US existing home sales slumped, underscoring Yellen’s remarks

Existing home sales slumped 5%, August over July, underscoring Yellen's remarks last week about the still 'very depressed' housing market and the risks there that remain for policy and the economy. When mortgage rates shot up in mid-13, the two-year recovery in housing stopped dead in its tracks. It's started to pick up again this year but what happens when rates finally start to go up is an open question that's bound to be putting a few knots in Fed stomachs. 

The same is true of business investment, the other interest rate sensitive sector of the economy. Even with interest rates at zero, orders for core capital goods (non-defense, ex-aircraft) haven't grown by a dollar in 3.5 years and are no higher today than they were on the eve of the Lehman Bros collapse / global financial crisis (August data due Thursday). Higher interest rates that most still see just around the corner may not push capex down by a lot but they're certainly not likely to lift it. The downward pressure is one of those 'known unknowns' because we can't see what capex might have looked like for the past 3.5 years had rates been higher. Only time will tell. 

The two main interest rate-sensitive sectors of the economy remain either 'very depressed' or in a persistent state of zero growth. Higher rates are not going to help. No one knows how much they will hurt. With inflation continuing its 3.5 year fall, it's a mystery why the Fed wants to find out now.