Fed Watch – 2/21/2025

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello. Thank you for joining us for this edition of Fed Watch. Today is February 21st, and I’m Brian Beaulieu, Chief Economist of ITR Economics.

The date of this past week was mixed and had some interesting wrinkles to it. The bottom line, and I’ll get right to that, is I understand completely why the Fed is holding interest rates where they are. There’s a great deal of uncertainty out there, and we’ve been hearing it from our clients both when we’re on the road and when we’re doing our EVP deliveries. People are asking a lot of questions about the tariffs.

Let me just address that real quickly for you. Tariffs are not going to put this country into a recession. It probably means slow growth forecast that we have in place is looking even better as far as it being a slow growth cycle, and it is going to add to the inflationary pressures. We already had inflation built into our extended outlook, so we’re not changing anything in terms of our forecast based on the tariffs, threatened tariffs, non-tariffs, all of that. We’re just staying the course on all of it and breaking it down and studying it, writing about it in blogs, so you’re welcome to go on our website, look at our blogs. I have one coming out in a couple of days, as a matter of fact, that’s an update on thinking.

Getting back to the purpose of FedWatch, we had some housing data come out. Existing home sales for January came out, and the month to month changed, so from December to to January came out a little weaker than normal, but decline is normal. But it was a little disappointing, that result. Media is talking about all the coldness and snow maybe having an effect on that. And that can certainly make a great deal of sense. We saw the 3/12 weekend to 6.1%, but that’s still a positive 6.1%. Data trend, the 12-month moving total continued to rise for the fourth consecutive month. So while there’s a squishiness in that January number, there’s nothing to give us a whole lot of angst anyways.

Another leading indicator that came out recently was single-family housing starts. That was also January data. And on the surface, that didn’t look very good. We saw the 3/12 rate of change, as a matter of fact, grew deeper into phase D at minus 4.3%. But when I tore apart the numbers, last year’s seasonal decline in the three-month moving total was exceptionally mild. It was the third-mildest case in history, as a matter of fact. This year’s seasonal decline is just normal. I mean, it’s milder than average, but it’s normal for recent history. It’s very much like what the housing market was going through in 2011 through 2019. The weakness that we are experiencing in the rates of change and the lack of rise in the data is consistent with our forecast for the few who’ve been following that forecast through the ITR Trends Report. Nothing surprising going on there. We’re still looking for this leading indicator to strengthen later on this year and provide us more of an upside signal for the business cycle.

Automobile production came out with data through January now, 2025. The data trend recession is milder than normal. It is on target with our forecast. We’re running a 99.3% accuracy rating after 12 months on that forecast. So no surprises there, all of which tells us that we’re not likely going to get any sudden movement up or down on these interest rates.

In fact, the 10-year bond yield was essentially flat from last year if we take it out of two decimal places, slightly up from last week rather than not last year. It’s at 4.53% versus 4.463%, but it rounds to 4.5% in any case. And we think it’s going to be holding our forecast is that it’s going to be holding at about this level, which means you’re not going to see big movement and mortgage rates in the near term. But I understand that the clock is ticking on taking advantage of these rates before they start going back up.

Freddie Mac shows the 30-year fixed rate mortgage. at 6.85%, it was 6.87 last week. So again, essentially no change going on and unexpected for right now. You still have time to make your move, but we strongly encourage you to make that move. If you’re going to engage in some leverage sooner rather than later is the best way for you to go.

Consumer expectations, by the way, were down in January. They were at the lowest level in five months and they were 10.1% below a year ago. So the consumer’s not in a good mood, relatively speaking. The rate of change, weakness is going to make all the news, how existing home sales ran below a year ago levels and all of that. Automobile retail sales for the last three months down, production down 7.4% for the month down 7.2%. I’m asking you just don’t focus on all that. We anticipated all this. We understand what’s going on.

Don’t look for appreciably lower interest rates or even any lower interest rates right now. And this does not take the recovery trend off the table. That’s the paradigm you should be working with. It’s setting yourself up for success with this mild business cycle rise that we have ahead of us.

We’re going to tear this down even more and go global at our virtual summit on March 20. We’re going to take you places where we haven’t taken you before in terms of thinking about 30s supply chains and these tariffs. I’m looking forward to it. I hope you can join us there. Thank you again. We’ll see you next week on February 28th for the next edition of Fed Watch.