The US Economy — Latest
Latest news and headlines affecting the United States economy
Powell says the Fed will not hesitate to keep raising rates until inflation dies down.
On Tuesday, May 17, Jerome H. Powell, chairman of the Federal Reserve, recently reaffirmed his commitment to bringing inflation under control through the use of interest rates in hopes of lowering prices to a stable index.
“If it means extending beyond commonly perceived levels of [neutrality], we won’t hesitate to do that,” Powell said during a live-stream interview with The Wall Street Journal. “We’ll keep going until we feel we’ve arrived at a point where we can say financial conditions are suitable and inflation is decreasing.”
As inflation hovers around a 40-year high, the Fed had responded by hiking benchmark borrowing rates by half a percentage point earlier this month, making it the second hike in 2022.
Following the first increase, Powell had stated that 50 basis point shifts with the same reverberations were probable at subsequent meetings as long as the economic conditions remained stable.
Now, on the 17th, he reiterated the goal of bringing inflation closer to the Fed’s 2 percent target but cautioned that it would not be simple, possibly coming at the expense of a 3.6 percent unemployment rate — just above the lowest since the late 1960s.
Tighter monetary policy, on the other hand, has heightened fears of a deeper downturn and triggered an aggressive sell-off on Wall Street. In addition to raising interest rates by 75 basis points, the Fed has temporarily discontinued its monthly bond-buying program, also known as quantitative easing, and will begin selling some of the $9 trillion in assets it has amassed next month.
Powell expressed optimism that the Fed will meet its inflation targets without causing the economy to crash.
“If unemployment went up a few ticks, you’d still have a solid job market,” he said. “I’d say there are a few feasible paths to a gentle, or as I said, softish, landing. It’s not our duty to predict the outcome; it’s our job to try to attain it.”
He went on to mention that “there could be some pain involved [in] restoring price stability,” but that the labor market should remain strong due to the high wages and rates of low unemployment.
Increase in demand and soaring inflation: Retail spending has increased by 0.9 percent in April
Despite the steady price rise, consumers continued to spend in April, with retail sales climbing in line with Wall Street predictions.
The Commerce Department reported that monthly sales increased by 0.9 percent, slightly shy of the Dow Jones forecast of a 1 percent increase. Excluding automobiles, sales grew by 0.6 percent which was better than the 0.4 percent forecast.
Because the figures are not adjusted for inflation, they reflect continued spending as well as the fastest hike in prices in the US economy in nearly 40 years.
“Retail sales rose for the fourth consecutive month in April, indicating that consumers are weathering inflationary challenges,” said Jeffrey Roach, chief economist at LPL Financial. “Consumers are expected to tap into savings to offset the decrease in real wages, as evidenced by core categories. We anticipate a comeback in economic growth in Q2 if pricing pressures can be moderated enough to relieve some of the burdens on consumers.”
In addition to the strong performance in April’, the spending in March was revised to be much higher, from a 0.5 percent increase to a 1.4 percent increase. Ex-autos’ sales were also revised to be considerably higher, to an increase of 2.1 percent in March, up from a previous estimate of 1.1 percent.
While the GDP decreased by 1.4 percent in the first quarter, most economists expect growth to perk up later in the year all things considered.
According to the figures released by the Federal Reserve, industrial production increased by 1.1 percent in April, surpassing the 0.5 percent forecast by the Dow Jones. Similarly, capacity utilization, or the percentage of potential output achieved, grew to 79 percent, slightly higher than the forecasted 78.6 percent.
California’s gas average tops $6 per gallon as prices surge across the U.S.
The state average for a gallon of gas in California has risen past $6, making it the most expensive in the country.
According to the American Automobile Association (AAA), the average price at the pump in California set a new high of $6.021 per gallon. Over the course of April, prices have risen 31 cents per gallon, and are $1.89 higher than they were a year ago.
While California has the highest price in the country, the national average of $4.523 is also a record, with every state now averaging more than $4.
The steep increase is due in part to rising oil prices, which account for more than half of the overall cost of gasoline.
“The high cost of oil, the key ingredient in gasoline, is driving these high pump prices for consumers,” Andrew Gross, AAA spokesperson, said on Monday
“Even the annual seasonal demand dip for gasoline during the lull between spring break and Memorial Day, which would normally help lower prices, is having no effect this year.”
A lack of refining capacity has also been pushing prices up. Refiners turn oil into petroleum products like gasoline, causing the demand for such products to surge as economic activity returns. But refining capacity is lower than pre-pandemic levels, which contributes to their rapid price increase.
Retail diesel prices are rising upward too, with the national average hitting a record $5.573 per gallon; prices are up to $2.40 over the last year.
Weekly mortgage demand from homebuyers tumbles 12 percent as higher interest rates take their toll.
Although mortgage rates dipped marginally last week, the damage to housing affordability had already been done. According to the Mortgage Bankers Association’s seasonally adjusted index, both refinance and purchase loan demand fell this week, bringing the overall mortgage application volume down 11 percent.
Mortgage applications for house purchases decreased by 12 percent over a few weeks and were 15 percent lower than they were a year prior. Since the third week of April, there has been a weekly reduction in homebuyer demand. Mortgage rates have climbed up by more than 2 percentage points since the beginning of the year, and property prices have increased by more than 20 percent year over year. The average 30-year fixed-rate mortgage with conforming loan balances of $647,200 or less has fallen.
Consumers aren’t feeling very flush either, thanks to inflation.
According to Joel Kan, an MBA economist, “general anxiety about the near-term economic prospects, as well as recent stock market volatility, [may] lead some people to delay their home search.”
Applications to refinance a house loan continued to plummet, dropping another 10 percent week after week. Demand for refinances was down by 76 percent from the same period a year ago. During the Covid pandemic, two years of record-low borrowing rates sparked a refinance boom that has since burst. Only a small percentage of debtors can now take advantage of a refinance.
With figures depicting strong retail sales figures and Chairman Jerome Powell suggesting that the Fed would not hesitate to raise interest rates until inflation fell, mortgage rates rose again.
The weekly reduction in homeowner mortgage demand is in line with another survey from the nation’s homebuilders, released on the 17th. According to the National Association of Home Builders, they reported a significant reduction in both buyer traffic and current sales conditions. Builder confidence has plummeted to its lowest point in nearly two years.
Work Cited
https://www.cnbc.com/2022/05/18/weekly-mortgage-demand-from-homebuyers-tumbles-12percent.html
https://www.economist.com/finance-and-economics/2022/05/25/wall-streets-housing-grab-continues
