Like they say, "Stay calm. Don't panic." We'll get through this just like every time before. Consumers are 'resilient:.
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The Fed
The Fed raised interest rates by another 75 basis points at its latest policy meeting in July, as officials discussed "unacceptably high inflation" and acknowledged economic growth will be “noticeably weaker" than they believed one month ago. Thus far, the central bank has hiked interest rates by 2.25 percentage points this year. Goldman says the majority of hikes are behind us in this tightening cycle and predicts only a 50-basis-point rate hike in September and 25-basis-point increases in November and December. However, that's contingent on inflation coming down.
The Atlanta Fed cut its projections for third-quarter economic growth from 2.5% to 1.8% on Tuesday after data showing housing starts unexpectedly plunged 9.6% last month to the lowest level in more than a year, with experts blaming the worsening sentiment on rising mortgage rates.
Economists at Goldman Sachs are also worried it will be difficult to avoid a recession as the Fed works to combat inflation, saying on Tuesday that officials are "off to a good start but [have] a long way to go"; on Monday, Moody's Analytics put the odds of a recession over the next year at 50%.
Stock Market
Stocks have struggled to find direction after rallying more than 15% since the Fed's rate hike in June when many investors concluded the worst of the increases may be over. However, the S&P 500 is still down 12% this year, compared to a 21% gain in 2021. Bank of America has warned slower-than-expected economic growth could tank stocks further, and if inflation isn't tamed, more aggressive Fed policy would surely rock markets again.
Inflation Surges To 40-Year Highs
Prices have consistently been rising at the highest rate in 40-year highs, but last month's data showed a long-awaited slowdown.
Housing Market
Higher interest rates are having a brutal effect on the housing market, driving u
p the cost of home-buying by hundreds of dollars each month and pummeling demand as a result. Existing home sales have plunged nearly 30% from a January high. Meanwhile, home prices are still skyrocketing and making affordability even worse. "We're witnessing a housing recession in terms of declining home sales and home building; however, it's not a recession in home prices," National Association of Realtors economist Lawrence Yun said Thursday, noting the median existing home price has fallen to $403,800 from a record high in June but is still up nearly 11% from one year ago.
Recession Watch: It Doesn’t Seem Imminent—But The Housing Market Collapse Deepens As Fed Officials Warn 'Economy Will Slow'
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