The Fed should not lower interest rates at the September meeting.  Based on my local markets, we are operating at the Neutral Rate.  I’d even argue for a 25 bps increase.

Why are we at the Neutral Rate?  Because some of the profligate easy money home buyers that bought late-and-large on debt are selling now.  Many of these homes have been completely gutted, too but are now for sale indicating their unfinished dreams.  Perhaps the numbers aren’t working out as well at higher rates, because mortgages aren’t at 2.75%?  But some of the more experienced flippers (ones who’ve honed the trade) are still doing alright.  So we are just starting, just starting, to loosen up the finish on the housing market in non-sunbelt areas.  But good deals will still get bid up, which is why I’d argue for another 25 bps increase.

Additionally, the job market is apparently loosening, because the Fed revised 111,000 jobs downward for April and May.  But June saw 206,000 of job gains, and job openings are slightly higher at 8.1M.  It all seems like the economy is just chugging along… at the Neutral Rate.  Also, along the same line as Mr. Sternlicht’s thesis, many of the job gains are going to areas with zero interest rate sensitivity such as government and healthcare.

So this ain’t your Grandpa’s economy anymore with lots of main street businesses, so it might be good to raise the rates a little more.