Is 2023 the year for homebuyers?
Market volatility continued over into the first week of the new year as the Dow closed 300 points lower on Thursday after the release of a stronger-than-expected private payrolls report. ADP’s private payrolls report showed 235,000 jobs added in December which was well above the estimate. This spooked investors who see any sign of resiliency in the Labor Market as a sign that the Federal Reserve will continue its aggressive rate hikes.
That feeling was slightly assuaged Friday morning when the Department of Labor released its jobs report. The report showed nonfarm payrolls rose by 223,000 in December with unemployment falling to 3.5%. Many economists predicted the report would come in around 200,000. But more importantly, wage gains were lower than expected growing 0.3% month-over-month and 4.6% year-over-year. Slow wage growth is typically an indicator that inflation pressure is waning.
The minutes from the Federal Open Market Committee’s December meeting were released earlier in the week, showing the language policy makers used to express their sentiments on inflation and the need for keeping restrictive monetary policy in place. The meeting summary indicated this would only move higher in the near future, stating, “Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time. In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy.”
Currently, the Federal Funds rate is at 4.25%-4.5% which is its highest level in more than a decade. The minutes show that no FOMC members foresee any rate cuts in 2023 which is consistent with the messages delivered by Fed Chairman Jerome Powell in previous months. Minneapolis Fed President Neel Kashkari published an essay on the Federal Reserve Bank of Minnaepolis’ website where he went a step further, calling for raising rates at least three more times this year. That would push the federal funds rate to about 5.4%.