Spotlight is on the FED this week! Can they REALLY do THIS?

In case you’ve been living under a rock, the US debt is climbing like crazy! Fed Chair Jerome Powell and other policymakers have indicated the surge in longer-term Treasury yields may reduce the case for continuing to hike the central bank’s benchmark interest rate. The FOMC announces their rate decision Wednesday of this week and now everyone is expecting a pause. This sounds great on the surface, but it is a bit weird when we add back their projection. For context, the Fed has been saying that they expect below trend growth in GDP for some time in order to reach their goal of 2% inflation. Well, the preliminary 3rd Quarter GDP could wreck that plan because it was notably higher than expected. It came in at 4.9% versus estimates of 4.1%. and the price Index shot up to 3.5% versus estimates of 2.5%. That’s not below trend at all! That’s not even neutral, it’s higher and proportionately…it’s higher by a lot! And THAT is the exact opposite of what the Fed needs to see.

A new study of 1,163 adults between October 5th and 9th reveals that Two in three Americans said their household expenses are a lot higher than a year ago. But just one in four reported rising income in the same time period. The poll found that eight in 10 of those who responded reported higher overall debt, with half reporting credit card debt, four in 10 saddled with car loans and one in four with healthcare related debt. Only 15% reported a rise in household savings over the past 12 months, 18% feel confident about their retirement savings, while 3 in 10 say they’ve delayed on a big purchase due to higher interest rates. And 1 in 4 report student debt. This is all packed into the affordability conversation we keep having when it comes to mortgage and real estate. Aspiring home buyers are saddled with increasing costs to service debts and higher debt balances, spread across more debt accounts. All of which negatively impact their housing affordability.  We are going to have to change our spending habits, savings habits and buckle down on paying off debt in order to turn up our percentage of homeownership in this country.

And guess what? Inflation is still in the positive not yet turning in the right direction fast enough. The September PCE (personal consumption expenditures) came in at 0.4%, but was expected to be +0.3%.  Year/year overall PCE thought to be +3.4%, came at 3.4% – so at least that’s fine. Markets were expecting inflation to stabilize, the data suggests it has slowed a very little. And this puts the fed in a very precarious situation coming into this week. They have to tread very carefully at their press conference. We are all expecting them to pause even though a rate hike now or in December is what they previously loaded in their chamber. The comments, justification, and context Jerome Powell provides should tell us if this is really it, If they should have hiked in September, or if they will HAVE TO hike in December. The spotlight is directly on the Fed this Wednesday, and it really….really matters!

So with that, let’s take a quick look at what’s coming up in the markets this week.

Tuesday: Employment Cost Index, Home Price Index m/m, and CB Consumer Confidence

Wednesday: ADP Non-Farm Employment Change, ISM Manufacturing PMI, and JOLTS Job openings comes out. But the most important part of the day will be the Federal Funds Rate decision, Jerome Powells prepared statements, and the Press conference to follow. The Latest sentiment is that they’re likely to pause because of the meteoric rise of the 10- year yields which has other future looking impacts still yet to be made…so does that make it the savior or will it be the 2024 thing that we contend with?

Thursday: Unemployment Claims

Friday: Average Hourly Earnings m/m, Non-Farm Employment Change, Unemployment Rate, ISM Services PMI

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