoop:
Context & What’s Changed
Inflation and Interest Rates: The economy moves in cycles, and the current cycle began after the pandemic reopening. Prices for goods and services increased significantly. The Federal Reserve raised interest rates from nearly zero to about 5.50% to control inflation. Mortgage rates also increased, going from around 3% to 7%.
Fed’s Goals: The Fed aims to keep inflation at 2% and maintain low unemployment.
Current Situation: Inflation is around 2.6%, getting closer to the target. Despite the rate hikes aimed at slowing the economy, the unemployment rate remains low at 4.1%, with 206,000 new jobs recently added.
Here's a chart showing the recent trend in inflation. We've kept inflation below 3% since October, and last week it was down to 2.6%. We're close to the Fed's goal of 2%.
The Fed’s Current Debate
Challenge: The Fed’s policies seem to be working, but inflation hasn’t reached the 2% target yet.
Caution: They are cautious about cutting rates too soon.
Economic Growth: Growth is slowing, and hiring is decreasing. The current policies might push the economy toward a recession.
Upcoming Decision: The Fed needs to decide whether to cut rates at the next FOMC meeting on July 31st, with a potential rate cut expected in September.
Presidential Debate Update
Polls: Recent polls show Trump leading Biden by 6 points.
Upcoming Interview: Biden’s upcoming interview could influence his campaign.
Market Reaction: The market reacted to the first debate by anticipating a Trump presidency, which is seen as more inflationary due to potential tax cuts.
Uncertainty: The election’s impact on the economy is uncertain, but the Fed aims to stay neutral and make decisions based on data.
What’s Next?
Upcoming Reports: The next CPI inflation report on July 11th and future payroll reports are crucial.
Economic Trends: The economy is slowing, and the unemployment rate has slightly risen. The Fed will consider this in their discussions.
Election Impact: The election remains unpredictable, but recent data is positive for the rate environment.