Powell will deliver his twice-yearly economic and monetary policy report to the House Financial Services Committee on Wednesday, then repeat his remarks to the Senate Banking Committee on Thursday.
The markets will be watching Powell for any guidance on the future direction of interest rates. After all, inflation is still well above the Fed target of 2% per year, and the labor market remains tight.
Powell’s remarks come during a week that housing data have dominated. The Census Bureau and the Department of Housing and Urban Development announced on Tuesday that residential construction increased in May.
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Building permits grew by 5.2% to a level of 1.49 million. Housing starts increased 21.7%. The National Association of Home Builders announced on Monday that their monthly confidence index had risen five points to 55 and was now solidly positive.
Robert Dietz, NAHB’s chief economist, said that a bottom was forming in single-family housing as builder sentiment has continued to rise since the start of the year. This month, both the current and the future components of the HMI exceeded 60 for the first time since the beginning of the year as buyers adjusted to the new interest rate normal. It is good news that the Federal Reserve is nearing the end of its tightening cycle. This will also have a positive impact on future market conditions, including mortgage rates and costs of financing for builders and developers.
The lack of supply has benefited new home sales as existing homeowners refuse to sell their homes and are unwilling to give up the low-rate mortgages they took out in the last few years. The report on May housing sales is due Thursday, with analysts expecting a slight drop from the April level.
Inflation drops to its lowest level in two years. Thursday, the Conference Board will release its latest monthly Leading Economic Index. Analysts expect another drop in the index after 13 consecutive months of declining data. This would normally signal an impending recession. However, a combination of a robust labor market and abundant consumer spending has delayed its arrival.
Sam Bullard is the managing director of Wells Fargo’s Corporate and Investment Banking Group. He said that “the LEI’s downward trend is also accelerating, suggesting a more than likely turn in business cycles.” “We suspect that the LEI fell by 0.8% more in May.”
Bullard said that if the drop in May’s LEI is realized, it would be the 14th consecutive monthly decline since the Great Recession.
Next year, the NRC expects at least two additional applications for construction permits to be submitted by companies that are working on advanced designs or small modular reactors.
Solar and wind energy are cited as alternatives to reduce carbon emissions to combat climate change.
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Kelly Mangold, RCLCO Real Estate Consulting, added: “The increased number of starts in this month indicates that builders anticipate positive conditions for the coming year when these homes are available to buyers.”
Bright MLS’ Chief Economist Lisa Sturtevant commented on Wednesday’s report. “While new construction won’t immediately solve the housing supply problem, the recovery of the homebuilding industry is important for meeting the country’s housing requirements and easing affordability challenges for potential home buyers.”
Kelly Mangold of RCLCO Real Estate Consulting said, “Demand from millennials for homes is high. However as boomers enter their retirement years they are often moving and have significant home equity.”