Today's Scoop:

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Here’s what you need to know…

1. Policymakers are still worried about inflation.

2. Mortgage rates are approaching 20-year highs.

3. Home construction picked up in July, but there’s still a housing shortage.

S&P 500: 4,404.33
1Mo: -3% | 1Yr: +3% | 5Yr: +55%

The market wavered lower today as investors worried about the potential for higher interest rates.

Policymakers think the economy is strong, which poses the risk of higher inflation and higher interest rates to fight it. Minutes released from the Federal Reserve’s last policy meeting confirmed that policymakers no longer expect a recession, but the resilient economy might mean an inflation resurgence.[🤓]

Mortgage rates are approaching two-decade highs again. Mortgage finance agency Freddie Mac reported the average rate on a 30-year fixed mortgage rose to 6.96% last week, nearing the 7.08% peak from last year and the most expensive rate since 2002. Near-record home prices and expensive mortgage costs have made homes less affordable than they have been in decades.

Home construction picked up in July, but there’s still a major shortage. The Commerce Department reported new construction on single-family homes rose 6.7% in July. Homebuilders have ramped up, but the available supply of new homes is still only half of what it was pre-pandemic. Despite mortgage rates deterring buyers, the home supply shortage has kept propping up prices.

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• TJ Maxx sales shine as shoppers seek discounts [🤓]

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How the Federal Reserve battles inflation

The Federal Reserve, aka the Central Bank, aka The Fed, is in charge of our whole money system. When the economy is struggling, the Fed lowers baseline interest rates to make it cheaper for consumers and businesses to borrow and spend (lower rates on business loans, mortgages, credit cards, car leases, etc.)

The Fed also pumps more money into the system by buying bonds with new dollars that it essentially speaks into existence. The additional cash keeps the pipes flowing as the borrowing and spending heats up, stimulating economic activity.

Once the economy's strong enough to stand on its own, the Fed starts to raise interest rates and pull back some of that money to ensure the economy doesn't overheat. Inflation is the Fed's heat gauge. The gauge was reading very hot but has been cooling lately.

So everyone's watching how long the Fed will keep restricting the economy with high rates if inflation keeps cooling. The Fed hopes to get living costs under control without sparking mass unemployment.

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