It’s dangerous to count chickens.
That was one message from Austan Goolsbee, who regaled CBS’s Face the Nation with a hodgepodge of boilerplate talking points around inflation and the US macro outlook for 2024.
I mention Goolsbee’s remarks not because he said anything worth mentioning (he didn’t) but rather because Fed rhetoric may be sparse ahead of the holidays, and the market’s trading quite aggressively vis-à-vis the rate trajectory for 2024.
Overzealous pricing for cuts goes a long way towards explaining what, headed into the 2023 home stretch, was a seven-week surge for equities.
“I still caution everybody, it’s not done,” Goolsbee told Margaret Brennan, of the inflation fight. Brennan reminded Goolsbee of the “golden path.” “But you said back in November the economy was on a golden path.” “I said it could be,” Goolsbee shot back. The rest of the exchange was painful.
“So it’s still too early to declare victory?” Brennan wondered. “Yes, for sure it’s too early to declare victory,” Goolsbee said. “We [have] to get inflation down to target. It’s an overstatement to be counting the chickens.” (I told you it was painful.)
Brennan tried to help him out. “So, you’re good news, but you’re cautious in that assessment.” “Nice,” Goolsbee said. “Yes, good news, but cautious.”
The problem for the Fed (although judging by Jerome Powell’s somewhat nonchalant dismissal of questions around the recent easing in financial conditions, the Committee may not see a problem) is that in countenancing one of the more spectacular cross-asset rallies in recent memory, they’re tempting fate, or at least according to critics.
Preliminary readings on consumer sentiment and US services sector activity for December both suggested easier financial conditions are already having an impact, and based on retail sales figures for November, Americans were spending more freely than economists expected as the holiday shopping season kicked into high gear.
Note that sell-side economists are counting chickens — or counting rate cuts. In this context the two are synonymous.
BofA expects more than 150 rate cuts around the world in 2024. Markets, the bank’s Michael Hartnett remarked, are “merrily front-running” expectations for Fed easing.
As the figure on the left (above) shows, next year is set to be the first since 2020 when rate cuts outnumber rate hikes globally.
“The federal government said on Friday that homelessness in the United States increased 12% YoY. They pinned that [on] soaring rent costs and the end of pandemic assistance,” Brennan told Goolsbee, in the same December 17 conversation. “How do you weigh a data point like that?”
“Well, that’s a concerning data point,” Goolsbee said. “We have a straightforward mandate. We just [have] to keep taking readings of the economy as we go along and decide meeting-to-meeting in a data-dependent way.”
Has anyone been able to quantify the activities of private equity on soaring rents?
I’ve seen some folks try to quantify the bid from the buy-to-rent people by watching the percentage of all-cash buyers in the weekly housing sales numbers. Not the worst indicator, but it is clouded by buyers who just sold and need no financing as well as young buyers funded by “the bank of mom & dad” (Something that RIAs see all the time recently).
Back when I diligently followed the weekly stats, the total raw numbers were running around 15-16% of total home purchases. So really not enough for us who’d like to blame the PE guys.
I recall reading, several months ago, that investors represented 20% of house purchases in some areas (Sunbelt particularly). 20% is more than enough to move pricing. However, the big rental house REITs have now cut back on buying existing houses, in favor of build-to-rent.