Premarket Stocks: The Fed Could Crash the Housing Market

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Investors are worried that the Federal Reserve’s aggressive interest rate hike could hurt the US economy.Just look at Tuesday’s sell,

One area of ​​growing concern: housing. A hike in interest rates can lead to higher mortgage rates, which can make people think twice about buying a home.

So far, sales have been declining, while prices have remained stable. But some economists have warned that the historic rate hike issued by the Fed could risk the housing market crashing, underscoring the difficult task ahead for the central bank.

What’s happening: According to Tuesday’s Consumer Price Index report, Housing costs rose 0.7% in August and are up 6.2% year-on-year, the biggest increase since 1991.

This increase was largely attributable to the higher-than-expected inflation pace in August. Along with a tight labor market, those higher prices give the Fed reason to continue working harder at its policy meeting next week and beyond, State Street senior strategist Marvin Loh told me.

Loh said the Fed needs to see a reduction in housing costs by about half a percent to reach its ultimate inflation target.

The job won’t be easy. Housing prices can remain stubbornly high, even as the Fed works to counter them.

“Housing prices are “the type of sticky inflation that won’t subside anytime soon,” Joseph Brusuelas, chief economist at RSM US, told me. will need to be demonstrated by increasing the resolution by 75 basis points.”

Risk: Some economists are beginning to see weakness in the housing market. Domestic sales declined for the sixth straight month in July. Housing starts, a measure of new home construction, also fell that month as building supply costs remained high and potential buyers were out of the market.

So should the Fed continue its historic hike? Central bank should be careful – The housing recession has preceded nine of the last 12 recessionsAnd investors haven’t forgotten America’s devastating housing crisis in 2008.

Keep in mind: While there are some reasons to suggest the CPI report on housing lags what the market is actually going through, and that housing prices may already be low, we are nowhere near a market collapse. .

Still, Federal Reserve officials will face tough decisions in the coming months. Do they use the flexibility of the housing market as a mandate to move forward with aggressive rate hikes and risk a crash?

Gas prices in the US are softening. But winter is coming and the CEO of Chevron, one of the world’s largest energy companies, is warning that relief at the pump may soon be offset by sweat-induced heating bills.

“There is certainly a risk that the costs for American consumers will increase,” Chevron chairman and CEO Mike Wirth said in an interview with CNN’s Poppy Harlow.

Wirth is not predicting an increase in magnitude as seen in Europe, where natural gas prices are skyrocketing because Russia has limited exports, My colleague Paul R. la monica report,

But in an interview aired on Tuesday, Wirth warned that US prices could be “significantly higher” this winter.

oil prices still Over 15% so far this year. This has helped boost sales, earnings and share prices for companies like Chevron. Shares of the oil producer are up 36% year-over-year, while the broader S&P 500 is down 17.5%.

Wirth acknowledged that his company was making huge profits during the American struggle.

“I agree that high energy prices are difficult for consumers. That’s why we talked about increasing production, trying to increase supply to the markets in the commodity business,” he said. “You go through these cycles. Two years ago, we were losing billions of dollars every quarter. Now we are making strong profits.”

In more doom and gloom on Wall Street, pessimistic fund managers are selling stocks and hoarding cash, according to a Bank of America survey published Tuesday.

“Investor sentiment for the global economy remains bleak in September,” Michael Hartnett, chief investment strategist at Bank of America, wrote in a report that surveyed 212 fund managers. With assets of more than half a trillion dollars under management in September.

About 72% of respondents expect a weaker economy in the next 12 months, up 5 percentage points from August. The share of investors who spoke of a slowdown in September is also likely to rise to 68%, the highest since May 2020.

Unsurprisingly, Wall Street is set to continue softening corporate profits and equities, the survey showed. Cash level investors have risen to 6.1 per cent from 5.7 per cent in the previous month, their highest level since the September 11 attacks in 2001.

The August Producer Price Index, another key measure of US inflation, is released at 8:30 a.m. ET.

Join CITIZEN by CNN at 2 p.m. ET for a panel on inflation, jobs and the economy featuring Paul Lamonica, Phil Mattingly, Christine Roman and Vanessa Yurkevich. RSVP here.

Coming Tomorrow: Attention will turn to the meeting between Vladimir Putin of Russia and Xi Jinping of China.

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