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All eyes were on Fed Chair Powell on Friday for additional guidance on future Fed policy. Powell did not provide new information on specific time frames for policy changes, however, and mortgage rates ended the week a bit higher.
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Near the start of the pandemic, the Fed began buying $120 billion of Treasuries and mortgage-backed securities (MBS) each month to help support the economy. As the recovery has progressed, Fed officials have said that the need for this additional stimulus has declined, and investors expect that these bond purchases will begin to be tapered (scaled back) before the end of the year. Many officials have recently expressed support for the tapering to start very soon given elevated levels of inflation.
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At a highly anticipated speech on Friday, however, Fed Chair Powell emphasized the "near-term risk" to the economy posed by the spread of Covid. He also repeated the reasons that the recent spike in inflation likely could be transitory due to temporary factors related to the pandemic. He said that he would like to see further progress in lowering the unemployment rate before removing stimulus. In short, there remains a wide range of opinions among officials on the proper time to taper, and investors did not receive the precise guidance they were seeking.
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The core PCE price index is the inflation indicator favored by the Fed. In July, core PCE was 3.6% higher than a year ago, matching the consensus forecast. This was the same annual rate of increase as last month, but up from just 1.5% in February, and the highest annual rate since 1991. While economists have been expecting readings of this magnitude during the reopening of the economy, they also have differing views on whether higher inflation will be a temporary spike or persist for years.
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In July, sales of existing homes rose 2% from June and were slightly higher than a year ago. Inventory levels were down 12% from last year at this time, at just a 2.6-month supply nationally, well below the 6-month supply which is considered a healthy balance between buyers and sellers. The median existing-home price was $359,900, up 18% from a year ago.
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Looking ahead, investors will closely watch Covid case counts around the world. They also will look for hints from Fed officials about the timing for changes in monetary policy. Beyond that, the key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. The ISM national manufacturing index will come out on Wednesday.
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| Weekly Change |
| 10yr Treasury |
rose |
0.05 |
| Dow |
rose |
300 |
| NASDAQ |
rose |
400 |
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| Calendar |
| Wed |
9/1 |
ISM Manuf. |
| Thu |
9/2 |
Trade Balance |
| Fri |
9/3 |
Employment |
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All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
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