Double or Nothing in This Week’s Three Things to Know

By Ryan Casey Stephens,  FPQP®
Special Contributor

The phrase ‘doubling down’ is a Blackjack term that means placing twice your bet on a promising hand. To inexperienced players, it might seem too risky, but experienced gamblers know that betting more when you’re beating the house can increase your odds of winning by as much as 15 percent. The forces at work in our economy seem to be doing the same — testing the house, seeing the cards dealt next, and as we’ll examine this week, doubling down.

Will the Fed flat bet or double down?

The Fed ended last week with a win when their favorite inflation report came in lower than anticipated.

What will the Fed do at their September meeting? Will they raise the rate by half a point and flat bet on their original plan, or will they double their bet on the heels of this report with another aggressive 75 basis points? We’ll get more job and housing data prior to their September meeting that might tell us more, but they appear to be leaning towards placing the big bet on a big win against inflation with an aggressive rate hike.

An Unexpected Turn

Speaking of doubling down, President Biden unexpectedly held to one of his campaign promises when he announced the cancellation of student loan debt for as much as $400 billion last week. I outlined my initial thoughts that day, but I didn’t cover the economic impact of such a wager by the White House.

Analysis by Goldman Sachs suggests the overall net effect will be positive — inflation should actually decrease. There’s a catch, though, with most of that benefit coming from the end of COVID-19 deferment. Once borrowers begin to make payments in January of next year, that will limit the buying and borrowing power of many Americans, which might just be the luck the Fed needs to tackle soaring prices.

Is appreciation a sure bet?

In addition to two important job reports this week, we’ll also get the latest numbers from the Case-Shiller and FHFA price indexes. These reports reliably track actual appreciation for homes across the United States.

Americans face many headwinds these days including hiring freezes, layoffs, rising interest rates, and limited (but easing) inventory of homes. The results from these reports will begin to tell us an interesting tale – will buyers continue to see real estate as a sure bet, or will home values see a hiccup in the coming months and rattle their confidence?

Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].