In the strange wild world of Wall Street, it’s bad news that more people are working and good news that people can’t buy more houses.
Inflation is the disease in which the Federal Reserve System prescribes an increase in interest rates. That, with a little lag, could be the medicine to slow the economy and reduce inflationary pressures.
Or so the theory goes. And in the meantime, it means that the high can be bad and the low can be good.
On Friday, the housing market in the United States fell as the average long-term mortgage rates in the US more than doubled from a year ago. That makes homes less affordable, a bad thing that Fed gurus hope will prove to be a good thing as it slows the economy.
The years of very low interest rates before the pandemic also meant that many people had more money in their pockets when they refinanced their loans. Today, with extremely high rates, families face serious obstacles when they move, and thus want to buy a new home.
Can all this cause a recession? That’s the Fed’s question mark hotly debated in policy circles, especially among liberals who fear the impact on the poor and working classes. Many, including Wall Street traders, are hoping for a small rate hike next month when the Fed’s market committee meets.
November’s hike of 0.75 percentage points is expected to be dialed back for the fourth time this year. But Fed officials argue that it is best to take inflation out of the economy.
For all the chatter about intentions, the Biden administration is doing the right thing by maintaining a hands-off attitude to Fed policy.
The Federal Reserve is headed by Jerome Powell, an appointee of President Donald Trump. It should act in the long-term economic interest, without political pressure or interference.
But as with housing, the impact of the Fed’s current move will be a curiosity.
We want more Americans to work, but Wall Street is likely to find last week’s jobs data dismal. The labor market is believed to be very strong. Here in Louisiana, Governor John Bel Edwards announced that the state’s unemployment rate is breaking records, for the fifth month in a row at 3.3%.
In the wrong way, perhaps, that could be bad for the stock market, because traders are impatient to put inflation and rate hikes behind us.
The same is true of consumer spending, which is a sign of a strong economy: The US report last week was that retail sales rose 1.3% in October, a sign of strength in consumers as the holiday shopping season begins.
But because other economic indicators are down, oil prices could be down — and that’s another key data point for Louisiana’s economy. As a fossil-fuel state, producing offshore energy and consuming large amounts of natural gas for petrochemical production, oil and gas are important: Natural gas prices are higher, in part because of the war in Russia against Ukraine.
Our economy in Louisiana is part of the whole, with oil prices falling with softening national and international economic data.
Maybe one day, good news will be good for the markets, but we seem to have a long way to go for that. And if the Fed manages to achieve a “soft landing,” lower inflation and no recession, Powell and his colleagues deserve a medal.