FHFA Director Bill Pulte called for Federal Reserve Chairman Jerome Powell to resign today, shortly after President Trump urged Powell to cut the Fed funds rate by 2.5% in a social post.
This follows the Federal Reserve’s decision yesterday to keep the Fed Funds rate unchanged. Although Powell pointed out the challenges of finding a job right now, he said the Fed is not planning to cut rates anytime soon due to uncertainty regarding tariffs. This is despite the most recent Personal Consumption Expenditures (PCE) data showing headline inflation at 2.1% year-over-year. Read my take on that decision here.
As you can see below, the unemployment rate is at a level where the Fed said in 2024 would make them uncomfortable if it started to head higher.
The Fed admits it’s still restrictive
Wednesday’s press conference probably wasn’t the best one for Powell, where he stated that the labor market is challenging for those looking for a job, but the current unemployment rate, rising toward 4.2%, still indicates a strong labor market. If the Fed were working from a more neutral policy stance, Powell’s take might be more understandable, but they’re not at a neutral policy.
Housing construction not growing for years
Yesterday, the housing starts data reflected a long-standing trend: the housing construction growth cycle reached its peak in 2022 and since then progress has been quite limited. In my article, I write that homebuilders seem hesitant to issue new permits given the current mortgage rates around 7%. However, a rate decrease to 6% could potentially stimulate activity in the housing market and encourage growth nationwide.
The charts below speak for themselves!
Single-family construction peaked years ago
Housing starts and permits are at early COVID-19 recession levels
The Homebuilders Confidence Index is almost back to the lows of COVID-19
Understanding the importance of residential construction to the economic cycle and job market is crucial. When workers in residential construction lose their jobs, a recession often follows. This is a pattern that the Federal Reserve and Powell tend to overlook repeatedly throughout various economic cycles. This insight helps explain why the President and Director Pulte advocate for lower interest rates.
As you can see, the housing market is critical not only to fight inflation with supply, which is the best way to deal with inflation, but also a key economic cycle indicator.
Conclusion
Expect increasing pressure on the Federal Reserve over the next 6.5 months. Our economy is facing several challenges that have confused the Fed and led to a more passive approach in their decision-making. I discussed this in detail on today’s HousingWire Daily podcast, where I highlighted a flaw in their thinking regarding the recent Fed meeting.
Once again, it seems things are about to get more interesting, folks!