The Federal Reserve's Next Move: Navigating Inflation, Low Inventory, and Rising Home Prices

By: Kristen Riffle June 30, 2023

The release of the PCE inflation data this morning has led to a sharp increase in interest rate expectations. Investors are expecting the Fed to take more aggressive action to combat inflation, which is still well above the Fed's target of 2%. The Fed is in a difficult position, as it needs to raise interest rates to cool inflation, but it also doesn't want to raise rates so high that it causes a recession. The Fed will need to carefully balance these two objectives in the coming months.

Here are some of the factors that could influence the Fed's decision on interest rates in the coming months: the pace of inflation, the state of the economy, and the reaction of markets. The Fed will need to carefully consider all of these factors before making any decisions on interest rates.

Chart courtesy of: The Kobeissi Letter

The Federal Reserve is facing a difficult balancing act. On the one hand, it needs to raise interest rates to cool inflation, which is at a 40-year high. On the other hand, it doesn't want to raise rates so high that it causes a recession.

One way the Fed could try to achieve this balance is by "breaking" the labor market. This means creating enough slack in the labor market that wages start to fall. Once wages start to fall, inflation will also start to fall.

However, breaking the labor market could have negative consequences. It could lead to higher unemployment, especially for lower-income workers. It could also lead to a decline in economic growth.

The Fed will need to carefully consider the risks and benefits of breaking the labor market before making any decisions. If the Fed does decide to break the labor market, it will need to do so carefully to minimize the negative consequences.

Low Inventory and Rising Home Prices One of the most dominant trends gripping the real estate market is the scarcity of available homes for sale. The demand far outweighs the supply, causing home prices to soar. In certain markets, median home prices have surged by over 20% in just a year, challenging prospective buyers and intensifying the competition.

The Impact of Rising Mortgage Rates In recent months, mortgage rates have been steadily climbing, making their presence felt in the real estate realm. As buyers face higher borrowing costs, the affordability of homes becomes a pressing concern. The implications of these increased mortgage rates are influencing purchasing decisions and shaping the overall real estate landscape.

The Rise of Remote Work The COVID-19 pandemic has spurred a remarkable surge in remote work opportunities. This shift in work dynamics has significantly impacted the real estate market. The newfound ability to work remotely has unleashed a wave of demand for homes in more affordable areas. As individuals embrace the freedom to live anywhere, the housing market experiences an influx of interest in previously overlooked regions.

While pondering the Federal Reserve's next move in response to economic indicators and inflationary pressures, the real estate market grapples with the challenges of low inventory, escalating home prices, and the paradigm shift brought about by remote work. The intricate interplay between these factors shapes the trajectory of the housing market, warranting our continued observation and analysis.

In this volatile and unpredictable real estate market, staying ahead of the curve is crucial. Summit Group is committed to providing you with the latest insights and updates to navigate these challenging times. Follow our blog to stay informed about the Federal Reserve's next move, market trends, and valuable tips. Whether you are buying or selling in Las Vegas, reach out to us for expert guidance and personalized assistance. We are here to help you make informed decisions and achieve your real estate goals. Contact us today or refer us to anyone you know who requires exceptional service in the Las Vegas area.