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    What Is Happening in the Housing Market?

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    Home construction surged in May and prices have ticked up, even with interest rates at a 15-year high. The resilience has surprised some economists.Gianni Martinez, 31, thought that it would be fairly easy to buy an apartment.Mortgage rates are now hovering around 7 percent — the highest they’ve been since 2007 — thanks to the Federal Reserve’s efforts to tame inflation. Central bankers have lifted their official policy rate to about 5 percent over the past 15 months, which has translated into higher borrowing costs across the economy.Mr. Martinez, a tech worker, expected that to cool down Miami real estate. But instead, he is finding himself in stiff competition for one- to two-bedroom apartments near the ocean. He has made seven or eight offers and is willing to put 25 percent down, but he keeps losing, often to people paying cash instead of taking out a pricey mortgage.“Because of interest rates at 7 percent, I didn’t think it would be this competitive — but that doesn’t matter to cash buyers,” Mr. Martinez said, noting that he’s competing with foreign bidders and other young people who show up to open houses with their parents in tow, suggesting Mom or Dad may be helping to foot the bill.“When there is a correctly priced listing, it’s a madhouse,” he said.The Fed’s rate increases are aimed at slowing America’s economy — in part by restraining the housing market — to try to bring inflation under control. Those moves worked quickly at first to weaken interest-sensitive parts of the economy: Housing markets across the United States pulled back notably last year. But that cool-down seems to be cracking.Home prices fell nationally in late 2022, but they have begun to rebound in recent months, a resurgence that has come as the market has proved especially strong in Southern cities including Miami, Tampa and Charlotte. Fresh data set for release on Tuesday will show whether that trend has continued. Figures out last week showed that national housing starts unexpectedly surged in May, jumping by the most since 2016, as applications to build homes also increased.Housing seems to be finding a burst of renewed momentum. Climbing home prices will not prop up official inflation figures — those are based on rental rather than purchased housing costs. But the revival is a sign of how difficult it is proving for the Fed to curb momentum in the economy at a time when the labor market remains strong and consumer balance sheets are generally healthier than before the pandemic.“It’s another data point: Things are not cooling off as much as they thought,” said Kathy Bostjancic, chief economist for Nationwide Mutual. In fact, new housing construction “tells us something about where the economy is headed, so this suggests that things are potentially picking up.”

    Note: Data is seasonally adjusted.Source: S&P CoreLogic Case-Shiller IndexBy The New York TimesThat could matter for policy: Fed officials think that the economy needs to spend some time growing at a speed that is below its full potential for inflation to fully cool off. In a weak economy, consumers don’t want to buy as much, so companies struggle to charge as much.The question is whether the economy can slow sufficiently when real estate is stabilizing or even heating back up, leaving homebuilders feeling more optimistic, construction companies hiring workers and homeowners feeling the mental boost that comes with climbing home equity.So far, the Fed’s leader, at least, has sounded unworried.“The housing sector nationally has flattened out, and maybe ticked up a little bit, but at a much lower level from where it was,” Jerome H. Powell, the Fed chair, told lawmakers last week, adding a day later that “you’ve actually kind of seen it hit a bottom now.”Higher rates have helped to markedly cool down sales of existing homes, to his point, though demand for new houses is being bolstered by two sweeping long-run trends.Millennials — America’s largest generation — are in their late 20s and early 30s, peak years for moving out on their own and attempting to purchase a house.And a shift to remote work during the pandemic seems to have spurred people who might otherwise have stayed with roommates or parents to live on their own, based on recent research co-written by Adam Ozimek, chief economist at the Economic Innovation Group.“Remote work means working from home for a lot of people,” Mr. Ozimek said. “That really increases the value of space.”Available housing supply, meantime, has been tight. That’s also partly because of the Fed. Many people refinanced their mortgages when interest rates were at rock bottom in 2020 and 2021, and they are now reluctant to sell and lose those cheap mortgages.“The most surprising thing about this housing market is how the increase in interest rates has affected supply and demand pretty equally,” said Daryl Fairweather, chief economist at Redfin. The pullback in demand was probably a bit more intense, she said, but builders are benefiting from a “dire lack of supply.”As young people continue to bid on houses and inventory comes up short, prices and construction are staging their surprise comeback.“Demand has hung in there better than we would have expected for that first-time buyer,” said Michael Fratantoni, chief economist at the Mortgage Bankers Association. Ms. Bostjancic said that the recent housing data will probably nudge the Fed toward higher rates. Officials paused their rate moves in June after 10 straight increases, but have suggested that they could lift them twice more in 2023, including at their meeting next month.If there’s a silver lining for the Fed, it is that home prices will not directly feed into inflation. America’s price measures use rents to calculate housing costs because they try to capture the cost of consumption. Buying a home is, in part, a financial investment.Rent growth has been stalling for months now — which is slowly feeding into official inflation data as people renew leases.“Rent growth is taking a nice, deep breath in,” said Igor Popov, chief economist at Apartment List. “Right now, it does not feel like there’s a lot of new heat.”Still, at least one Fed official has fretted that the pickup in housing could limit the scope of that slowdown. As home prices rise, some investors and landlords could decide to either charge more or to shift from renting out houses and to buying and selling them — curbing rental supply.“A rebound in the housing market is raising questions about how sustained those lower rent increases will be,” Christopher Waller, a Fed governor, said in a speech last month.He said that the upturn “even with significantly higher mortgage rates” raised questions “about whether the benefit from the slowing in rent increases will last as long as we have been expecting.” More

