With everything that happened in the last 24hrs leading to the FOMC meeting today, are we expecting to be surprised?
TL;Dr: another hike.
When people talk about the quiet time, they usually mean members don’t talk to the press prior to the FOMC meeting. But the world keeps on turning, the wheels keep on spinning, and during that period this time around we’ve seen both the purchase/rescue of First Republic by JPMorgan Chase, and the drop in regional banks (PacWest with -28%, Western Alliance at -15%). Not so quiet on that end.
However, that doesn’t change the monetary policy. Some may say that when you chop wood chips fly. Others will say that there is simply no other solution. Inflation must be tamed, hiking rates is the only way to control it, and everyone else had plenty of time to prepare for what was coming next, and make the necessary adjustments.
When comparing the current situation to 2008 GFC, we can see the difference just by looking at real estate. Diana Olick, Senior Real Estate and Climate Correspondent at CNBC, wrote: “Prices are rising due to deeply low supply. Even though builders are seeing stronger demand, they're still skittish and not really increasing construction, due to higher prices for just about everything they need to build a home.”
Ask yourself - what do we need to do in order to gain financial stability? The answer during the past 12 months was loud and clear: we need to bring down inflation, and we’re using our #1 tool: hiking rates. But as long as supply is low, demand will remain high - and there is no way to convince builders to build more, when the cost of building is still so elevated.
It looks like it’s not going to get better that quick. No one can tell whether the Fed will continue to yet another hike later this year, but either way, the housing market will continue to suffer the consequences of extremely low supply - and some might add - the consequences of such a long period of low interest. With more lenders under pressure, it’s possible that we’re not going to see major improvements any time soon. But we can learn a lot from the current status, prepare for what’s coming next, and make the necessary adjustments.