Fed treads lightly as economic data remains mixed
Summary
The latest economic data showed steady consumer spending, improving housing starts, and stronger manufacturing activity, though inflation remains elevated. At the Jackson Hole Symposium, Fed Chair Powell delivered a cautious outlook, stressing patience and data dependency in monetary policy amid conflicting risks to inflation and employment. While markets hoped for clearer rate-cut signals, Powell’s remarks left the timing uncertain, focusing attention on upcoming economic releases.
The S&P 500 hit another all-time high on Friday and gained 0.3% over the week, which brings the YTD return to 10.9%. The 10-year Treasury yield edged lower by 7 bps to close at 4.26% on Friday.
Economic highlights
Housing starts rose 5.2% in July, beating expectations, with multi-family and single-family starts both increasing. Building permits fell 2.8%, hitting the lowest level since June 2020. Existing home sales grew 2%, driven by improved affordability and wage growth outpacing home prices; the supply of homes for sale decreased slightly. The S&P Global U.S. services PMI edged down to 55.4, but new business and employment components strengthened, with output prices reaching their highest since August 2022. Manufacturing PMI improved to 53.3, surpassing forecasts, as output, new orders, employment, and input prices all climbed. S&P commentary noted robust third-quarter demand across sectors and highlighted that firms are increasingly passing tariff-related costs on to customers, with inflation pressures at a three-year high. Overall, the data reflect steady consumer and housing market activity, improved manufacturing conditions, and persistent inflation.
U.S. Treasuries
U.S. Treasuries indicate yields for on-the-run U.S. Treasury bills, notes, and bonds, which are typically the most recently auctioned and most liquid issue with a maturity closest to the stated tenor. These are commonly used for pricing fixed-rate debt at origination and for calculating yield maintenance.
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EURIBOR
EURIBOR is an interbank lending rate that is averaged from reports by a panel of banks seeking unsecured Euro-denominated loans in the short-term money market. The EURIBOR index is the adjustable interest rate referenced on approximately EUR 150 trillion of debt and derivatives.
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Jackson Hole
The Jackson Hole Symposium was the major economic event of the week. Federal Reserve Chair Jerome Powell's speech on August 22 was highly anticipated, with markets hoping he would signal an imminent rate cut. However, Powell's remarks were cautious, emphasizing that the Fed's policy would remain patient and data dependent. He noted the "challenging situation" of upside risks to inflation and downside risks to employment, a tension he attributed in part to the effects of new trade and immigration policies. Powell stated that, while the labor market is in a "curious kind of balance," there are rising risks of a sharp increase in layoffs and unemployment. His speech did not provide a clear signal for a September rate cut, leading to a muted market reaction as investors shifted their attention to upcoming economic data in September. Other central bankers also spoke at the symposium, but the focus remained on Powell's message.
Week ahead
Key economic data scheduled for release this week includes the durable goods report on Tuesday and the core PCE inflation report on Friday. Several Federal Reserve officials are set to speak at public events, with New York Fed President Williams speaking on Monday and Governor Waller on Thursday.
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