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The main question on everyone’s mind was if Federal Reserve Chair Jerome Powell was going to give a clear signal on the next rate cut while rebuilding the Fed’s credibility on monetary policy. From the financial markets’ reaction, it appears this was accomplished. At the annual Jackson Hole Symposium, Powell said “the time has come for policy to adjust... the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.” Adding to that, Powell gave his own stamp of approval on the path of inflation, saying, “My confidence has grown that inflation is on a sustainable path back to 2%.” Without actually saying a cut is coming in September, Powell strongly implied it. Moreover, Powell sees a path of multiple cuts ahead, not just a solitary move.
Powell went on to discuss the reasons inflation surged when it did and the Fed’s answer to controlling price moves. Confessing the Fed may have gotten the “transitory” part wrong, Powell acknowledged the central bank managed to curb the rise of inflation. The balance of risks has changed and is still an evolving situation. The upside of inflation has subsided, while the downside for the labor market has increased. Powell assured his audience at the Symposium that the Fed will do everything it can to support a strong labor market. In summary, Powell recognized that while the goal of price stability is not done, good progress has been made, and the Fed will continue working towards its 2% inflation goal.
KEY INDICATORS THIS WEEK
Housing – Falling mortgage rates are having a positive impact on home sales. Existing home sales rose 1.3% in July, the first increase in five months. New home sales rose 10.6%, to the highest level since May 2023. Sales of existing homes are based on closings of contracts signed in May and June. The average 30-year mortgage rate was over 30 basis points lower in June from its 2024 peak level, providing homebuyers with much needed cost relief. New home sales are based on contracts signed in July, when the average mortgage rate was lower by another 10 basis points. The continued decline in interest rates (the 30-year mortgage rate is currently 40 basis points below July’s level) should provide more incentive for potential buyers to step in. The inventory of homes for sale is beginning to increase, especially in the new home market, but remains below pre-pandemic levels. Home prices are not abating as much as buyers would like. Almost 50% of the existing homes sold in July were over $750,000.
The Next Move – Before the next FOMC meeting on September 18, several key pieces of data will be released – PCE next week, the August job report, CPI and PPI for August. Unless the numbers are totally off the mark, it is a safe bet the Fed will cut rates at least 25 basis points at the meeting.
NOTE: Behind the Numbers will be taking a vacation for the next two weeks. The report will resume on September 13. The next Market Overview and Data Report will be published on September 9.
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