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    Bank of England Raises Rates More Than Expected, as Inflation Persists

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    ‘We know this is hard,’ the central bank’s governor said, after increasing interest rates by a half point, to 5 percent.The Bank of England raised interest rates by half a percentage point on Thursday, a larger-than-expected move, as policymakers struggle to bring down Britain’s persistently high rate of inflation.The central bank’s rate-setting committee lifted rates for a 13th consecutive time, to 5 percent, the highest since early 2008. The move is likely to intensify fears about the depth of Britain’s cost-of-living crisis, as homeowners prepare for jumps in monthly repayments while millions of households are already struggling to pay higher energy and food bills.The action came a day after the latest inflation data underscored the bank’s challenge: Consumer prices rose 8.7 percent in May from a year earlier, the same as the previous month, instead of falling as economists had predicted.The Bank of England’s decision is in sharp contrast to some of its international peers. Last week, the Federal Reserve decided to hold interest rates steady, at a range of 5 to 5.25 percent, and the European Central Bank raised rates by a quarter point.“The economy is doing better than expected, but inflation is still too high and we’ve got to deal with it,” Andrew Bailey, the Bank of England governor, said in a statement on Thursday. “We know this is hard — many people with mortgages or loans will be understandably worried about what this means for them. But if we don’t raise rates now, it could be worse later.”Indeed, there is accumulating evidence that inflation will be harder to stamp out than previously expected. In the past week, data has shown that pay in Britain has increased faster than expected, inflation in the services sector has accelerated and food inflation is still near the highest level in more than 45 years.The scale of the surprises in the data, especially for wage growth and services inflation, suggested a half-point rate increase “was required,” the minutes of the committee’s meeting said.The data “indicated more persistence in the inflation process, against the background of a tight labor market and continued resilience in demand,” the minutes said.The Bank of England’s rate increases could end up outlasting the recent rate-raising periods of both the Fed and the European Central Bank. Fed officials paused after 10 consecutive increases, and after eurozone policymakers raised rates for an eighth consecutive time last week, analysts predicted there would only be one or two more increases.The British central bank has pushed through a dramatic tightening of monetary policy in the last year and a half, raising interest rates from near zero since December 2021, in order to restrain the economy. But as British inflation data continues to take policymakers and other economists by surprise, traders are betting that the bank will have to raise interest rates higher and for longer to get inflation down to the 2 percent target. Before the policy decision was announced, traders were betting interest rates would reach 6 percent by early next year.The persistent price pressures in Britain are causing turmoil in the mortgage market, because they raise expectations that the bank will need to increase rates further. Traders, betting that the Bank of England will continue raising rates, have pushed up yields on government bonds. As mortgage offers reflect those higher interest rates, homeowners are growing concerned about jumps in their monthly repayments. Recently, some lenders pulled mortgage deals, in response to the rapid changes in the market.On Thursday, the central bank said is was monitoring closely the impact of its “significant” increases in interest rates, noting that because more people have fixed-terms on their mortgages, the full impact of higher interest rates “will not be felt for some time.”About 80 percent of mortgage holders have fixed-rate terms now, compared to about a third a decade ago. By the end of the year, about 1.3 million households are expected to reach the end of their fixed-rate term by the end of the year, prompting a reset in the rate that applies to their loan, the Bank of England said last month. The average mortgage holder in that group will see their monthly interest payments increase by about 200 pounds ($255), or £2,400 over the course of a year, if their mortgage rate rises 3 percentage points, which is what mortgage quotes suggested last month, the bank said.Since then, rates have risen even higher. Last weekend, the average rate for a two-year fixed-rate mortgage hit 6 percent for the first time this year.The extra financial burden on mortgage payers compounds the stubborn cost-of-living crisis, as inflation has outpaced pay for the past year and a half. About two-thirds of adults in Britain said their cost of living had increased in June compared with a month ago, and almost all of them said it was because of the higher cost of grocery shopping, according to a survey by the Office for National Statistics.Two members of the nine-person committee, Swati Dhingra and Silvana Tenreyro, voted to hold interest rates flat at 4.5 percent, arguing that the impact of past rate increases were still working through the economy, and so the bank was at risk of tightening policy more than necessary. They also said there were forward-looking indicators that suggested inflation and wage growth would fall significantly.But they were outvoted by all seven of the other members who chose a half-point increase, concerned that the impact on domestic prices and wages from external shocks, such as the war in Ukraine, would take longer to fade than they did to emerge. They predicted that lower wholesale energy prices would bring down the headline rate of inflation later in the year, but services inflation, which is dominated by companies’ wage costs and reflect domestic price pressures, would be “broadly unchanged” in the short term.As prices in Britain have continued to rise faster than expected, and faster than in the United States and Western Europe, the Bank of England has come under increasing scrutiny. Last month, the central bank’s governing body decided to commission a “a broad review” into the institution’s “forecasting and related processes during times of significant uncertainty.” More

