Key events this week – US Federal Reserve Annual Jackson Hole Economic Policy Symposium, Prelim PMIs Aug
Recap from last week
The FOMC minutes continued to emphasize that inflation is unacceptably high, and that policy will need to stay sufficiently restrictive. The minutes suggest that the FOMC may want to see growth slow (reflecting a better balance between aggregate supply and demand), and inflation ease, to feel confident that inflation is on a sustainable path to 2%;
Participants stressed that the Committee would need to see more data on inflation and further signs that aggregate demand and aggregate supply were moving into better balance to be confident that inflation pressures were abating and that inflation was on course to return to 2 percent over time. – FOMC Minutes
The shift to data-dependent guidance emphasized assessing the totality of the incoming data and the implications for the economic and inflation outlook. Policy tightening was seen as nearing its ‘destination’ and data in the inter-meeting period would determine the extent of additional policy firming that may be appropriate. The outlook also shifted as staff no longer judged that the economy would enter a mild recession by the end of the year. The minutes noted that risks to achieving the FOMC policy goals have become more two-sided, and the Committee would need to balance the risk of inadvertent overtightening with the cost of insufficient tightening.
Last week, US data on consumer spending, housing, and production suggested an even higher growth trajectory at the start of Q3. Retail sales growth for Jul came in stronger than expected at +0.8% with the prior month also revised higher. New housing permits and starts remained stable despite the higher rates environment. But homebuilder sentiment began to fall as mortgage rates increased to over 7%. Indicators of manufacturing and output were somewhat improved in Jul and several Aug surveys showed stabilization amid recent falls. Initial claims remained low. So far, the latest Atlanta Fed GDP Nowcast shows a notable acceleration in growth at the start of Q3.
Outlook for the week ahead
In the context of stronger US data and rising US long rates, the signaling from Fed Chair Powell at Jackson Hole will be important this week. The Fed is in data-dependent mode and there is still another round of inflation and payrolls data before the next meeting. This year’s symposium is on “Structural Shifts in the Global Economy” and US Fed Chair Powell is expected to speak on Friday morning.
The prelim Aug PMIs for key G4 markets will be released this week. These will provide some early insight into private sector growth momentum for Aug. Manufacturing in Jul showed ongoing weakness in the Euro Area while improving somewhat in the US. Services growth has broadly stayed positive while momentum has slowed over recent months.
Other US data this week will feed into the growth picture. Durable goods orders for Jul are expected to fall by -4% after much higher growth of +4.6% in Jun (led by large aircraft orders). Initial claims are expected to remain low at +244k. Existing home sales are expected to be little changed at 4.15m (SAAR).
This week, the US Treasury will auction and settle approx. $415bn in ST Bills and FRN’s raising approx. $94bn in new money. The US Treasury will also auction the 20-Year Bond and 30-Year TIPS this week – both will settle next week.
QT this week: Approx $13bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
