Markets could not hold onto early gains before today’s open, and all four major indices closed in the red, albeit off session lows. What was behind the selloff? The better question is: what’s ahead of it? The Dow dropped -106 points, -0.31%, while the S&P 500 and Nasdaq were in virtual lockstep, -0.22% and -0.23%, respectively. The small-cap Russell 2000 fared worst, -0.42%, but none of this selling can be called severe.
That’s because the Fed announcement that it’s not raising interest rates this time won’t happen until tomorrow at 1pm. This will be the second session in the past three where the Fed decided to hold rates steady — before June, a string of 10 straight increases going back to March 2022 brought the Fed funds rate above 5% for the first time since 2007. July’s 25 basis point (bps) increase was in response to monthly economic data eroding inflation too slowly for the Fed’s liking.
It’s still the case, to an extent, today. But at a range of 5.25-5.50% currently, cranking the wheel further risks tightening the economy and watching something crack — which would risk a deeper recession than the very light one we saw in Q1 and Q2 of last year. Jobs numbers have now come way down from Great Reopening highs, but keep well ahead of the rate of retiring Baby Boomers. This, along with wage growth in a buyer’s labor market, can foster higher inflation, or at least keep it stubbornly high.
This morning’s Housing Starts report, however, showed homebuilders really pulling back from breaking ground on new housing projects, even as new Building Permits — which to an extent determine future Starts — continue to climb. This is bringing a housing sector to even tighter inventory levels, as homeowners unwilling to part with a current mortgage rate less than double the current going rate are simply not selling. And, as we know from our Econ 101 class, new homes invigorate the economy on multiple levels: banking, construction, durable goods, manual labor, etc.
Anyway, the question Fed Chair Jay Powell can expect in his presser after the Fed’s statement tomorrow is what the monetary policy body’s mood for raising rates at the next meeting in November. Doing so would take the Fed funds rate to 5.50-5.75% — the highest level we’ve seen since the final months of Bill Clinton’s presidency, more than 22 years ago. Our economy only partly resembles the economy we had back then.
There are challenges in our economy unforeseen a year ago, including ongoing strikes in LA with the Writer’s Guild and SAG/AFTRA actors union, and in Detroit with the UAW against the Big 3 U.S. automakers. Assuming more demands are met for these workforces — and others they affect over time in a chain reaction — before things go back to normal would also put upward pressure on inflation. We imagine Powell will have a word or two for these developments, as well.
Questions or comments about this article and/or author? Click here>>
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Market Indices Close Gently in the Red
Markets could not hold onto early gains before today’s open, and all four major indices closed in the red, albeit off session lows. What was behind the selloff? The better question is: what’s ahead of it? The Dow dropped -106 points, -0.31%, while the S&P 500 and Nasdaq were in virtual lockstep, -0.22% and -0.23%, respectively. The small-cap Russell 2000 fared worst, -0.42%, but none of this selling can be called severe.
That’s because the Fed announcement that it’s not raising interest rates this time won’t happen until tomorrow at 1pm. This will be the second session in the past three where the Fed decided to hold rates steady — before June, a string of 10 straight increases going back to March 2022 brought the Fed funds rate above 5% for the first time since 2007. July’s 25 basis point (bps) increase was in response to monthly economic data eroding inflation too slowly for the Fed’s liking.
It’s still the case, to an extent, today. But at a range of 5.25-5.50% currently, cranking the wheel further risks tightening the economy and watching something crack — which would risk a deeper recession than the very light one we saw in Q1 and Q2 of last year. Jobs numbers have now come way down from Great Reopening highs, but keep well ahead of the rate of retiring Baby Boomers. This, along with wage growth in a buyer’s labor market, can foster higher inflation, or at least keep it stubbornly high.
This morning’s Housing Starts report, however, showed homebuilders really pulling back from breaking ground on new housing projects, even as new Building Permits — which to an extent determine future Starts — continue to climb. This is bringing a housing sector to even tighter inventory levels, as homeowners unwilling to part with a current mortgage rate less than double the current going rate are simply not selling. And, as we know from our Econ 101 class, new homes invigorate the economy on multiple levels: banking, construction, durable goods, manual labor, etc.
Anyway, the question Fed Chair Jay Powell can expect in his presser after the Fed’s statement tomorrow is what the monetary policy body’s mood for raising rates at the next meeting in November. Doing so would take the Fed funds rate to 5.50-5.75% — the highest level we’ve seen since the final months of Bill Clinton’s presidency, more than 22 years ago. Our economy only partly resembles the economy we had back then.
There are challenges in our economy unforeseen a year ago, including ongoing strikes in LA with the Writer’s Guild and SAG/AFTRA actors union, and in Detroit with the UAW against the Big 3 U.S. automakers. Assuming more demands are met for these workforces — and others they affect over time in a chain reaction — before things go back to normal would also put upward pressure on inflation. We imagine Powell will have a word or two for these developments, as well.
Questions or comments about this article and/or author? Click here>>