The Federal Reserve Raised the Overnight Federal Funds Rate to a Range of .25% to 2.50%… Investors expected the move and the monetary policy statement didn’t change much, but the markets soared after Chair Powell’s comments.
What it means—Data dependence, here we come! While everyone expected the 0.75% hike, few people expected Powell to say that the pace of future hikes would depend on incoming data and the outlook for the economy. This opens the door to fewer rate hikes, lower rate hikes, or no rate hikes. If the economy hits a wall, then we could have reached a top in short-term rates.
Powell’s comments sent the U.S. dollar lower, which gave stocks a huge boost, as investors weighed the possibility that the current tightening cycle could be close to an end. Normally this would be the time to buy stocks on bad news, but there’s a caveat this time. If the bad news is stubbornly high inflation, then it sounds like the Fed will charge ahead with more rate hikes, which won’t be good. If inflation falls faster than people think it will because of the base effect and falling energy prices, then the markets could jump quickly.
Second-Quarter Real GDP Growth Fell 0.9%… While the inflation-adjusted growth rate fell almost 1%, nominal growth topped 8%.
What it means—We’ve been tracking the Atlanta Federal Reserve’s GDPNow model for years, because it’s accurate. The model’s last estimate, published on Wednesday, July 27, showed second-quarter GDP falling 1.2%, which is really close to the official release and much closer than the consensus estimates of a 0.5% gain. Falling inventory investment and lower consumer spending were the big culprits. We did have weakness across the board with a second quarter of GDP even lower at -0.9%.
Orwell is alive and well in the White House as definitions are being rewritten. While it’s hard to believe that every college graduate in the Administration completed Econ 101 and 102, they are uniformly denying two consecutive GDP quarters constitutes a recession.
Deciding whether we’re in a recession has become a political fight over words, but don’t let that distract you. Watch employment closely. If most people keep their jobs, then we’ll grumble but we’ll be okay. If unemployment ticks above 4% and then nears 4.5%, it will become economically painful.
Initial Jobless Claims (Sort of) Fall by 5,000… The Labor Department revised last week’s jobless claims report from 251,000 to 261,000, and then reported that jobless claims this week fell by 5,000 to 256,000.
What it means—Somehow, it doesn’t seem better knowing that jobless claims fell because of a revision. The total is still higher than last week’s report. The main thing is direction, and in this case “up and to the right” is not a good sign. Jobless claims aren’t zooming higher, but they are melting up. On the plus side, the number of people continuing to collect unemployment benefits fell by 25,000 to 1.36 million. If the job market was suffering, then the number of people remaining on the unemployment rolls would be expanding.
New Home Sales Drop 8.1% to 590,000, the Lowest Rate Since April 2020… New home sales are down by almost 50% since reaching a recent high of an annualized pace of 1.04 million units in August 2020.
What it means—New home sales are down 17.4% over last year. As expected, prices are starting to fall, and inventory is stacking up. Builders report that more buyers are backing out of contracts either because the market is softening around them or because they can’t qualify for a mortgage at the current higher rates. At the current sales rate, the new home market has 9.3 months of supply, the highest rate since 2010. While this isn’t good news for the industry, builders have been reducing the number of homes they are starting and appear to be in good shape to weather the downturn.
Congress Appears Close to Passing New ‘Build Back Better’ Reconciliation Bill… Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) agreed on a bill that raises taxes and reduces spending.
What it means—The deal surprised the media and many congress members who weren’t privy to the negotiations. The bill raises about $740 billion in revenue through higher corporate taxes, increased IRS enforcement, and money saved by allowing Medicare to negotiate drug prices. The bill spends roughly $430 billion on health care and green energy initiatives. The $310 billion difference is to be used to lower the deficit. Right! How often has that promised been fulfilled?
Reporters have called out Manchin for changing his stance, but he was able to strike a deal that gives a nod to green energy and health care while reducing the deficit. The reconciliation bill will not need any Republican approval, but it will require that every Democratic senator toe the line. We’ll see if Schumer can get that done. As of this writing, it seems mostly flag waving will little chance of delivery.
Michigan Woman Sues Man for Intentional Infliction of Emotional Distress After No-Showing for a Date, asks for $10,000, and Then Fights with Judge… QaShontae Short filed suit against Richard Jordan, claiming he intentionally hurt her feelings when he did not show up for a date and then left, although it’s not clear how he could do both. In court, District Judge Herman Marable, Jr. informed Short that she had filed in the wrong court, as the circuit court had jurisdiction over her claim. The judge proceeded to tell Ms. Short she had incorrectly claimed that Mr. Jordan had perjured himself because he made false allegations in his written response. That’s when Ms. Short unloaded on Judge Marable, leading the court administrator to mute Ms. Short’s audio. Mr. Jordan shook his head during the 10-minute meeting and said he thought the thing would be thrown out, as he had gone on only one date with Ms. Short. Maybe he should countersue.
Data supplied by HS Dent Research
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