All Things in Moderation

Vital Statistics:

Stocks are higher this morning after good numbers out of Nvidia. Bonds and MBS are flat.

Existing home sales fell 1.9% to a seasonally-adjusted annual rate of 4.14 million. “Home sales changed little overall, but the upper-end market is experiencing a sizable gain due to more supply coming onto the market,” said NAR Chief Economist Lawrence Yun.

Housing inventory is up, which is good news for activity overall. It rose to 1.21 million units which was a 9% bump from last month and 16% from a year ago. This represents a 3.5 month supply at the current sales pace. This is still on the low side – a balanced market is about six month’s worth – but at least we are off the record lows we have seen over the past couple of years.

The median home price rose 5.7% YOY to $407,600. “Home prices reaching a record high for the month of April is very good news for homeowners,” Yun added. “However, the pace of price increases should taper off since more housing inventory is becoming available.”

The FOMC minutes from the May meeting support the “higher for longer” narrative.

Participants noted that they continued to expect that inflation would return to 2 percent over the medium term. However, recent data had not increased their confidence in progress toward 2 percent and, accordingly, had suggested that the disinflation process would likely take longer than previously thought. Participants discussed several factors that, in conjunction with appropriately restrictive monetary policy, could support the return of inflation to the Committee’s goal over time. One was a further reduction in housing services price inflation as lower readings for rent growth on new leases continued to pass through to this category of inflation. However, many participants commented that the pass-through would likely take place only gradually or noted that a reacceleration of market rents could reduce the effect.

Participants discussed the risks and uncertainties around the economic outlook. They generally noted their uncertainty about the persistence of inflation and agreed that recent data had not increased their confidence that inflation was moving sustainably toward 2 percent. A number of participants noted uncertainty regarding the degree of restrictiveness of current financial conditions and the associated risk that such conditions were insufficiently restrictive on aggregate demand and inflation.

Some of the participants raised the possibility that unusually strong seasonal patterns might have been behind the negative surprises in inflation at the beginning of the year. They also noted signs that the consumer is beginning to run out of steam, noting increases in credit use and buy-now-pay-later program usage.

It looks like the economy slowed in April, according to the Chicago Fed National Activity Index (CFNAI). Consumption and Production indicators drove the decrease.

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