In the weird wild world of Wall Street, it’s bad news that more people are working and good news that people can’t buy houses anymore.
Inflation is the disease for which the Federal Reserve System mandates rate hikes. That will, with some delay, be the medicine to slow the economy and ease inflationary pressures.
Or that’s the theory. And meanwhile, it means that the top can be bad and the bottom can be good.
On Friday, the housing market in the United States collapsed as average US long-term mortgage rates more than doubled from a year earlier. That makes homes less affordable, a bad thing that Fed gurus are hoping will turn out to be a good thing as it slows the economy.
The years of very low interest rates before the pandemic also left many people with more money in their pockets when refinancing their loans. Now that rates are much higher, these families face major hurdles when they move and therefore want to buy a new home.
Can all of this trigger a recession? That’s the Fed question mark that’s hotly debated in political circles, particularly among liberals who fear the impact on the poor and working class. Many, including Wall Street traders, are longing for a smaller rate hike next month when the Fed’s Markets Committee meets.
The hope was that November’s 0.75 percentage point hike would be withdrawn for the fourth time this year. But Fed officials argue that squeezing inflation out of the economy is best.
For all the chatter about intentions, the Biden administration is doing the right thing by taking a dovish stance on Fed policy.
The Federal Reserve is headed by Jerome Powell, a representative appointed by President Donald Trump. It should act in the long-term interests of the economy, without political pressure or interference.
But as with housing, the impact of current Fed action can be a curiosity.
We want more Americans to work, but Wall Street found last week’s jobs data rather worrying. The labor market is considered too strong. Here in Louisiana, Gov. John Bel Edwards announced that the state’s unemployment rate is breaking records, falling to 3.3% for the fifth straight month.
Perversely, this may be bad for the stock market as traders wait impatiently for inflation and interest rate hikes to dwindle.
The same is true for consumer spending, which is a sign of a resilient economy: last week’s US report said retail sales rose 1.3% in October, a sign of consumer resilience as the holiday shopping season begins.
But with other economic indicators down, oil prices may plummet — and that’s another key data point for Louisiana’s economy. As a fossil-fuel state that produces offshore energy and consumes large amounts of natural gas for petrochemical production, both oil and gas are important: Natural gas prices are much higher, partly due to Russia’s war against Ukraine.
Our economy in Louisiana is part of the whole, with oil prices moving lower as national and international economic data softens.
Maybe good news will be good for the markets one day, but we still seem to have a long way to go. And if the Fed manages to achieve a “soft landing,” lower inflation, and no recession, Powell and his people deserve a medal.