Morning Report: The Fed steps up the pace of tapering

Vital Statistics:

S&P futures4,71817.2
Oil (WTI)71.570.68
10 year government bond yield 1.45%
30 year fixed rate mortgage 3.31%

Stocks are higher this morning on no real news. Bonds and MBS are flat.

The Fed increased the pace of tapering yesterday, as expected. Bonds didn’t react much to the statement, although stocks rallied. The dot plot was adjusted to more or less match what the Fed Funds futures have been predicting.

The forecast for GDP growth was downgraded for this year, however it was bumped up for next. The inflation forecast was bumped up for this year and next.

Here is the new dot plot:

Initial Jobless Claims rose to 206,000 last week. We are pretty much back to pre-COVID levels.

Housing starts rose to 1.679 million in November, beating estimates. Building Permits ticked up to 1.63 million. Housing starts were up 11.8% MOM and 8.3% YOY. As we saw yesterday, builder sentiment remains elevated, however shortages of labor and materials remain a constraint.

Speaking of materials, lumber is back again on the rise. Sticks and bricks will add to the cost of new houses, so expect prices to continue to rise.

Rising prices for new homes will put upward pressure on existing home prices as well. As long as we have a housing shortage, home prices will continue to rise. In addition, we are seeing strong wage growth, which will more than offset any decline in affordability due to rising rates. Put simply, I am not buying into the forecast that home price appreciation is going to disappear next year.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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