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    Fed Chair Sees ‘Long Way to Go’ on Inflation Fight

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    Jerome H. Powell, the chair of the Federal Reserve, is set to tell House lawmakers that most central bank officials expect rates to rise further.Jerome H. Powell, the chair of the Federal Reserve, is set to tell House lawmakers that the United States remains a “long way” away from low and stable inflation even 15 months into the central bank’s campaign to cool the economy and wrestle down rapid price increases.Mr. Powell is scheduled to testify before the House Financial Services Committee at 10 a.m. He will explain to lawmakers that the labor market remains very tight and that inflation — while it has come down notably from its peak last summer — is still too fast. In light of that, the Fed could raise interest rates even higher than their current level of just above 5 percent.“Inflation has moderated somewhat since the middle of last year,” Mr. Powell will say, according to the text of his prepared remarks. “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go.”Fed officials left interest rates unchanged last week following 10 straight increases. But central bankers have been adamant that the decision to hit pause did not amount to a declaration of victory over inflation. Instead, moving more gradually will give policymakers time to assess how well higher rates are working to slow the economy as they try to strike a delicate balance of doing enough to cool growth without doing too much.“Considering how far and how fast we have moved, we judged it prudent to hold the target range steady,” Mr. Powell will tell lawmakers on Wednesday. Still, he will also add that “nearly all” voting Fed officials “expect that it will be appropriate to raise interest rates somewhat further by the end of the year.”Central bankers forecast in their fresh economic projections last week that they will probably raise interest rates to around 5.6 percent this year, which would amount to two more quarter-point rate increases. Mr. Powell said during his news conference following the decision last week that the Fed’s July 25-26 meeting will be “live,” meaning that a rate increase is possible at that gathering.Investors only expect the Fed to make one more rate increase before holding them steady through the rest of the year, based on market pricing, though significant uncertainty remains around that forecast — markets place some odds on higher rates, and some odds on a rate cut before the end of 2023.The Fed will need to assess how much the economy is slowing, and whether that is likely to be enough to return inflation to their 2 percent goal over time. Overall growth and the housing market have cooled since 2021, but consumption and even home prices have shown recent signs of strength and hiring has remained rapid.“We have been seeing the effects of our policy tightening on demand in the most interest rate–sensitive sectors of the economy,” Mr. Powell will tell lawmakers. “It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation.” More

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    U.K. Inflation Remains Stuck at 8.7 Percent

