Last week, the Federal Reserve held its annual Jackson Hole, Wyoming symposium. Chairman Powell gave a summary speech, discussing their view on the different factors affecting inflation, and reiterating their commitment to a 2% inflation rate. With no mention of rate cuts, Chairman Powell’s focus on expected future policy actions was for additional rate hikes, or a maintaining of elevated rates (what we call higher for longer).
Clearly the Fed is focused on the core (excluding food and energy) inflation rate and wants to see a broad based decline in the inflation rate.
Perhaps his final statement is a good summary of their intent, “We will keep at it until the job is done.”
Given the Fed’s 2% target and the relative slowness in the declines in inflation, we expect higher for longer to be the base case, and one or two rate hikes to be a distinct possibility.
This week’s economic data was a mixed bag with both positive and negative points:
New and Existing Homes
The new homes number improved with both a gain in units sold and an increase in the median price.
However, the much larger existing homes sold continued its general decline from March. The median sales price also declined slightly.
In the last 12 months mortgage rates have climbed significantly from about 5.7% to around 7.2%. While the new homes number indicates that buyers have adjusted somewhat to higher rates, existing home sales show the reluctance of sellers to come to market given the lower rates they currently enjoy. However, the weakness is relative as the month’s supply of existing homes did climb to 3.3 months. (Note that anything under 5 months is considered tight supply.)
Durable Goods See Overall Decline
The last piece or economic data released was durable goods, which declined about 5.15% for the month of July. However, when we take out the more volatile defense and transportation sectors, we see a slight gain.
Looking forward…
Next week we get readings on inflation (the Fed’s preferred measure of PCE), income, and spending. Perhaps we will get more clarity on what to expect from the Fed at upcoming meetings.
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