July Jobs and ISMs Headline Releases this Week

  • There once was a time when Minneapolis Fed President Neel Kashkari was easily the most dovish member of the FOMC. The fact he was on the Sunday news shows yesterday reiterating the hawkish case is just another sign of how intent the Fed is in getting inflation to decline in the months ahead.

 

  • Kashkari said the Fed will do what it has to in order to get inflation back to their 2% target which remains quite a distance off. That implies the rate hikes will keep coming, and perhaps more importantly, the two rate cuts the market has priced into 2023 don’t seem to be on the Fed’s radar yet. At least not with the rhetoric coming from all corners of the Fed.

 

  • That also implies that whether the terminal fed funds rate is 3.5% or something higher, say 4%, that the Fed is likely to let it stay at that level until inflation closes in on 2%, despite how the economy performs. It may not be so quick to cut in 2023 as is the current market expectation.

 

  • The first week of the month always brings some first-tier economic reports in the form of the jobs report due Friday and the ISM Manufacturing (today) and Services Indices (Wednesday). The ISM reports are expected to show an economy still in expansion mode, albeit with some slowing noted.

 

  • The employment report is expected to show July added 250 thousand jobs with the unemployment rate holding at 3.6%. And while employment is a noted lagging indicator that 250k projection would be the lowest gain since December 2020.

 

  • For the Fed, the key report will come next week, when July CPI is reported on Wednesday. The overall print is expected to come down nicely to a 0.3% month-over-month gain, but the core rate (ex-food and energy) is expected to be up 0.5% vs. 0.7% in June.

 

  • That report will add to the discussion of whether the September rate hike will be 75bs or 50bps. With an August CPI report also available before the Sept. 21 meeting the report next week won’t be decisive but at least it gives us something to talk about.

 

Source: Bloomberg


 

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25  2.91 2.88 2.88 2.94 3.12 3.59
0.50 2.90 2.85 2.82 2.83 2.98 3.47
1.00 2.89 2.82 2.79 2.78 2.89 3.35
2.00 2.81 2.73 2.71 2.77 NA
3.00 2.66 2.71 NA
4.00 2.67 NA
5.00 2.63 NA
10.00 NA

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Published: 08/01/22 Author: Thomas R. Fitzgerald