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    The rate, which had been expected to edge lower in May, shows that Britain’s cost-of-living crisis persists, and is likely to prompt the Bank of England to raise interest rates again.Britain’s inflation rate held steady in May, frustrating expectations that price increases would slow down, according to data released Wednesday, the day before the country’s central bank is widely expected to raise interest rates again.Consumer prices rose 8.7 percent from a year earlier, the same as in April, the Office for National Statistics said. Economists had forecast it would dip slightly. The data is likely to compound concerns that Britain’s cost-of-living crisis may intensify in the coming months as mortgage holders confront the burden of higher interest rates pushed through to tackle stubbornly strong inflation.The Bank of England on Thursday is expected to lift interest rates for a 13th consecutive time, by a quarter-point to 4.75 percent, the highest since early 2008.Last week, wage data showed pay growing faster than expected. On Wednesday, the statistics agency said core inflation, which excludes energy and food prices and is used to assess how deeply inflation is embedding in an economy, rose to 7.1 percent in the year through May, the fastest pace since 1992. Services inflation, an indicator that is closely watched by policymakers, climbed to 7.4 percent, from 6.9 percent in April.“The overwhelming impression is that this is a disappointing set of numbers that shows broad-based strength” in prices, Sandra Horsfield, an economist at Investec, wrote in an analyst note. “This is simply not good enough.”The rise in core inflation is “something that may cause some concern,” Grant Fitzner, the chief economist at the statistics agency, told the BBC.That’s because it has been pushed higher by price increases in services, such as at restaurants and hotels, much of it reflecting higher wage costs for companies, Mr. Fitzner said. “Services prices are quite sticky,” he said. “It can take longer for them to pick up but likewise longer for them to unwind as well.”This is leading to worries that overall inflation will be much slower to fall that it was to rise, he added.And that is what Britain is experiencing, as inflation data over the past few months has repeatedly defied expectations and stayed higher than predicted.Britain’s headline inflation rate has slowed from a peak of 11.1 percent in October, but it’s still uncomfortably high, especially compared with its international peers. In the United States, the Consumer Price Index rose 4 percent in May from the year before, and in the eurozone, inflation averaged 6.1 percent last month for the 20 countries that use the euro. The Federal Reserve has paused its interest rate increases, and traders are betting that the European Central Bank will raise rates just once or twice more; in Britain, though, investors are predicting the central bank will be forced to raise rates for longer to stamp out inflation.“We are in a situation now where markets are saying they’ve lost faith and that requires a big reaction from the bank,” said Andrew Goodwin, an economist at Oxford Economics. The central bank “needs to acknowledge that the game has changed,” he said, adding that he wouldn’t be surprised if the central bank raised rates by half a point on Thursday.Andrew Bailey, the governor of the Bank of England, said last week that policymakers still expected the inflation rate to come down, but “it’s taking a lot longer than expected.”Mr. Bailey’s predecessor, Mark Carney, said recently that Britain’s departure from the European Union was part of the reason Britain was suffering from stubbornly high inflation. There were other economic shocks at the same time, such as rising energy prices following Russia’s invasion of Ukraine, but Brexit is a “unique” part of the adjustment that will take years to resolve, he said.“We laid out in advance of Brexit that this will be a negative supply shock for a period of time and the consequence of that will be a weaker pound, higher inflation and weaker growth,” he told The Daily Telegraph last week.Traders are betting that the Bank of England’s interest rate could reach 6 percent by early next year. These expectations are shown through rising yields on government bonds, which now exceed the levels reached during Liz Truss’s brief but turbulent stint as prime minister last fall.In response, mortgage rates are rising too. Last weekend, the average rate for a two-year fixed-rate mortgage hit 6 percent for the first time this year.Last month, the central bank warned that many mortgage holders had not experienced the cost of higher interest rates yet. About 1.3 million households are expected to reach the end of their fixed-rate term by the end of the year, prompting a reset in the rate that applies to their loan. And the average mortgage holder in that group will see their monthly interest payments increase about 200 pounds ($255) a month, or £2,400 over the course of a year, if their mortgage rate rises 3 percentage points, which is what mortgage quotes suggested last month, the bank said.The additional financial strain follows months of higher prices, from energy bills to groceries. Food and nonalcoholic drink prices rose 18.3 percent in May from a year earlier, data showed on Wednesday, a slight slowdown from previous months when food inflation hit a 45-year high. The moderation in food and fuel prices was offset by rising prices at restaurants and hotels and for secondhand cars and live music events.“We know how much high inflation hurts families and businesses across the country,” Jeremy Hunt, the chancellor of the Exchequer, said in a statement on Wednesday, adding that the government’s plan to halve the rate of inflation would be the best way to keep costs and interest rates down.“We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy,” he said.In January the government, led by Prime Minister Rishi Sunak, vowed to halve inflation by the end of the year, which would mean a rate of about 5 percent, amid waves of public and private sector strikes from workers frustrated by declining living standards.When that promise was made, it seemed almost guaranteed to succeed based on economic forecasts. But as the months have worn on, inflation has been harder to slow down than expected and that pledge is now at risk of being missed.Adding to the government’s challenges, separate data published on Wednesday estimated that Britain’s public sector debt exceeded 100 percent of gross domestic product for the first time since 1961, as the government paid out more money for energy support programs and social benefits to mitigate the cost-of-living crisis. More

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    Inflation Has Eased, but Economists Are Still Worried

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    Inflation has come down from its 2022 heights, but economists are worried about its stubbornness.Inflation is beginning to abate meaningfully for American consumers. Gas is cheaper, eggs cost roughly half as much as they did in January and prices are no longer climbing as rapidly across a wide array of products.But at least one person has yet to express relief: Jerome H. Powell, the chair of the Federal Reserve.The Fed has spent the past 15 months locked in an aggressive war against inflation, raising interest rates above 5 percent in an attempt to get price increases back down to a more normal pace. Last week its officials announced that they were skipping a rate increase in June, giving themselves more time to see how the already enacted changes are playing out across the economy.But Mr. Powell emphasized that it was too early to declare victory in the battle against rapid price increases.The reason: While less expensive gas and slower grocery price adjustments have helped overall inflation to fall from its four-decade peak last summer, food and fuel costs tend to jump around a lot. That obscures underlying trends. And a measure of “core” inflation that strips out food and fuel is showing surprising staying power, as a range of purchases from dental care and hairstyling to education and car insurance continue to climb quickly in price.Last week, Fed officials sharply marked up their forecast of how high core inflation would be at the end of 2023. They now see it at 3.9 percent, higher than the 3.6 percent they predicted in March and nearly twice their 2 percent inflation target.The economic picture, in short, is playing out on something of a split screen. While the steepest price increases appear to be over for consumers — a relief for many, and a development that President Biden and his advisers have celebrated — Fed policymakers and many outside economists see continued reasons for concern. Between the subtle signs that inflation could stick around and the surprising resilience of the American economy, they believe that central bankers might need to do more to cool growth and rein in demand to prevent unusually elevated price increases from becoming permanent.“Big picture: We are making progress, but the progress is slower than expected,” said Kristin J. Forbes, a Massachusetts Institute of Technology economist and a former Bank of England policymaker. “Inflation is somewhat more stubborn than we had hoped.”A fresh Consumer Price Index inflation report last week showed that inflation continued to moderate sharply on an overall basis in May. That measure helps to feed into the Fed’s preferred measure, the Personal Consumption Expenditures index, which it uses to define its 2 percent target. The fresh P.C.E. figures will be released on June 30.White House officials, who have spent months on the defensive about the role that pandemic spending under Mr. Biden played in stoking demand and price increases, have greeted the recent cooling in inflation enthusiastically.“We have seen a very large reduction in inflation, by more than 50 percent,” Lael Brainard, the director of the White House National Economic Council, said in an interview. She added that the current trajectory on inflation offered reasons for optimism that it could return back to normal fairly quickly as the economy slowed, and expressed hope that crushing it would not necessarily require a big jump in unemployment — something that has historically accompanied the Fed’s campaigns to wrangle inflation.“The employment picture is very sustainable,” she said.But many economists are less sanguine. That’s partly because most of the factors that have helped inflation to fall so far have been widely anticipated, sort of the low-hanging fruit of disinflation.Supply chains were roiled by the pandemic and have since healed, allowing goods price increases to slow. A pop in oil prices tied to the war in Ukraine has faded.And there may be more to come: Rents jumped starting in 2021 as people moved out on their own or relocated amid the pandemic. They have since cooled as landlords found that renter demand was not strong enough to bear ever-higher prices, and the moderation is slowly feeding into official inflation data.

