The Fed is Making Changes

Fed Task Forces Could Move Rates

The Federal Reserve (Fed) announced on July 9 the creation of five task forces to modernize the Fed and improve US monetary policy. These task forces will be staffed by external (non-Federal Reserve) members as co-leaders and will operate independently. They will report their findings by the end of this year. Why does this matter to Real Estate Professionals? These task forces will examine many of the same issues we discuss every week. Any changes proposed could affect mortgage rates.

Communications Task Force Reviews Guidance

The communications task force will focus on how the Fed conveys its policy deliberations and decisions, particularly forward-looking guidance. Tools like the “dot plot” and the summary of economic projections will be examined. Announced members include a former US Treasury official, a former Governor of the Bank of Brazil, and a former Governor of the Bank of England.

Balance Sheet Task Force Reviews QE

The balance sheet policy task force will focus on what to do with the current balance sheet, which is approximately $6.7 trillion. Tools such as quantitative easing and tightening will be examined, along with institutional and financial stability. Announced members will include a Harvard University economist, a former Governor of the Bank of India, and a former Fed Governor.

Data Task Force Eyes Better Inputs

The data task force is one we will keep an eye on as it focuses on the accuracy of current economic reporting, new and additional data sources, and sharper real-time readings on jobs, prices, and activity. We consistently discuss the problems with the BLS jobs reports and their significant revisions. We also discussed the shelter lag that is contained in the inflation reports.

It looks like they are aware of the Bureau of Economic Analysis’s (BEA’s) issue showing that almost 0.4% of Core PCE is due to rising portfolio management costs. Announced members will include a Harvard University economist, a former President and CEO of Walmart, and a University of Chicago economist.

Jobs Task Force Studies AI Impact

The productivity and jobs task force will analyze how tools like AI will affect the economy from a jobs and productivity perspective. Announced members will include a Venture Capitalist, a Stanford economist on leave at Anthropic, and an EVP & Xbox CEO with Microsoft.

Inflation Frameworks May Revisit 2%

The final task force is on inflation frameworks, and they will help determine whether the 2% target for Core Inflation is still appropriate. Announced members include a former Chair of the Council of Economic Advisors, a Nobel laureate, and a former BIS adviser.

Iran Conflict Has Limited Rate Impact

The breakdown of the peace deal in Iran and the commencement of hostilities are not having as big an effect on rates as they did when the Iran conflict originally began. Oil prices remain low, and we may see favorable inflation reports next week.

Looking Ahead: Reports Keep Inflation in Focus

• Tuesday, July 14th: ADP Weekly, Consumer Price Index (CPI), and Fed Chair Warsh testimony
• Wednesday. July 15th: Producer Price Index (PPI), Fed’s Beige Book
• Thursday, July 16th: Jobless Claims, Retail Sales, Pending Home Sales
• Friday, July 17th: Housing Starts and Permits, Industrial Production/Capacity Utilization