It is never easy to gauge the economic outlook, and today’s many moving parts of the economy and geopolitical backdrop have made it even more difficult to have conviction. Until now. Economists have now shifted their views from “if” the FOMC will ease rates to “when,” though there is a wide dispersion of opinion on timing. The October CPI report has caused the market to pivot across all asset classes as bonds and equities stage significant rallies. Companies are availing themselves of the market surge and raising debt capital in full force. See a summary of the most recent debt issuance activity: https://capitalmarkets.com/investment-grade-new-issues-ramp-up/
Let’s at least take a look at some of the key components of economic activity as we move forward:
The Fed: The Fed kept rates steady at their November 1st meeting(after 525bps of rate hikes since March 2022) and highlighted that, while 2% remains their target inflation rate, they will consider the “cumulative tightening of monetary policy.” The Treasury and equity market’s explosive rally begs the question, did the Fed inadvertently “de facto” ease? Powell’s subsequent comments reminding the market that the Fed could still hike rates if inflation persists did little to quash the bullish sentiment that the FOMC release ignited.
Please see the November 1st FOMC release:
Inflation: See the October CPI release:
Rates: The 10-year hit 5% very briefly in mid-Q4, and has rallied forcefully to below 4.5% on the heels of the November 1st FOMC meeting and now the benign CPI release.
The parallel path mortgage market had reached 8% for 30-year mortgages and mortgage rates have followed Treasuries and and pierced just through the 7.5% level.
The Consumer: The consumer has remained resilient thus far, however the November 14th Retail sales report showed signs of a slight consumer slowdown with sales declining .1%, the first down month in over 6 months. Reports of brisk Black Friday sales may be a harbinger of a strong holiday season for retailers.
Home Sales: Home sales were down 2% last month and are down 19% year over year; however, much of that is attributed to owners not wanting to move or else they will incur higher mortgage rates on the new property while selling the lower mortgage existing residence. Home prices continue to rise, largely due to the lack of inventory and high rates. The October Home Sales report is released on 11/21.
Regarding Street forecasts: Many banks will be revisiting their economic and rate forecasts on the heels of the CPI release, which will be published soon, as will updated 2024 outlook publications.
We look forward to the continued dialogue on the economic outlook.