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    Year-over-year percentage change in the Personal Consumption Expenditures index
    Source: Bureau of Economic AnalysisBy The New York TimesWhat linger are relatively rapid price increases in services outside of housing. That’s a broad category, and it includes purchases that tend to be labor-intensive, like hospital care, school tuition and sports tickets. Those prices tend to rise when wages climb, both because employers try to cover their higher costs and because consumers who are earning more have the ability to pay more without pulling back.“The big action is behind us,” said Olivier Blanchard, a former International Monetary Fund chief economist who is now at the Peterson Institute. “What remains is the pressure on wages.”

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    Year-over-year percent change in the Personal Consumption Expenditures index by category
    Source: Bureau of Economic AnalysisBy The New York TimesDuring a news conference last week, Mr. Powell said that in the measure of inflation that excluded food and energy “you just aren’t seeing a lot of progress,” emphasizing that “getting wage inflation back to a level that is sustainable” could be an important part of lowering the remaining price increases.There are early signs that a labor market slowdown is underway. The Employment Cost Index measure of wages, which the Fed watches closely, is climbing much more rapidly than before the pandemic but has slowed from its mid-2022 peak. A measure of average hourly earnings has come down even more notably. And jobless claims have climbed in recent weeks.But hiring has remained robust, and the unemployment rate low — which is why economists are trying to figure out if the economy is cooling enough to guarantee that inflation will return fully to normal.Cylus Scarbrough, 42, has witnessed both features of today’s economy: fast wage growth and rapid inflation. Mr. Scarbrough works as an analyst for a homebuilder in Sacramento, and he said his skills were in such high demand that he could rapidly get a new job if he wanted. He got a 33 percent raise when he joined the company two years ago, and his pay has climbed more since.Cylus Scarbrough of Sacramento said he felt inflation was not eating into his budget the way it had before. “I don’t think about it every day,” he said.Rozette Halvorson for The New York TimesEven so, he’s racking up credit card debt because of higher inflation and because he and his family spend more than they used to before the pandemic. They have gone to Disneyland twice in the past six months and eat out more regularly.“It’s something about: You only live once,” he explained.He said he felt OK about spending beyond his budget, because he bought a house just at the start of the pandemic and now has about $100,000 in equity. In fact, he is not even worrying about inflation as much these days — it was much more salient to him when gas prices were rising quickly.“That was the time when I really felt like inflation was eating into our budget,” Mr. Scarbrough said. “I feel more comfortable with it now. I don’t think about it every day.”Fed officials are not yet comfortable, and they may do more to tame price increases. Officials predicted last week that they would raise interest rates to 5.6 percent this year, making two more quarter-point rate moves that would push rates to their highest level since 2000.Investors doubt that will happen. Given the recent cooling in inflation and signs that the job market is beginning to crack, they expect one more rate increase in July — and then outright rate cuts by early next year. But if that bet is wrong, the next phase of the fight against inflation could be the more painful one.As higher borrowing costs prod consumers and firms to pull back, they are expected to translate into less hiring and fewer job opportunities for people like Mr. Scarbrough. The slowdown might leave some people out of work altogether.Fed policymakers estimated that joblessness will jump to 4.5 percent by the end of next year — up somewhat from 3.7 percent now, but historically pretty low. But Mr. Blanchard thinks that the jobless rate might need to rise by one percentage point “and probably more.”Jason Furman, a Harvard economist, said he thought the unemployment rate could go even higher. While it is not his forecast, he said that in a bad scenario it was “possible” that it would take something like 10 percent unemployment for inflation to return totally to normal. That’s how high joblessness jumped at the worst point in the 2009 recession, and inflation came down by about two percentage points, he noted.In any case, Mr. Furman cautioned against jumping to early conclusions about the path ahead for inflation based on progress so far.“People have been so crazily premature to keep declaring victory on inflation,” he said. More

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    Federal Reserve’s June Meeting: What to Watch

