Premarket stocks: The Fed could crash the housing market

An area of ​​increasing concern: housing. Interest rate hikes can lead to higher mortgage rates, which could make people think twice about buying a home.

So far, sales are down, while prices are holding up. But some economists are warning that the Fed’s continuation of historic rate hikes could risk crashing the housing market, underscoring the difficult task ahead for the central bank.

What’s going on: According to Tuesday’s Consumer Price Index report, housing prices rose 0.7% in August and are up 6.2% year-over-year, the biggest increase since 1991.

This increase is largely responsible for the higher-than-expected rate of inflation in August. Combined with a tight labor market, these high prices give the Fed reason to continue to exercise discipline at its policy meeting next week and beyond, Marvin Loh, senior strategist at State Street, told me.

The Fed needs to see housing costs fall by about half a percentage point to meet its ultimate inflation target, Loh added.

The job will not be easy. House prices may remain stubbornly high, even as the Fed tries to counter them.

House prices are “the type of persistent inflation that won’t come down anytime soon,” Joseph Brusuelas, chief economist at RSM US, told me. “That’s why the Fed will have to show resolve by raising the key rate by 75 basis points at its September meeting despite encouraging declines in transportation and energy.”

The risks: Some economists note that the weakness in the housing market is beginning to be felt. Home sales fell in July for the sixth consecutive month. Housing starts, a measure of new home construction, also plunged that month as the cost of building materials remained high and potential buyers were shut out of the market.

So, should the Fed maintain its historic hikes? The central bank must toe a cautious line – a housing downturn preceded nine of the last 12 recessionsand investors have not forgotten the catastrophic housing crisis in the United States in 2008.

Keep in mind: while there are reasons to suggest that the CPI housing report is lagging what is actually happening in the market, and housing prices may already be down , we are far from a market collapse.

Still, Federal Reserve officials will face a tough decision in the months ahead. Are they using the housing market’s resilience as a mandate to push forward aggressive rate hikes and risk a crash?

Americans should brace for heating bill shock this winter

Gasoline prices are falling in the United States. But winter is approaching and the CEO of Chevron, one of the world’s largest energy companies, warns relief at the pumps could soon be offset by sweat-inducing heating bills.

Chevron Chairman and CEO Mike Wirth said in an interview with CNN’s Poppy Harlow that “there is definitely a risk of rising costs” for US consumers.

Wirth does not predict a rise of the magnitude seen in Europe, where natural gas prices have soared as Russia has curtailed its exports, reports my colleague Paul R. La Monica.

But in an interview aired on Tuesday, Wirth warned that US prices could be “significantly higher” this winter.

Oil prices are still up more than 15% since the start of the year. This has helped boost sales, earnings and stock prices for companies like Chevron. Shares of the oil producer are up 36% year-to-date, while the broader S&P 500 is down 17.5%.

Wirth acknowledged his company is making big profits as Americans struggle.

“I recognize that high energy prices are tough on consumers. That’s why we talked about increasing production, trying to increase supply to markets in a commodity business,” did he declare. “You go through these cycles. Two years ago we were losing billions of dollars a quarter. Now we’re making strong profits.”

Bearish investors flock to cash

In more pessimism on Wall Street, pessimistic fund managers are selling stocks and hoarding cash, according to a Bank of America survey released Tuesday.

“Investor perceptions of the outlook for the global economy remain gloomy in September,” Michael Hartnett, chief investment strategist at Bank of America, wrote in the report, which surveyed 212 fund managers. with over half a trillion dollars in assets under management in September.

About 72% of respondents expected a weaker economy over the next 12 months, up 5 percentage points from August. The share of investors saying the recession is likely also increased in September to 68%, the highest since May 2020.

Unsurprisingly, Wall Street is preparing for corporate earnings to decline and stocks to continue to tumble, the survey showed. Cash levels held by investors fell from 5.7% last month to 6.1%, their highest level since the attacks of September 11, 2001.

Next

The August Producer Price Index, another key measure of US inflation, is released at 8:30 a.m. ET.

Join CITIZEN by CNN at 2 p.m. ET for a panel on inflation, jobs and the economy with reporters Paul LaMonica, Phil Mattingly, Christine Romans and Vanessa Yurkevich. RSVP here.

Coming tomorrow: Attention will turn to a meeting between Russian Vladimir Putin and Chinese Xi Jinping.

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