Last week as I was driving my youngest daughter to school, we began discussing the dangers of the poor air quality due to the Canadian wildfires. Earlier that morning, we tried to look up the predictions for the air quality of the day, but I explained to my daughter that weather forecasters don’t always get the weather right. She wanted to know why they aren’t fired if they aren’t good at their jobs.
I explained that meteorologists have a way of predicting the weather by using various tools and information. First, they gather data from things like satellites and balloons to see what’s happening right now. Then, they put this information into special computer programs that simulate the atmosphere movements. These programs then consider things like temperature, pressure, and wind patterns. By looking at the results of these simulations and comparing them to past weather patterns, they make educated guesses about what the weather will be like. Needless to say, it’s not the easiest of jobs.
Similarly, the Waze app does something comparable but is even more advanced. Waze helps drivers navigate to their destination by analyzing both real-time and historical travel information. Live satellite monitoring determines your location and calculates the fastest route and anticipated arrival times based on traffic conditions. But what makes Waze even more robust is that it not only looks at past information and trends but also integrates real-time driver input that immediately gets incorporated into its predictive analysis. It is quite a sophisticated technology.
And then there is the Federal Reserve. The Fed, the central bank of the United States, uses market indicators to make decisions about the country’s financial system. These indicators provide information about the economy’s overall health, such as employment rates, inflation, and economic growth. By analyzing these economic indicators, the Fed assesses the current and possible future conditions of the economy. Based on this analysis, they determine whether to raise or lower interest rates, which can influence borrowing costs, investments, and spending in the economy. The goal is to balance economic stability and growth, aiming for low inflation and maximum employment.
The problem, however, is that The Fed only uses past economic data and analytics to drive policy. What’s worse, much of the data they rely on is inaccurate and potentially manipulated based on a certain agenda or bias. As you can imagine, it is very challenging for them to predict and guide monetary policy effectively and adequately. This week the Federal Reserve met once again to make a determination about interest rate policy. They “paused” for the first time in 15 months since they began aggressively raising rates (ten times) in March 2022. At his press conference, Fed Chair Jerome Powell said that the central bank would consider the “cumulative” impact of rate increases at future meetings and that The Fed hasn’t yet made a decision on July’s policy move.
While I cannot say with certainty that the “war on inflation” is over, I can say that the trajectory indicates that things have improved. The current CPI and PPI reports have already shown a softer inflation reading, and the projections for future readings will only follow suit.
Unfortunately, according to projections from members of the Fed, it is anticipated that there may be an additional two rate hikes before year-end. Unfortunately, their current monetary policy is akin to someone driving a car while only looking in their rearview mirror for forward guidance.
Because the Fed doesn’t correctly incorporate the trajectory of ‘real time’ and accurate analytics into its forecasting, they are spooking the markets. While I suspect they won’t hike any further, I can predict that future rate hikes will only further hamper economic conditions and make it even more challenging for the average consumer. Time will tell what happens, but there is certainly still time to make proper decisions about one’s personal financial circumstances before its too late.
Shoutout and happy birthday wishes to Aliza Adler, Michael Cantor, Ami Dabah, Patrick D’Onofrio, Ilana Erdfarb, Isaac Farbowitz, Steven L. Finkelstein, Sarah Hammer, Ariella Herman, Mo Kanarfogel, Yossi Kapon, Miriam Lambert, Benjy Lebowitz, Avraham Lynn, Benjamin Mann, Aaron Moskowitz, Daniel Oshinsky, Yonatan San Solo, Eric Stobezki, Kira Wigod, Yoni Zahler and Sharon Zwickler
Shmuel Shayowitz (NMLS#19871) is a highly regarded Real Estate & Finance Executive, Writer, Speaker, Coach, and Advisor. He is President and Chief Lending Officer of Approved Funding, a privately held national mortgage banker and direct lender. Shmuel has over twenty years of industry experience, holding numerous licenses and accreditations, including certified mortgage underwriter, licensed real estate agent, residential review appraiser, and accredited investor, to name a few. Shmuel has successfully navigated through many changing markets and business landscapes, making his market insights and experience well-coveted within the real estate industry. He can be reached via email at [email protected].