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    Central bankers are expected to leave interest rates unchanged on Wednesday, but the decision is an unusual nail-biter. Also: Keep an eye on the economic forecasts.Federal Reserve officials will announce their June policy decision on Wednesday, and they are widely expected to hold steady after 10 straight interest rate increases — taking a breather to see how the economy is shaping up 15 months into their fight against rapid inflation.Prices have been increasing faster than the Fed would like for more than two years, but a report on Tuesday confirmed that the pace of overall inflation continues to cool. That doesn’t mean the Fed can declare victory: Once volatile food and fuel prices were stripped out, the data showed inflation remained stubbornly rapid.Investors are betting that Fed officials will respond to the mixed picture by skipping an increase this month, even as they signal that they might lift rates in July.Still, the outlook is very uncertain, and investors will be watching Wednesday’s Fed meeting closely for any hint at what could come next. Central bankers will release their rate decision and fresh economic forecasts at 2 p.m., followed by a news conference with Jerome H. Powell, the Fed chair, at 2:30 p.m. Here’s what to know about the decision.Interest rates are at their highest since 2007.Fed officials have raised interest rates sharply since March 2022, pushing them to just above 5 percent in the fastest series of rate increases since the 1980s.The speed of adjustment is relevant because it takes months or even years for the effects of interest rate changes to fully trickle through the economy.Given that, the economy is — most likely — feeling only part of the brunt of the Fed’s past moves. That increases the risk that the central bank could overdo it and slow growth by more than is strictly necessary to contain inflation if officials push forward without taking time to assess conditions.Overshooting would have serious ramifications: Restraining the economy too aggressively would very likely cost jobs, diminishing financial security for many Americans.But an incomplete policy response would also carry consequences. If rapid inflation drags on for years, consumers could come to see fast price increases as the norm, making them harder to stamp out without serious economic pain that causes higher unemployment down the road.Skipping does not mean stopping.If setting monetary policy is like a marathon, a pause now is like stopping for a water break — to stretch and take stock — rather than giving up on running altogether. Fed officials have been clear that while they may hit pause temporarily, they could lift rates again if needed.“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Philip Jefferson, a Fed governor who is President Biden’s pick to be the central bank’s next vice chair, said in a speech last month. Instead, Mr. Jefferson said, skipping would “allow the committee to see more data.”Tuesday’s inflation data probably kept officials on track to hold policy steady in June while teeing up a July increase, said Sarah Watt House, senior economist at Wells Fargo.“They are going to have to walk a very fine line,” she said. “The U.S. economy continues to carry some pretty formidable momentum.”Investors are on dot watch.Every three months, the Fed releases a set of projections — the “dot plot” — that shows where each official expects interest rates to land by the end of the next few years. (The predictions are anonymous and are demarcated by little blue spots, hence the name.)The dots come out alongside a set of projections for unemployment, inflation and growth. They will be released on Wednesday for the first time since March.Some economists are expecting the Fed to pencil in slightly higher growth for the economy, slightly higher core inflation, and a slightly lower unemployment rate by the end of 2023. One complication is that officials will have had barely any time to update their projections in the wake of Tuesday’s Consumer Price Index report. Officials had until Tuesday evening to change their forecasts, but that meant they had just hours to factor in the new figures.Investors are probably going to be most focused on how much higher interest rates are expected to rise this year. Many expect Fed officials to pencil in one more rate move — lifting the anticipated policy rate to a range of 5.25 percent to 5.5 percent at the end of 2023. But given the varied opinions on the central bank’s policy-setting committee, the predictions might be for even higher rates.All eyes are on Jerome Powell.Jerome H. Powell, the Fed chair, will give a news conference after the meeting. He may explain how central bankers are thinking about their path ahead for interest rates — and how officials will judge whether they have done enough to feel confident that inflation, now running at 4.4 percent by their preferred measure, is back on a path toward their 2 percent goal.“The main message will be: A pause does not necessarily mean the end of the rate hiking cycle,” said Michael Feroli, chief U.S. economist at J.P. Morgan. More

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    As the Fed Meets, It Shares an Inflation Problem With the World

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    Inflation is stubborn across a range of economies. Given its staying power, investors expect the Fed to pause rate moves only temporarily.The Federal Reserve on Wednesday is expected to stop raising interest rates for the first time in 11 policy meetings. But investors are betting that the pause will not last.The pattern of stopping and then restarting rate increases is becoming well-established around the world. The Reserve Bank of Australia paused its own campaign earlier this year only to raise rates again twice, including last week. The Bank of Canada had left rates unchanged for four months before raising them again in a surprise move on June 7.That’s because inflation is proving stubborn. Across a range of economies, from Melbourne to Munich to Miami, it has been hard to stamp out. Many central banks are contending with price increases that are only moderating slowly, propped up by higher service costs, which include things like concert tickets, rent and hotel rooms.“Everyone has a kind of similar problem,” said William English, a former Fed staff member who is now at Yale University, noting that policymakers in Britain and the eurozone are facing inflation problems that have a lot in common with the Fed’s. The European Central Bank’s policymakers also meet this week, and they are expected to continue raising rates.Policy may be tougher to predict in the months ahead as officials try to judge whether interest rates are high enough to ensure that their economies slow enough to restrain price increases.“We’re into the period where we’re kind of groping a bit,” Mr. English said. “It’s going to be a period of considerable uncertainty.”

