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Morning Report: Fed Week


Vital Statistics:

Stocks are lower as we head into Fed Week. Bonds and MBS are down. The 10 year has the highest yield in 16 years.

The big event this week will be the FOMC meeting on Tuesday and Wednesday. The consensus seems to be a hawkish pause, where the Fed maintains the current Fed Funds rate and signals one more hike in the dot plot. Investors will also be looking at clues for when the Fed will start cutting rates. We will also get a new set of economic projections and the path for future inflation will loom large.

“You’d be hard pressed to find someone who thinks (the Fed will) hike this week but our expectation is that they keep the door open for another hike later this year which the dot plot will continue to reflect,” Deutsche Bank’s Jim Reid said. “Our economists believe other parts of the SEP are likely to undergo meaningful revisions, particularly for 2023.”

“Stronger growth (2023 could double to 2%, 2024 could increase around 25bps to 1.3%) and lower unemployment should counterbalance softer inflation (2023 revised down but core forecasts for 2024 likely to be unchanged). So the meeting is likely to see a confident pause but one where further tightening is seen as the risk.”

In economic news, we will get housing starts, existing home sales and the Index of Leading Economic Indicators.

Homebuilder confidence slipped in August, according to the NAHB Housing Market Index. Rising rates and affordability constraints remain the biggest issues.

The Atlanta Fed’s GDP Now index sees Q3 growth at 4.9%. This still seems way out of step with most economists which are closer to 3%.

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