The Federal Open Market Committee decided in April that now is not the time to raise interest rates. The FOMC cited the need to continue helping in the coronavirus economic recovery along with low levels of inflation as reasons for their decision. However, Federal Reserve chairman Jerome Powell and the committee were optimistic as to the future prospects of the nation’s economy, and where it currently stands in the recovery. One of the most important statements from the Fed in its recent meeting was that there are no plans to raise interest rates before 2023 at the earliest.


The FOMC noted in a statement, “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened… Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.”

As gasoline prices rise, are we headed for a summer shortage?

Across the country, gasoline prices have started to soar. After plummeting to an average of $1.75 per gallon at the height of the coronavirus pandemic, the average cost for a gallon of gas has risen substantially, above $2.80 per gallon. In California, gas prices have even hit $4 per gallon for the first time in a year and a half. Generally, the summer months bring higher prices at the pump as it is, but this year could be even worse than normal. In fact, many analysts believe there could be a nationwide gasoline shortage in the coming months.


Interestingly enough, the reason for such a shortage won’t necessarily fall on dwindling gasoline supply, but rather, a shortage of qualified tank truck drivers to move gasoline throughout the nation. The industry has identified a severe shortage in these drivers, creating a bottleneck in the supply chain. This is a strange juxtaposition given the fact that millions of Americans are still out of work and collecting unemployment.

Housing prices continue their tirade

The housing market, which was already on a tear, shows no signs of slowing down. In fact, many potential homebuyers are finding it harder than ever to purchase a home in the current market climate. According to data from Redfin, the country’s median sale price came in 16.7% higher than this time last year, at $353,048. Additionally, 42% of all homes for sale are selling above their list price, compared to 25.4% this time last year.

There are many contributing factors to rising home prices in this market. For one, mortgage rates remain low, and are 0.4% lower year-over-year, currently averaging 3.1%. Then there is the issue of housing supply, which remains incredibly low. Redfin estimates there are currently 634,817 homes for sale throughout the country, a 52.5% decline from last year. Making matters worse, lumber prices are through the roof, making it more expensive for homebuilders. In fact, it’s estimated that as a result of rising lumber prices, home prices have risen an average of $36,000.


Biden proposes new capital gains tax

High-earning Americans were not happy with President Joe Biden when he unveiled his plan to raise capital gains taxes. According to the proposal, long-term capital gains for those earning over $1 million in income would go from 20% to 39.6%. This would also come with a slight increase to income taxes for the top tax bracket, up to 39.6% from 37%. But it’s not just capital gains that Biden wants to increase for wealthy individuals, he is also targeting inherited wealth as well which would apply to earners over $1 million annually.

Biden proposed such an increase to pay for his new $1.8 trillion American Families Plan that will go toward funding things like universal pre-K, and increased tax credits for families. However, detractors of the proposed bill say that with such an increase, wealthy Americans will just find new ways to avoid the tax altogether. Legal maneuvers such as realizing gains in years where income is lower and filtering business income through pass-through entities, could actually eliminate most of the gains the government anticipates. According to the nonpartisan Penn Wharton Budget Model, tax avoidance strategies could eliminate $900 billion of the $1 trillion in estimated income for the government.

Buffet is worried about inflation

Longtime investor and Berkshire Hathaway CEO Warren Buffet is beginning to see a reason to worry about inflation. Buffet noted that his company is seeing prices rise across many areas of business, raising concerns of what is to come. “We’ve got nine homebuilders in addition to our manufacture housing and operation, which is the largest in the country. So we really do a lot of housing. The costs are just up, up, up. Steel costs, you know, just every day they’re going up,” Buffet added.


All signs point to inflation continuing to rise, with the inflation rate for March hitting 2.6%, significantly higher than February’s rate of 1.7% and the highest rate since August 2018. And while Jerome Powell and the Fed remain unconcerned about a permanent inflation problem, Buffet isn’t so convinced. “It’s very interesting. We are raising prices. People are raising prices to us and it’s being accepted,” he said.

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Market Snapshot

For the Month Ending 4/30/2021 (Cumulative Returns)1

1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.

Did You Know?

Sleep deprivation is costly

One of the worst feelings in the world is that of not getting enough sleep. But did you know that your lack of sleep isn’t just costly to your wellbeing, it also is an economic liability? According to one study, the economic cost of insufficient sleep in the United States is $411 billion. However, Japan has an even worse sleep issue, costing the country $138 billion, which is almost 3% of the country’s GDP. This is because sleep deprivation is linked to lower productivity during working hours. On a nationwide scale, the loss of working hours as a result of inefficient sleep can exceed 1.2 million working days. So don’t forget to get your shut eye, it’s not only good for you, but for the entire country too.

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Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser

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