Where the Fed is heading — and where it’ll end up — depends on inflation and the labor market.

We must sound like a broken record. The Federal Reserve meets. The Fed raises short-term rates. The Fed says -- we are going to raise rates until inflation gets under control. Wash, Rinse, Repeat. This was the sixth time the Fed raised their benchmark rates this year, with the most recent four times each being a robust 0.75% increase. All we can ask at this point is – are our clothes clean yet?

Inflation and higher interest rates are not a laughing matter. There is no doubt that the interest rate increases are aimed at slowing the economy. Up until now, the jobs creation machine has not slowed down much. The report this past Friday showed a gain of 261,000 jobs and an unemployment rate of 3.7%. The numbers were a bit higher than expected and not in any way indicative of a recession. If the Fed was looking for a pause, they are not seeing it in these numbers – especially wage growth which was still robust. 

One thing for sure is that higher interest rates are slowing the previously red-hot real estate market. This is actually good news because the pace of home price gains was not supportable in the long run. However, we believe that real estate drives the economy. And the current slowdown in real estate will filter through very quickly. The question is…when the Fed sees this pause, will they take their foot off the pedal? We believe they will and would not be surprised to see the pace of rate increases wane as soon as December. Stay tuned.