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    Central bank policy rates
    Source: FactSetBy The New York TimesThe Fed has already raised rates sharply over the past 15 months, to just above 5 percent as of May, and those higher interest rates are trickling through the economy. In recent speeches, Fed officials have hinted that they could soon “skip” a rate increase to give themselves time to assess the effects of their changes so far, and investors are betting that Fed officials will hold policy steady at their meeting on Tuesday and Wednesday before lifting rates one more time in July. But those forecasts are uncertain: Traders typically have a fairly clear idea of what the Fed might do heading into its meetings, but this time markets see a small but real chance that U.S. central bankers will raise rates this week.The doubt partly owes to the fact that the Fed will receive an important inflation reading, the Consumer Price Index, on Tuesday. But it also reflects what a fraught time this is for economic policy in the United States and around the world.This is the worst inflationary episode in America and many of its peer economies since the 1970s and 1980s, so it has been a long time since the world’s policymakers contended with the issue. And while inflation has been fading, it has also demonstrated staying power.In the United States and elsewhere, inflation started in goods like cars and furniture but has moved into services like airfares, education and haircuts. That’s concerning because price increases for services tend to be driven by broad economic trends rather than one-off supply problems, and can be more lasting.“Services price inflation is proving persistent here and overseas,” Philip Lowe, the governor of the Reserve Bank of Australia, said in a speech explaining the central bank’s surprise move last week.Fed officials have been fretting that today’s price increases could prove sticky.Wage gains remain fairly rapid, which could limit how quickly prices fall as employers try to cover climbing labor bills. And while slowing rent increases should cool overall inflation, some economists have questioned whether that will be enough to steadily lower inflation.“A rebound in the housing market is raising questions about how sustained those lower rent increases will be,” Christopher Waller, a Fed governor who often favors higher interest rates, said in a recent speech.At the same time, central bankers want to avoid plunging the economy into a recession that is more painful than necessary.That is why the Fed may hit pause this week. Officials are aware that monetary policy takes months or years to have its full effect. And recent bank turmoil could further slow down lending and spending, a situation officials are still monitoring.“Anecdotally, it’s not really that bad — but we don’t have even enough survey data,” said Yelena Shulyatyeva, senior U.S. economist at BNP Paribas. For more evidence, she will be watching a Dallas Fed bank survey this month.Still, after Australia and Canada increased rates last week, investors asked: Could this mean that the Fed, too, would be more aggressive than expected?“It is a mistake to make simplistic comparisons,” Krishna Guha, head of the global policy and central bank strategy team at Evercore ISI, said, noting that the Fed still seemed likely to pause in June while teeing up a possible move in July. While the rate increases abroad underscored that inflation is proving sticky globally, he said, that’s no surprise.“We know that inflation has been frustratingly slow to come down,” he said. More

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    Mortgage Transfers Pick Up as a Way to Beat Rising Rates

