Federal Reserve Raises Rates 0.25%, to a Range of 5.25% to 5.50%… The Federal Open Market Committee (FOMC) did what everyone expected, raising rates by 0.25% and declaring that they are data dependent.
What it means— Fed Chair Powell wants everyone to understand that the central bankers are all in when it comes to fighting inflation. In his press release after the monetary policy meeting, Chair Powell said, “We remain committed to bringing inflation back to our 2% goal. No one should doubt that.” Powell went on to say that the FOMC could either raise rates in September or keep them steady. Notice that he didn’t leave room for lowering rates. Powell and his merry band have steadily beaten the drum of fighting inflation for more than a year and want investors and corporate America to know that they won’t lower rates anytime soon.
The Fed’s stance sets up a potentially ugly market situation. If inflation comes in benign or low, then investors will cheer a bit but won’t expect lower rates in the short term. If inflation signals come in hot, investors will wonder if the Fed intends to raise rates again. We’re climbing higher on the mountain of equity returns, where the air is thin and missteps become more costly.
U.S. Second-Quarter GDP Grows at a 2.4% Annual Rate… Beating the 2% forecast, GDP growth benefited from rising consumer and government spending.
What it means— The Atlanta Federal Reserve GDPNow model was spot-on this quarter, while the blue-chip analyst consensus estimate spent the three months catching up. Consumer spending increased 1.6%, off the torrid 4.2% pace from the first quarter, while government spending rose 2.6% and business spending increased 5%. The possibility of a recession this year is melting away.
Personal Consumption Expenditures Index (PCE) Growth Slows from 3.8% to 3.0%… The Fed’s preferred inflation gauge expanded by the slowest rate in more than two years. Core PCE fell from 4.6% to 4.1%.
What it means— In the Fed’s data-dependent world, this is a report that favors standing pat, which suits equity investors just fine. But we need to keep in mind what makes the PCE different from the Consumer Price Index (CPI). The PCE adjusts to consumers’ current spending habits much more quickly than CPI. If you stop buying ribeye steak and now purchase cheaper sirloin, PCE will show the change quicker than CPI, so we should expect PCE to show easing inflation faster. Of course, that just means that our standard of living is lower, but that’s a story for another day. For now, investors will cheer the PCE report, even if they’re doing it with a PBR instead of a craft brew.
New-Home Sales Down 2.5% in June, May Number Revised Lower by 6.3%… New-home sales fell to an annualized rate of 697,000 last month, surprising analysts, who had estimated sales at 725,000.
What it means— The number of sales still outpaced this time last year by 24%. More interesting than the volatile new-home sales rate was that the median sale price of a new home dipped a mere $900, from $416,300 to $415,400. This is a long way from the peak near $500,000 last year, but it has been steady since April. Builders are doing what they can to meet demand for lower-priced homes, because first-home buyers can’t find enough supply. Even with slower sales and steady prices, new-home supply fell 2.8% from May to June. With the Fed taking a breather, mortgage rates might dip a bit, which will give the housing market a boost.
Initial Jobless Claims Fell 7,000 Last Week to 221,000… Continued claims declined by 59,000 to 1.69 million.
What it means— There’s nothing new here, which is the story. The Fed has raised rates 11 times in 15 months, from near-zero to 5.5%, and the yield curve is steeply inverted. The reasons to call for a recession are obvious except that it’s not happening. Incomes aren’t keeping up with inflation, but people remain employed, and that’s the biggest indicator that the economy continue to grow.
Elon Musk Rebrands Twitter as X… In addition to renaming the company, the world’s richest man erased an icon known around the world, the Twitter bird.
What it means— Elon Musk is playing chess as the social media world plays checkers. While Meta hurriedly rolled out Threads to take advantage of what it saw as Twitter’s momentary weakness, Musk was busy putting together the pieces of a so-called “everything app.” Musk wants X to be the U.S. version of WeChat in China, to include messaging, banking, gaming, newsfeeds, etc. If Musk can convince enough people to use X as their go-to app for multiple things, he will have created the user space that so far has eluded Meta. We have no idea if he can do it or if the U.S. government will allow it. The whole thing sounds like a James Bond movie. If he creates a digital currency somehow backed by gold that trades seamlessly in the app, other providers should start to worry. Maybe Dogecoin could be the coin of the realm.
Lakewood, CO, Police Seek Man Suspected of Stealing Women’s Undergarments From Apartment Laundry Facilities… The police said that over the last two years, a man has stolen bras and panties from various laundry facilities in the Lakeview Towers at Belmar apartment complex. The garments are worth an estimated $4,800, but the police think that many thefts have not been reported. Authorities don’t think the man lives at the complex, he just swings by on a regular occasion to pick through women’s laundry.
Data supplied by HS Dent Research
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