Monday, September 19, 2022
We start a new week of trading with pre-market futures down again. It’s a big week for determining the direction of the economy, but no one is any longer in the mood to project a positive spin. The Dow is -230 points at this hour, the S&P 500 is -30 and the Nasdaq -85 points. This comes after the worst week of trading since June. The S&P tumbled -4.5% last week alone.
By now, everyone is aware of the pending 75 basis-point (bps) interest rate hike this Wednesday, which will bring the low end of the Fed funds rate to an even 3.00%. What will be of even more interest than the actual move — which has a far less possibility of increasing a full percentage point; far less than that a mere half point — will be the words Fed Chair Jay Powell uses to describe the present economy and what he and the rest of the Fed forecasts for the end of the year and beyond.
Currently, investors are expecting a harsh, hawkish tone — the Fed and the rest of us continue to see high inflation metrics that have not yet even entered the ballpark of what we’re aiming at: we’re still +8.3% on year-over-year Consumer Price Index (CPI) and +6.3% on year-over-year Personal Consumption Expenditures (PCE). President Biden described these metrics as “leveling out” recently, but that’s not nearly good enough for the Fed.
Speaking of PCE, we get August numbers this Friday, which follow -0.1% on headline month over month, +0.1 stripping out food and energy (“core”), the aforementioned +6.3% year over year on headline and +4.6% on core. Because these figures are partial amalgamations of other economic prints, they tend not to vary too much month over month; expect these to tick down very minimally, as we’ve seen elsewhere.
This week also brings us new housing data: Housing Starts and Building Permits tomorrow, Existing Home Sales Wednesday and the North American Home Builders’ Index after the opening bell today. All of these numbers are expected to come down save new starts, which at 1.45 million a month ago are at lows not seen since mid-2020.
As we know, Housing is a big part — roughly one-third — of the U.S. economy, so these metrics trickling down are what the Fed wants to see. It’s a problem for people looking to sell their houses for what they were determined to have been worth just a few months ago, but this is part of the “pain” Powell was speaking of at Jackson Hole last month, the last time he asserted Fed hawkishness we’ve now baked into the cake.
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Pending Rate Hike, Housing Data Await Us - Zacks Investment Research
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