Head of Macro Analysis, Saxo Bank Group
Summary: The evidence of something seriously amiss with the US housing sector – and thereby the US economy itself – just keeps on stacking up. Between them, these indicators could make the Fed hit the pause button.
We got another interesting data print today about the US real estate market. The National Association of Realtors’ Pending Home Sales, which is a leading indicator of housing activity, was very ugly. In October, it fell 2.6% M/M versus 0.5% expected (chart 1).
Fed chair Powell hinting at “wait and see” mode yesterday was certainly a consequence of the acceleration of the slowdown in the housing market. Since the beginning of the year, housing numbers have been softening very sharply.
It constitutes another headwind, along with strong USD, turmoil in the equity market and a rising budget deficit, that is expected to push the Fed to pause monetary policy after December hike.
As we have pointed out many times over the past few months, the Fed's monetary policy is certainly already too tight (chart 2), which increases the risk of financial and economic turbulence due to the high level of indebtedness.