Warsh: Inflation Top Priority, Noncommittal About Rate Hikes

Fed Chair Kevin Warsh emphasized the need for continued progress on inflation, but stopped short of committing to a September rate hike. Housing data showed home prices holding up even as sales slowed. Here’s what you need to know.

·      Warsh Signals Inflation Remains a Top Concern

·      New Home Sales Slow in July

·      Home Prices Build on Recent Gains

·      Economic Snapshot: GDP and Unemployment

Warsh Signals Inflation Remains a Top Concern

Fed Chair Kevin Warsh’s speech at the Jackson Hole Economic Symposium was a major focus for markets on Friday. Warsh made it clear that getting inflation back to the Fed’s 2% target remains a top priority.

His speech came after two important inflation reports were released on Wednesday. Headline Personal Consumption Expenditures (PCE) rose 0.2% in July, while the annual inflation rate held at 3.7%. Core PCE, which excludes food and energy prices, also rose 0.2% for the month, with the annual core inflation rate remaining at 3.3%.

The Dallas Fed also released its Trimmed Mean inflation measure, which filters out unusually large price moves. It showed underlying inflation at 2.3% over the past year – much closer to the Fed’s 2% target.

Bottom line: While Warsh acknowledged some recent progress on inflation, he said the underlying trend hasn’t shown enough sustained improvement. He stressed that if inflation doesn’t make meaningful progress toward the Fed’s 2% target, there is still “work to do.” His comments keep the possibility of a rate hike on the table, but he stopped short of committing to one at the Fed’s next meeting in September.

Warsh also said he believes the economy has strengthened, consumer demand remains healthy, and labor market conditions – including a 4.1% unemployment rate and low jobless claims – are consistent with full employment.

New Home Sales Slow in July

New home sales fell 10.5% from June to July, reaching a seasonally adjusted annual rate of 607,000 homes. That was below expectations, although June’s sales were revised up by 50,000 to a 678,000 annualized pace. Compared with a year ago, July sales were down 6.3%.

Sales increased in the Northeast and West but fell 43% in the Midwest and 13% in the South. Because the report is based on signed purchase contracts, the July results provide a snapshot of buyers’ activity during the month.

Bottom line: A 2.3% month-over-month decline in the median new home price led to some headlines suggesting that home prices are falling. But the median price is based on the mix of homes sold. In July, sales of homes priced between $300,000 and $399,999 increased notably, which helped pull the median price lower.

In other words, a lower median sales price doesn’t necessarily mean home values are declining. Broader market data continues to point to steady home price appreciation nationwide.

Home Prices Build on Recent Gains

After solid gains in March, April and May, national home prices rose another 0.4% in June, according to the Case-Shiller Index. That brought the total gain over the past four months to 2.7%. After adjusting for seasonal trends, prices increased 0.1%. Overall, home prices are 1.5% higher than they were a year ago.

A separate report from the Federal Housing Finance Agency (FHFA) found that seasonally adjusted home prices were flat in June. Prices for homes backed by conventional loans were up 2.3% from a year ago.

Bottom line: While seasonal adjustments can make price growth appear more modest, home values have continued to trend higher. For homeowners and homebuyers, even modest annual gains can add up over time.

A $500,000 home appreciating at 3% per year, for example, would gain roughly $15,000 in value in the first year alone. Over time, that appreciation can become a meaningful part of a homeowner’s overall wealth.

Economic Snapshot: GDP and Unemployment

The latest estimate of second quarter GDP shows the economy grew at an annualized rate of 1.5%, unchanged from the initial estimate and down from 2.1% in the first quarter.

Growth was supported by consumer spending, business investment (including continued investment in AI data centers), and exports. These gains were partly offset by lower government spending. Higher imports also weighed on GDP because imports are subtracted when calculating economic growth.

On the jobs front, initial unemployment claims edged down to 203,000, while continuing claims remained elevated at 1.78 million. The relatively low level of new claims may partly reflect workers turning to gig or freelance work, which isn't always fully captured in traditional employment data. Meanwhile, the elevated number of continuing claims suggests that some unemployed workers are taking longer to find their next job.