January 28, 2025
So, we added over two million jobs last year. That is good news, right? As we have been saying for a few years now, good economic news has now become bad news. How did more jobs for Americans become a bad thing? When the unemployment rate is low, consumers have more money to spend, and this boosts the economy and creates even more jobs. A great cycle!
First, we must factor in the concept of inflation. If consumers are making more money, but this higher income goes to purchase the same amount of goods as previously, then consumers are literally spinning their wheels. It is even worse for those on fixed incomes such as social security because the raises they have received are not covering the increases in their cost of living. It is true that inflation levels have come back close to normal, but consumers are still getting used to the price hikes they witnessed in previous years. In other words—prices are not dropping back.
Not all goods are higher. Gas prices are as low as they were before the pandemic. Other price hikes are lagging – such as property taxes on homes. And the continued proliferation of weather events is causing a spike in insurance prices. Further focusing on real estate, mortgage rates remain high even though house price appreciation has moved to normal levels. Why is the Fed reticent to force interest rates down, which would help ease one major inflation concern? If lower interest rates fueled another round of increases in house prices, we could kick off another inflation cycle. Speaking of cycles—if it sounds like we are talking in circles, then you have read this analysis correctly!
Source: Origination Pro
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