Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.
Today we have the latest on rate cut projections, Wall Street bonuses, and construction.
Looks Like You’ll Have To Wait a Bit for Those Rate Cuts
The Federal Reserve left rates unchanged this week, a move that surprised nobody. The Fed hasn’t touched rates since July.
It did throw us a bone in its economic projections, which forecast three rate cuts this year. They didn’t say when those cuts would happen, so let’s have a bit of fun and guess. They have six meetings left this year:
1. Apr/May 30-1
2. June 11-12
3. July 30-31
4. September 17-18
5. November 6-7
6. December 17-18
Many are betting on the June meeting, but I think it will be later than that. The economy remains very strong, with inflation still running almost 2% above the Fed’s target. It would be irresponsible to give the economy rate cuts it clearly doesn’t need and risk keeping inflation elevated longer than necessary. My guess would be a 25-basis point cut at each of the last three meetings this year.
Also contained in the Fed’s economic projections was their forecast for GDP growth and inflation for the next three years. They expect economic growth of 2.1% this year, up from 1.4% in their December projections. Core inflation is now expected to rise 2.6% in 2024, a bit higher than the 2.4% estimate in December.
Wall Street Bonuses Totaled $33.8 Billion in 2023
It seems every year we get bombarded with dire warnings about Wall Street bonuses. We get scared of what that would mean to the NYC economy, housing market, and city and state governments that rely heavily on the taxes they get from bonuses.
You can stop your worrying, because the total bonus pool last year was $33.8 billion, unchanged from 2022. And remember that’s all cash, not options or future income. The NYS Comptroller’s Office can only count this money when it’s paid. The average bonuses did dip 2% to $176,500, but that’s no big deal.
How much money is $33.8 billion? Enough to be every apartment for sale in Manhattan right now and still have $11 billion left over.
Home Construction is Ramping Up Across the U.S.
Here in NYC, we may be lamenting the lack of new home construction and the failure of the state legislature to replace the 421-a program that fueled development in the past. But the rest of the U.S. has picked up the pace, as housing starts jumped 10.7% in February—their biggest increase since May. The 1.52 million annualized rate of housing starts easily beat the Bloomberg forecast of 1.44 million. Single-family construction reached a two-year high, while multifamily starts jumped 8.3% last month.
There was also good news on building permits, which rose to their highest rate since August. Building permits are a leading indicator of economic activity, so this is also good news for GDP growth in the coming months.
To complete the trifecta of positive news on construction, homebuilder sentiment rose in March to its highest level since July. The National Association of Home Builders/Wells Fargo Housing Market Index came in at 51, better than the forecast of 48. Any reading over 50 indicates homebuilders have a positive view of the market. Let’s hope they remain positive, as the U.S. has a huge shortage of homes for sale.