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    Real estate agents are pushing sub-3 percent mortgages as an amenity, just like marble countertops or a view of the mountains.The only goal was to not lose money.When Matthew Kilboy listed the Washington, D.C., condominium that he and his husband had bought in 2017, they accepted that higher interest rates and a soft market for condos meant any dollar over the $529,000 they had paid was a dollar they would thank their lucky stars for.A similar two-bedroom and two-bath unit in the building had recently gone for just under half a million. The $549,000 price they listed in April was basically a wish.A month later, the couple closed at $565,000 — thanks to a little-known amenity that has become increasingly popular as mortgage rates have risen. Their unit came with an assumable 30-year mortgage, with a 2.25 percent fixed rate that the couple had locked in after a November 2020 refinancing. By advertising that the buyer could inherit the mortgage, the couple, who have moved to Denver, got several over-asking-price bids that seemed like a relic from the warped real estate market during the Covid lockdown.“It was the very first sentence of the listing,” said Mr. Kilboy, 39, a former Navy nurse whose loan, backed by the Department of Veterans Affairs, could be passed to the buyer. “No one could find an interest rate that low, so we were really pushing it.”The Federal Reserve might have slowed interest rate increases, but monthly mortgage costs remain more than double their levels from 18 months ago. This has significantly lowered the supply of for-sale inventory by discouraging the millions of homeowners who locked in bargain rates during the pandemic from selling their home and incurring potentially hundreds of dollars a month in extra borrowing costs on a new one.Because so little is for sale, home prices have remained stable, and even resumed their ascent, despite a huge increase in borrowing costs. The refrain among real estate agents and economists is that anyone who secured a mortgage rate of 3 percent or lower owns a valuable asset that they are loath to give up.But every asset has a price. And now an emerging cadre of investors and real estate agents are trying to, in effect, sell mortgage rates from several years ago by transferring them to new buyers.Redfin, the real estate brokerage, has seen a steep rise in listings like Mr. Kilboy’s that have comments like “beautiful home with assumable loan at 3.25 percent.” Facebook groups have popped up to find buyers for them, while new companies are pitching services to speed up the transfer.“Homeowners with mortgages that are capable of being assumed have something valuable that many home buyers want and would be willing to pay for,” said Daryl Fairweather, chief economist at Redfin. “For people who bought when home prices were near the peak but mortgage rates were still low, it may be an attractive way to get out of a remorseful purchase.”The assumable mortgage on Matthew Kilboy’s previous home had a 2.25 percent fixed rate, making it very attractive to buyers.Benjamin Rasmussen for The New York TimesInvestors are just as eager: The euphemistic “creative finance” has become a huge topic of conversation on sites like BiggerPockets, a forum where landlords trade tips on topics like operating short-term rentals and buying a first investment property. In books, seminars and YouTube videos, influencers peddle advice on how to find struggling homeowners willing to transfer a low-rate mortgage without their bank’s knowledge — a valuable but immensely risky strategy that title companies say they’ve seen more of.“It’s just too appealing,” said Scott Trench, chief executive of Bigger Pockets, adding the disclaimer that many of these strategies frequently involve extra risks and paperwork that most people are unfamiliar with.From the pedestrian to the dodgy, it all seems to underscore the manner in which the nation’s real estate market has been frozen by regret. Buyers are resentful that the low-cost mortgages are gone. Sellers are reluctant to lower their prices from the peaks of the pandemic. In lieu of acceptance, a determined few are trying to use imagination and fine print to build a portal to the cheap-money days of 2021.Most U.S. mortgages are not directly assumable. However, a host of popular government-backed mortgages — such as those insured by the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture — typically are, said Michael Fratantoni, chief economist at the Mortgage Bankers Association. These loans are frequently used by first-time buyers and account for roughly a quarter of outstanding mortgages, according to Black Knight, a mortgage technology and data provider.In theory, any of the millions of homeowners holding a assumable low-rate mortgage have a valuable perk to sell with their home. Still, real estate agents say it can be hard in practice to transfer them. For instance, homeowners who transfer a V.A.-backed mortgage can lose their ability to get another similar loan unless they can find a V.A.-eligible buyer to take their original mortgage.Or consider a homeowner who has a low-rate mortgage but has paid a chunk of it down: To assume the loan, a buyer would have to come up with a large down payment to account for the seller’s equity — something that very few people can do.Craig O’Boyle is hoping to create a business making assumptions faster and easier. Mr. O’Boyle is a real estate agent who has been selling homes in Colorado for three decades, long enough that he remembers having to read through the door-stopper contracts that buyers and sellers now just click through on DocuSign. Reading over the lines about certain loans being assumable, he said, he had long thought that if rates ever spiked those owners would suddenly discover that their debts had value.“And then here comes this shift in the interest rate market,” Mr. O’Boyle said.Last year, he and a partner started Assumption Solutions, a consulting firm that, for a $1,100-per-deal processing fee, helps real estate agents navigate transferring mortgages between sellers and buyers. In his pitch to agents, Mr. O’Boyle argues that they push sub-3 percent rates as they do marble countertops or a view of the mountains.“You market this, and let’s say you’re competing against the house next door, your house should sell either faster or for more money,” he said.Even for the vast majority of people using a conventional mortgage that can’t be transferred, some sort of rate compensation is becoming the norm. While home prices have fallen from their all-time high last June, they haven’t come down nearly enough to make up for the increase in mortgage rates, and they’re rising again.To stimulate new loans, mortgage companies have started marketing products in which borrowers can “buy down” rates by paying several thousand dollars for a year or two of significantly lower interest. One of the more popular products is a “2/1 buydown,” in which a borrower pays for an interest rate reduction of two percentage points during the first year and one percentage point in the second.Put simply: “Most homes are unaffordable at today’s rates,” said Luis Solis, a real estate agent in Phoenix and Portland, Ore.A majority of Mr. Solis’s recent deals have had some form of interest rate compensation that is a price cut in all but name, he said. Usually it’s a lump sum at closing that buyers use to buy temporarily lower rates. Sellers with a lot of equity can cut out the middleman and finance the buyer’s purchase below prevailing rates by acting as a lender — seller financing, it’s called.Assuming mortgages, paying down rates: These are creative but straightforward solutions to rising borrowing costs. But on the margins, a rising number of investors looking to buy homes with minimal cash are trying a gray technique of finance — known as “Subject to” or “Subto” — in which they try to find people who have fallen behind on their debts and make a side agreement to take over their (low-interest) payments. (The deal is said to be “subject to” an existing loan.)The strategy has obvious appeal when interest rates are high, but it comes with a huge asterisk: Once a home has changed hands, banks typically have the right to call the loan — that is, demand that the seller’s mortgage balance be paid in full immediately. Also, if the buyer falls behind on the payments, the property can be still foreclosed on — ruining the seller’s credit, for a home that he or she no longer owns.Despite this, Bill McAfee, president of Empire Title, said he has seen an increase in customers looking to change their title under these terms, and has stock disclosures warning both sides what can go wrong.“I’m not saying I agree with doing this, but it’s a way to get into property with very little money,” he said. “They have to figure out if it’s worth the risk.” More