Hello, this is Claire Ellerhorst, Senior Portfolio Manager at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices dropped last week as Federal Reserve officials reiterated the need for restrictive monetary policy. The benchmark S&P 500 Index fell 4.0% in total return for the week, while the blue-chip Dow Jones Industrial Average lost 4.2% and the tech-heavy Nasdaq Composite dropped 4.4%. Yields rose across the curve, with the 10-year U.S. Treasury yield ending the week above three percent. The U.S. dollar strengthened versus major peers, while oil rose, and gold finished the week lower.
Federal Reserve Chair Jerome Powell spoke at the annual Jackson Hole symposium, during which he said the central bank would need to continue tightening monetary policy until there is sufficient evidence inflation has moved closer to target. Powell noted historical evidence against pivoting to accommodative policy too soon, saying the Fed will continue hiking rates "until the job is done," even though it will likely require a sustained period of below-trend economic growth. The central bank’s next policy meeting takes place September 20-21 and the size of the rate hike at that meeting will be data dependent. Market pricing suggests Fed watchers see slightly higher likelihood for a three-quarter percentage point hike versus a half percentage point hike.
Despite the hawkish tone from the Federal Reserve, data releases continued to support the peak inflation narrative. Headline personal consumption expenditures (PCE) fell 0.1% in July from a month earlier, on expectations for a rise of the same magnitude and following a 1.0% increase in June. Core PCE, the Fed’s preferred measure of inflation, rose 0.1% month-over-month, also a slowdown from the previous month.
In other economic news, durable goods orders were unexpectedly unchanged in July. Non-defense orders excluding aircraft, a proxy for capital expenditures, rose 0.4% for the month, slightly better than expected. New home sales came in at a smaller pace than anticipated, while pending home sales fell less than expected.
In the week ahead, the economic calendar includes consumer confidence, the Job Openings and Labor Turnover Survey (JOLTS report) and the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index. Arguably the most closely watched report of the week will be the Bureau of Labor Statistics monthly employment situation report, out on Friday. Economists expect to see that job gains were not as robust in August as in July, but that the unemployment rate held steady.
As always, we’ll be watching and reporting back to you. Thank you.