Week in Review: August 23, 2024

August 26, 2024

Recap & Commentary

Markets ended the week higher, boosted by comments from Fed Chair Jay Powell all but confirming the Fed will begin cutting rates at its upcoming Federal Open Market Committee (FOMC) meeting in September.

Speaking at the Fed’s annual Jackson Hole Symposium, Powell stated that “the time has come for policy to adjust.” Addressing the Fed’s dual mandate of maximizing employment and price stability, Powell noted that “The upside risks to inflation have diminished. And the downside risks to employment have increased.” As he has noted before, Powell no longer sees the labor market as a near-term source of inflationary pressure. However, unlike at the outset of the Fed’s rate hike cycle when Powell said higher rates would create economic “pain” in the form of higher unemployment, Powell said the Fed does not “seek or welcome further cooling in labor market conditions.”

The Fed’s seeming shift in focus regarding its dual mandate comes as various labor market measures point to slowing conditions. That was further reinforced by revised data released mid-week showing the economy created 818K fewer jobs than previously reported for the 12-month period ending in March. The revision was the largest since 2009 and further reinforced the narrative that labor markets have cooled.

With Powell’s proclamation, the question becomes how quickly will the Fed cut rates?  For his part, Powell reiterated that “the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” Barring something unforeseen in the August employment report to be released in early September, the Fed is unlikely to cut rates by more than 0.25% in September for fear that it could create concerns that Fed officials see a more dramatic slowdown looming than what investors are currently anticipating. Markets ended the week expecting a total of four rate cuts by year end.

Economic Commentary

According to industry group S&P Global, US business activity expanded in August, led by a further acceleration in services sector activity, offsetting manufacturing activity which contracted at its fastest pace in 14 months. Overall, employment fell for the first time in three months as the service sector shed jobs for the first time in three months, while manufacturing payrolls posted their smallest gain since January. The data reinforced other recent measures of labor market activity pointing to slowing conditions.

New and existing home sales improved in July increasing 10.6% and 1.3%, respectively, from June. New home sales rose to their fastest annualized pace since May 2023 was aided by a recent pullback in mortgage rates, elevated inventory, and builder sales incentives. Compared to a year ago, the median price for a new home slipped 1.4% to $429.8K.  Conversely, the median price for an existing home rose 4.2% from a year ago to $422.6K as less inventory continues to support higher prices.

Weekly jobless claims were largely unchanged, rising 4K to 232K, in line with estimates.  Continuing claims were also largely unchanged at 1.86M.

Of Note

Concerns about a widening conflict between Israel and the Iranian-backed paramilitary group Hezbollah intensified over the weekend as the latter launched hundreds of rockets at Israel which responded with ~100 air attacks.

Market Indices   (As of 08/23/2024)

• PCE Inflation
• Consumer Confidence
• Pending Home Sales
• Personal Income & Spending
• Durable Goods Orders
• Weekly Jobless Claims