Will FOMC Minutes Today Set the Tone for Jackson Hole Next Week?
Will FOMC Minutes Today Set the Tone for Jackson Hole Next Week?
- More angst over economic conditions in China had Treasuries trading in the green in the overnight hours but those gains have largely evaporated as trading begins in earnest domestically and we’re essentially unchanged from yesterday’s close. FOMC minutes this afternoon may give us some volatility, but the market is beginning to turn its attention to next week’s Jackson Hole Symposium where Chair Powell is scheduled to speak on Friday morning (more on that below). Presently, the 10yr is yielding 4.21%, a familiar level this week, and the 2yr is at 4.92%, up 2/32nds in price.
- Retail sales for July handily beat expectations across the various measures and that in turn boosted the Atlanta Fed’s GDPNow third quarter estimate to 5.03% with consumer consumption adding 2.99% of that total. While the kneejerk reaction to the solid round of consumption data might have been to put a rate hike back on the table for the September FOMC meeting, the more likely scenario is to reinforce the Fed’s higher-for-longer mantra.
- With a friendly July CPI report and easing employment gains the pause path is still the prohibitive betting favorite, but with solid economic growth expected in the third quarter, the Fed is likely to start pushing back on rate cut expectations in 2024 rather than push for more rate hikes. Today’s FOMC minutes from the July meeting may provide some of insight into that thinking but it’s more likely to come from the Jackson Hole Economic Symposium next week.
- The latest Fed Funds Futures pricing has over 100bps in rate cuts next year, with the first of those cuts beginning early in the year. While the Fed’s June dot plots had a median forecast of 100bps in rate cuts, we continue to think, especially after the solid retail sales numbers, that the September dot plot update is likely to see those rate-cutting expectations diminish. The pushback to the market’s rate-cutting expectations is likely to be a feature of the Jackson Hole symposium next week.
- July housing starts and permits were released this morning and came close to expectations with 1.45 million starts (annualized) compared to 1.43 million in June. Meanwhile, permits were nearly identical to June with 1.442 million (annualized) compared to 1.440 million the prior month. Starts peaked at 1.80 million in April 2022 but have been in the 1.40 million area for most of 2023 as have permits.
- Finally, yours truly and Joe Keating, Co-Chief Investment Officer of NBC Securities, recorded a podcast recently where we discuss the latest on the economy, the Fed, and the prospects for a soft landing. The podcast link can be found here.
Housing Starts & Permits – Holding Steady in 2023
Agency Indications — FNMA / FHLMC Callable Rates
| Maturity (yrs) | 2 Year | 3 Year | 4 Year | 5 Year | 10 Year | 15 Year |
| 0.25 | 5.74 | 5.49 | 5.43 | 5.43 | 5.54 | 6.00 |
| 0.50 | 5.73 | 5.46 | 5.37 | 5.32 | 5.40 | 5.89 |
| 1.00 | 5.72 | 5.43 | 5.34 | 5.28 | 5.31 | 5.76 |
| 2.00 | – | 5.41 | 5.26 | 5.20 | 5.19 | NA |
| 3.00 | – | – | – | 5.15 | 5.13 | NA |
| 4.00 | – | – | – | – | 5.08 | NA |
| 5.00 | – | – | – | – | 5.04 | NA |
| 10.00 | – | – | – | – | – | NA |
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