with brian beaulieu

WEEKLY FED WATCH

This week on Fed Watch, we dive into the M2 money supply, single-family housing permits, labor market signals, and interest rate trends. Will these trends lead the Federal Reserve to implement further cuts? And how would that impact the economy through 2025? Tune in to learn more!

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Key Episode Takeaways

  • 00:23 – Current Money Supply Trends and Economic Normalization
  • 00:52 – Housing Market Indicators
  • 01:50 – Labor Market Analysis
  • 02:56 – Interest Rates and Bond Yields
  • 03:30 – Economic Outlook for 2025
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The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello, I’m Brian Beaulieu, Chief Economist of ITR Economics, and thank you for watching this edition of FedWatch. Today is January 24th, 2025.

Interesting mix of going ons out there. The M2 data, which is something that we look at a lot, is running 1% ahead a year ago levels. That’s a significant change from a year ago. When we look at the longer term trend, it’s actually the Federal Reserve is back on track with money supply growth consistent with the longer term pre-COVID. In other words, this is part of the normalization that we anticipated would be defining 2025. That’s going to be increasing the clarity of things going forward.

Looking at single family housing permits for the fourth quarter, that came in 0.1% ahead of the year ago level. Now, that may not sound like much, and it is. It’s a pretty slim margin, but at least it’s not going down anywhere anymore. We’re maybe shifting into a phase B rising trend. It’s been waffling for about four months. We’re not getting any well-defined momentum, but I’ll take this. This is an early stage transition to when we expect to see single family housing permits rising again, even without interest rate cuts.

Even better, the December Residential Architectural Billing Index, the fourth quarter finalized in December, was up really nicely. We have a very nice rising trend that’s right in line with our single family housing starts forecast. Again, all of this presumes we don’t need interest rate decline in order for those things to happen.

Will we get some more decline? Maybe the Federal Reserve will. They certainly could if they’re wanting to. The fourth quarter initial unemployment is short. The insurance claim number was up 6.5% from a year before. The 12/12 rate of change is at 1.5. So having that 3/12 running that high above the 12/12 is a telling sign that we’re still looking at some easing in the employment situation. Job openings are down 13.8% across the economy and that number is getting more negative with each passing month. And if you just looked at those two things, the Fed would have some fair amount of maneuvering room. But here’s the most interesting part though, the hourly earnings for the fourth quarter are up 4.0% from one year ago across all sectors. And that’s in phase B, which means that number continues to go up. So we have a soft labor market, but we’re still increasing wages. And that creates that wage price cycle that tends to keep that CPI from coming down. So it depends on how much the Federal Reserve wants to lean into some concerns that they have.

They’re not doing much of anything right now. I haven’t… I scan the news. There’s no new reports. The 10-year bond yields, which is what I report on, the government bond yield is at 4.64%. It was at 4.61% last week. So that’s just noise. There’s nothing going on significant. 30-year fixed rate mortgage rate, which was 7.11 last week, is down to 6.96. Again, that’s noise. It’s not significant movement. It’s essentially 7%. Not likely to get anybody moving very quickly.

All of which puts us on track for that improvement in the economy as we go deeper into 2025. And we’re not counting on any big interest rate change to make that happen. I don’t think you should either. Plan on being busier the deeper we go into 2025 and busier still in 2026 regardless of what the Fed does. If they should lower it, consider the bonus. Thank you very much for watching.

I will see you again on January 31st as we round the bend on the first month of this year. Thank you.