9/23 - Weekly Economic Highlights

Global central banks continued increasing policy rates this week, following a 0.75% increase in the federal funds rate by the U.S. Federal Reserve (Fed) to a range between 3.00% and 3.25%. The Fed continues to combat inflation even though additional rate increases threaten to further slow US economic activity from its current declining levels. The Fed also released new economic projections showing a significant slowdown in the economy later in 2022 and 2023. Fed Chair Jerome Powell said people are suffering from high inflation, especially more vulnerable households, and they’ll ultimately suffer more, and for longer, if the Fed flinches in its commitment to pulling prices back down (inflation reduction). We expect the Fed to continue to increase the federal funds rate in the near term until inflationary pressures weaken.

Meanwhile, new home construction rose unexpectedly in August but the pace for building permit applications slowed to the lowest level in two years which underscores how higher mortgage rates are weighing on demand. Residential housing starts increased to a 1.58 million annualized rate, led by multifamily construction activity. The Conference Board’s Leading Economic Index fell 0.3% in August signaling additional weakness in future economic activity. The largest positive contributor to the leading index was jobless claims while building permits were the biggest negative contributor. Although the labor market remains strong other measures of future economic growth have begun to weaken.

U.S stocks were down sharply this week as investors continued to absorb the Fed’s 0.75% rate hike and downward revisions to its summary of economic projections. Treasury yields trended higher, and the yield curve remains inverted, with the 2-year at 4.17%, 5-year at 3.97%, and 10-year at 3.74% as of Friday morning. According to Freddie Mac, the average interest rate for a 30-year fixed mortgage loan increased from 6.02% last week to 6.29% this week. Financial market volatility is likely to remain elevated as participants continue to weigh the effect of future rate hikes and inflationary pressures against slower economic growth.

Next week’s economic releases will provide market participants with a broad array of economic data including GDP, housing, manufacturing, and inflation. Market participants will keep a keen eye on the release of personal consumption expenditures for any indication of easing inflationary pressures. 

Next Week:

Chicago Fed Reserve National Activity Index, Dallas Fed Manufacturing Activity, Durable Goods Orders, Conference Board Consumer Confidence, Richmond Fed Manufacturing Index, New Home Sales, Pending Home Sales, Initial Jobless Claims, Personal Consumption Expenditures, MNI Chicago Purchasing Manager Index, University of Michigan Sentiment, S&P Case Shiller 20-City Home Price Index, GDP Annualized QoQ

Copyright © 2022. All Rights Reserved.

© 2022 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and the U.S. Department of Labor. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed-income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rate.