Rates Tread Water but a Shutdown Looms Ahead

Rates Hold Steady Despite Key Data

This week ended with mortgage rates slightly higher than they were at the end of last week.  Despite an important inflation report and seemingly better-than-expected jobless claims numbers, rates remained stable.  

Next week, the extremely important Bureau of Labor Statistics (BLS) Jobs report for September will be released on Friday. 

There is a government shutdown looming if Congress doesn’t pass a funding bill by October 1. A shutdown could cause a delay in this reporting, as the staff are considered nonessential employees. Since the deadline is Wednesday, we will likely still get the ADP and JOLTS reports.  

Fed Officials Divided on Rate Policy

This week saw another round of Federal Reserve members speaking and sharing their thoughts. They reinforced the divisions in opinion among the members. There are clearly the Hawks, slow to cut rates, that are focused on inflation, and the Doves, want rate cuts, that are focused on the employment market. 

Interesting to note, that in 1913 the Fed only had a single mandate of financial stability. The Employment Act of 1946 and the Humphrey-Hawkins Act of 1978 created the current explicit dual mandate of promoting maximum employment and stable prices.  

Economically speaking, these are almost contrary mandates. Maximum employment is created in hot economies. Hot economies create inflation. The Fed has to walk a tight rope to balance both of these mandates, and that becomes very clear in times like today where inflation is sticky, and employment is teetering on the edge of a big problem.

New Home Sales Surge Past Expectations

New Home Sales data showed incredible strength in the housing industry. New Home Sales, which measures signed contracts on new homes, rose about 21% to an annualized 800K-unit pace in August. The market was looking for 665,000.  

Even the prior report was revised up. This period was actually before rates fell in September. We may continue to see strength as lower rates factor into these reports.  

Q2 GDP Growth Revised Higher

The final look at Q2 GDP showed that the US economy grew at a 3.8% annualized pace, stronger than the prior estimate at 3.3%. This is a bit difficult to fully analyze since the tariffs caused businesses to try to import goods before they were implemented, and prices rose. This increased supply gets added to GDP. It is likely to level out as future quarters are analyzed.

PCE Inflation Matches Expectations

Friday’s Personal Consumption Expenditures (PCE), the Fed’s favorite inflation gauge, came out in line with expectations. 

• It showed a Headline increase for August of 0.3% and annually it increased from 2.6% to 2.7%, as expected. 
• Core PCE, stripping out volatile food and energy prices, rose 0.2% for the month and 2.9% annually.  

Looking Ahead: Busy Week Ahead for Economic Reports

Next week is busy with reports especially if the shutdown doesn’t occur:

Monday, September 29: Pending Home Sales

Tuesday, September 30: JOLTS (Job Openings and Labor Turnovers)

Wednesday, October 1: ADP

Thursday, October 2: Initial and Continuing Jobless Claims

Friday, October 3: BLS Jobs Report