It’s Fed Week again! Yay! Come Wednesday afternoon, the Fed’s decision about interest rates will be released and we will hear from Federal Reserve Chairman Jerome Powell. Analysts are widely expecting for there to be no rate change, although when the minutes of the Open Market Committee are released, we may learn that one or more of the governors voted to cut rates. The more interesting question is whether anyone voted to RAISE rates – a possibility that the Wall Street Journal has recently raised. With inflation hovering around 3% (the Fed wants to see 2%), the stock markets at or near record highs, and unemployment near record lows, it could be argued that the economy is more at risk of overheating than cooling off.
The wild card, of course, is tariffs. Yesterday, President Trump announced a deal with the European Union that set tariffs on EU imports to the U.S. at 15%. On Wednesday, the president announced a 15% tariff deal with Japan. Prior to the current administration, U.S. tariffs averaged 2.5%. Now 15% is about average, with many more trade deals to be determined. We are on the cusp of retail inventory transitioning from pre-tariff goods to post-tariff goods, and it seems inevitable that companies will have to raise prices. That causes inflation to rise, which may cause the Fed to act with higher rates. If pending tariffs can be postponed or abandoned, we may avoid tariff-related inflation. No one wants inflation at 15%.
General Motors announced that tariffs on imported cars and car parts cost the company $1.1 billion in the second quarter, and it expects the full year cost of tariffs to reach as much as %5 billion. Other American automakers are in the same boat, er, car.
Existing home prices in the U.S. rose to another record high in June, reaching a median of $435,300 – up 2% from a year earlier. Mortgage rates are still above 6.5%. As a result, existing home sales fell 2.7% from May to June. More and more potential homebuyers are being priced out of the market in the unusual circumstances we currently face. Traditionally, as mortgage rates rise, home prices fall. Not this time. We are now seeing both rise at the same time. And rents are rising too, as landlords are paying more for their properties. It’s time to build tiny houses everywhere. Lots and lots of them.
And speaking of real estate, it is not uncommon for co-op owners in New York City to own their apartment buildings but rent the land they sit on. Do you see what’s coming? At the Carnegie House in midtown Manhattan, the rent on the underlying land is rising 450% after a boom in neighborhood land values. That means that co-op owners are paying the mortgages on their apartments AND paying rent on the land beneath. And the rent is going to rise from $4.36 million (for the entire building) to $24 million per year. Bigger apartments pay a bigger share of the rent, but even in modest-sized units, the rent portion of monthly payments may soar from around $5,000 to $13,000. That’s per month. Will co-op owners be able to sell their units and relocate to somewhere more affordable? Who would buy them?
For the week ending on July 25th, the Standard & Poor’s 500 ended at a record 6,388. The Nasdaq ended at 21,108, and the Dow Jones Industrials closed at 44,901. The yield on the ten-year Treasury Note finished at 4.386%. U.S. crude oil cost $66.31 per barrel, N.Y. gold cost $3,346.75 per ounce, and one Euro was worth $1.17.
Elizabeth E. Cook
Partner, Diastole Wealth Management
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Barron’s, CNN, The Washington Post, Axios, The Wall Street Journal, The Economist, Bloomberg, MarketWatch, Morning Brew, Yahoo Finance, CNBC, Reuters, USA Today, and The Associated Press. If you have questions, please call Diastole at 203.458.5220, or reply to this email to reach me, Liz Cook.
I bet It’s hot where you are. It’s hot everywhere. And you know what is to blame: corn. Apparently corn gets hot too, and starts to sweat (excuse me, perspire), increasing the humidity of the surrounding area and adding to the creation of heat domes. (Have you read Stephen King’s Under the Dome? It’s perfect for a sweaty summer.) So – the more corn you eat, the less corn is sweating into the atmosphere. Get to work, people!