US Fed gives its 'lift-off' signal

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news the US Fed has given its expected 'lift-off' signal.</p><p>The US Federal Reserve has <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20220126a.htm" target="_blank"><strong>confirmed</strong></a> it is changing its policy direction. They have signaled interest rate rises will likely start in March, their first since 2018, and they have accelerated plans to unwind their easy money policies for the US economy amid sharp-rising inflation.</p><p>Overall, this is pretty much what financial markets had priced in.</p><p>In immediate reaction, the UST 10yr yield has risen to 1.80%. The USD has firmed slightly. And the S&P500 has risen from what was already a strong day of gains.</p><p>Meanwhile in other news, US <a href="https://www.census.gov/construction/nrs/pdf/newressales.pdf" target="_blank"><strong>new home sales rose sharply</strong></a> in December to just over an +57,000 in the month, the fastest sales rate since September, but bringing the total actual new dwellings sold in 2021 to only 762,000 and -7.3% less than in 2020. But prices rose, with the median up more than +16% to US$393,000</p><p>American <a href="http://www.freddiemac.com/pmms/" target="_blank"><strong>mortgage interest rates moved up sharply</strong></a> again last week, back to pre-pandemic levels. And the level of <a href="https://www.mba.org/2022-press-releases/january/mortgage-applications-decrease-in-latest-mba-weekly-survey" target="_blank"><strong>mortgage applications fell</strong></a> at the same time, and quite sharply.</p><p>Surging imports, probably in response to supply chain difficulties because retail inventories are surging, have pushed the <a href="https://www.census.gov/econ/indicators/advance_report.pdf" target="_blank"><strong>US trade deficit</strong></a> up