Higher for Longer Remains Base Case
We begin with the release of Fed’s minutes from their last meeting. Members of the Federal Open Market Committee (FOMC) were unanimous that rates needed to remain elevated or “restrictive” (think at current levels) “for some time” until it is clear that the inflation rate is headed towards their 2% target. Recall from last week’s economic update that if Core CPI remained at its current rate, in a year it would be about 2.8% year-over-year. Core CPI at 2.5% is about the same as the Fed’s target of 2% on headline PCE.
This week we will get a reading on the Fed’s preferred inflation indicator (PCE) and have some more data for projections. However, it is clear that for the Fed, higher for longer remains the base case.
Existing Home Sales Showing Relative Weakness
We received data on existing home sales, which declined to 3.79 million units. The median price also remained essentially flat.
This is the fifth straight month of decline, about 15% down from the high over the last 12 months. The weakness is relative though, as the months’ supply of homes remains low at 3.6 months—below the 5 months level is considered “tight supply.” With mortgage rates near 8%, it is easy to see why some homeowners may be less willing to sell and replace their current mortgage.
Durable Goods Orders Flat Excluding Transports
Durable goods orders declined 5.4% for the month. However, excluding volatile transportation and defense, orders were essentially flat month-over-month.
The flatness comes after a recent surge, emblematic of the last 12 volatile months.
This week we will get data on new home sales, income, and preferred inflation indicator PCE, which is most likely the most important information. We’ll also see a revision to Q3 GDP and a first look at overall corporate profits. It should be an informative week.
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