Week in Review: March 22, 2024

March 25, 2024

Recap & Commentary

Markets ended the week higher, due in part to the release of the Federal Reserve’s updated Summary of Economic Projections, and Fed Chair Jay Powell’s comments following the March FOMC meeting.

As expected, the Federal Reserve left rates unchanged. Given that assumption, markets were more focused on the updated 2024 economic projections after a recent run of hotter-than-expected inflation reports made the timing for the start of rate cuts slightly less clear. The updated projections showed core PCE inflation rising at a 2.6% median rate to end the year, .2% higher than December’s projection. The projections also pointed to faster growth, with real GDP now expected to increase by 2.1% this year. 1.4% growth had been expected in December. Regardless, a majority of members still saw the policy rate falling by at least .75% this year, reaffirming December’s median view of a 4.6% Fed Funds Rate by year-end. Of note, but less important to near-term market sentiment, the outlook for longer-term rates was higher than in December. One less cut is anticipated for next year, with the median Fed Funds Rate projected to end 2025 at 3.9% vs. December’s call for 3.6%. The longer run rate, known as the neutral rate, edged higher by .1%, to 2.6%.

Powell, for his part, noted that while January and February’s inflation readings hadn’t added to anyone’s confidence, the story of inflation coming down towards 2% on a gradual, sometimes-bumpy path is likely unchanged. His comments around rate cuts did little to dispel the notion that a June cut is likely to occur and noted that a still-strong labor market wouldn’t preclude cuts from taking place. With limited time until the June Fed meeting and this year’s rate outlook at a critical juncture, upcoming CPI reports should have outsized importance. The data release and associated commentary were embraced by investors, with all three major indices closing at record highs after the press conference ended, the first time that’s happened since November 2021.

Economic Commentary

In an otherwise light economic calendar, February housing data came in better than anticipated last week. Housing starts increased 10.7% in February to a 1.52M annual rate, well ahead of expectations for 1.44M. The increase was driven by strong single and multi-family starts, which increased by 12% and 8%, respectively. Year to date, starts are essentially flat as February’s surge made up for a steep decline in January, due in part to inclement weather. Home completions came in even stronger, rising 20% to a 1.73M annual rate, and should provide prospective buyers with much-needed housing supply. With mortgage rates hovering near 30-year highs, buyers have increasingly turned to new builds over the last two years as existing homeowners have been reluctant to sell their homes, often to preserve low rates that were locked in prior to the Fed’s tightening cycle. Existing home sales remain at extremely low levels surprised to the upside in February. Sales rose 9.5% to a 4.38M annual rate, well ahead of the expected 3.95M. Year over year, sales have declined 3.3%. The median price of an existing home rose to $384K in February, and increased 6% year over year, as limited supply has continued to prop up home prices.

Of Note

The Bank of Japan put an end to eight years of negative interest rates, raising its target rate range to between 0% and 0.1%. The rate hike was the first in 17 years and marked a notable shift from an era of accommodative monetary policy intended to address sluggish growth and deflation. Prior to the rate increase, the Bank of Japan had been the last central bank with a negative policy rate.

Market Indices   (As of 03/22/2024)

• Core PCE
• New Home Sales
• Pending Home Sales
• Durable Goods Orders
• Consumer Confidence
• Weekly Jobless Claims