Last week mortgage rates got a touch better and eased up but not by anything we’d be shouting from the mountaintops about. Literally some people went from 7.5% to 7.3875% and others went from 7.3875%….to 7.25%. So not huge moves, but right now in an elevated rate market every little bit helps. This will be a short week and hardly any market shattering data coming out, it could be calm seas…Although I’ve said that before and been surprised by some Darkhorse item, ya know like multiple bank failures, or the systemic risks of the largest Chinese developer rapidly careening towards a huge problem causing ripple effects throughout intertwined markets, or a leaked Federal Reserve document that lists 7 midsize US banks they’re concerned will have solvency issues, that by the way, THE FED is directly responsible for. I mean, other than that…everything should be fine. It’s fine.
Last week was pretty rough when it came to economic data. Not only was there a huge miss in employment change, but Job openings missed by 660,000, GDP came in lower than projected, and unemployment edged up, but not as much as the Fed needs it to. Unemployment was 3.8% and remember they need it at 4.5% by the end of the year to hit their estimate of what it takes to slow down spending. Clearly at this point, the Fed’s work is far from over, we’re gonna have to wait longer for all the lagging effects of rate tightening to work their way through all parts of the economy. Which then means September becomes a VERY VERY important month and even more critical Fed meeting and press conference because the data isn’t leaning in their favor.
So will they hike rates or pause rates? This is the question everyone will be asking for the next 3 weeks leading up to the Fed Meeting Wednesday September 20th. On one hand we have people arguing that the Fed should clearly pause because we are starting to see some data move in the direction that they have claimed they need to see, even though it may not be at the speed at which the data should be moving. This argument maintains that we will eventually hit identified targets and that there need not be any further rate hikes in order to achieve it. On the other side, arguments for raising rates again are more speed related because of the slow lagging effect that is taking a very long time to achieve stated goals and the Fed’s concern that elevated rates for too long a period of time could cause longer lasting negative effects than would the short-term effects of even more rate hikes.
And here’s 3 reasons why we have a real problem on our hands with the Fed.
- The Fed did not think that it would take this long to achieve their goal of returning inflation to 2%. Their public charts might say otherwise, but their language indicates they underestimated how long this would take.
- The Fed has had to raise rates higher and hold them for longer and we are still not yet even in the ballpark of where they want inflation to be. It’s September 2023 – 18 months past the initial rate hikes of March 2022. Getting THIS far has taken THIS long, and there’s no reason to suspect that the end is just around the corner.
- We have not yet hit their unemployment target of 4.5% that they say is required in order to achieve the price stability and inflation targets laid out in their projections. There’s 4 full months left to achieve that AND THEN we still have to wait for the lagging effect to hit the economic data. Thus 2024 is shaping up to be an even more critical year for our economy than what we thought 2023 was going to be.
So with that, let’s take a quick look at what’s coming up in the markets this week.
Overall, this will be a very light week with the majority of the focus being on FED members. We will have 7 fed members all making speeches at various economic conferences in the 48 hour period from Wednesday afternoon through Friday morning. This is what interested ears will be listening to this coming week especially leading up to the next Fed meeting, Rate Decision, and Press conference on September 20th.
Monday: Is Labor day, all banks are closed and no economic data will be released.
Wednesday: ISM Services PMI comes out.
Thursday: Unemployment Claims will be released.
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