Federal Reserve Delivers a "Shock to the System" to Slow Inflation

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@martakoutsogiannis7188 2 жыл бұрын

Great content! I am a Big fan of your show, thank you for sharing in such simple and understandable way. Thank you for explaining the terms.

@Matt-ks1qm 2 жыл бұрын

Great stuff

@KO-oo7cw 2 жыл бұрын

Its my opinion alot of people who bought in the last 6-9 months are going to get burned. Rule 1. Dont fight the fed. The gains from insain appreciation and rental increases are going to get sucked up from the losses over the coming ression. David I appreciate the fact that you are looking at the macro economics now, i believed months ago this channel was looking only at the micro economics of real estate but the growning macro tailwinds cant be over looked.

@ChongMillerGroup 2 жыл бұрын

Thanks Dave, I appreciate your summary and coverage of the FED and it's FOMC media day. I agree, the release by the FED officials is informative and highly predictive of where they intend to push the Fed Funds Rate, and how they view the economy. I do have concern - the FEDs prediction of unemployment is tepid (meaning they don't seem to believe they have much influence on unemployment). In fact, the FED is currently engaged in an historically ambitious rate hike practice (I'd have to check the data, but I'm not sure even Paul Volker's tenure raised rates this aggressively). As it relates to housing - there's a significant challenge the FED seems to be ignoring. Housing only factors into inflation through Rent (and Rent Equivalent), not through housing prices. And rents are high (and rising) because of too few rental properties exist. As interest rates go higher, building houses becomes more expensive, and therefore new builds slow (and we see this in the statistics about Building Permits, Housing Starts, and Builder Net Sales). In other words, as the FED increases interest rates, they exacerbate the housing supply problem. The upshot is, while the FED may get inflation to moderate some by destroying demand, as soon as rates come down demand will again overwhelm supply and thereby reignite inflation (via rent rates). The only way for the FED to control this (assuming they maintain their singular focus on inflation) is to push the economy into stagflation. This is what happened in the 1970s - relatively high levels of interest rates resulted in a 'growth recession' (below-trend/slow economic growth) with relatively high unemployment. I personally think the FED's on the wrong track here. Yes, inflation creates challenges - but the PCE (ex Food and Energy), released yesterday (the FEDs preferred inflation gauge) shows inflation at only 4.9%. Sure, a lot above 2%. But relative to other macro-economic challenges, 5% inflation is pretty mild. And with oil supply constraints easing and port capacity re-emerging, inflation would be coming down regardless of interest rates. Anyhow, just my thoughts. The FED has to signal their intent to fight inflation - I'm hoping they're just signaling. My concern is they're convincing themselves the inflation boggy-man is the outsized problem and in doing so they're creating damage. One important point to consider is the 'wealth effect.' People feel more (or less) economically well-off based on what's happening to their wealth. For the wealthy, that means stock market dynamics have real impacts on their expenditures. But the majority of the nation's wealth is held in personal residences (and that's especially true for middle-income people; i.e., a lot of people). With the FED declaring they want to see housing prices come down, they're simultaneously declaring they want to drive down middle-income peoples' wealth (while also likely increasing unemployment) and that's a problem.

@buyfixrentrepeat1270 2 жыл бұрын

Good episode very well explained

@jordyvonarb8075 2 жыл бұрын

Wonderful content. Thank you 🙏

@workplan01 2 жыл бұрын

David, this is an excellent presentation, keep up the good work. Can you clarify this for me: When Feds increase 10-year bond yields, would banks start selling more to US government, or would a better option to increase the mortgage rates and land them to borrowers as a more riskier option ?

@jordyvonarb8075 2 жыл бұрын

Question- what does all this news and outlook on the future have on the Stock market? Seems to me it keeps going down every time rates tick up. Can more be addressed on the specifics of how it affects the DOW and SnP500. Thanks

@mejordanwight 2 жыл бұрын

Just like it makes mortgage interest rates higher, it also makes it more expensive for businesses to get debt financing. Which slows growth for businesses.