Markets rallied last week… on the hope that there will be a Fed rate cut soon. Truthfully, they were hoping it would come at the Fed’s June meeting last week. Nope. But the Street remained hopeful after reading the Meeting Statement, and listening to Fed Chair Powell, that the rate cut might take place at their next meeting (the end of July). Remember I said… might.
Fed Chairman Jerome Powell talked about some of the mixed messages the U.S. economy has been giving. Unemployment data is great, the jury is undecided about inflation, but manufacturing has slowed. The 17 participants at the meeting also gave mixed messages as they look forward thru the rest of the year. Only 1 of the participants was in favor of a rate increase this year. 8 felt there should be no changes. 1 felt there should be one rate cut this year. 7 felt there should be two cuts. But that’s for the future. For this meeting the vote was 9-1 (only ten vote) to not raise nor cut rates.
So, when will the Fed cut rates? While the Street is expecting that to come at the Fed’s next meeting the end of July, I think they will wait until their mid-September meeting. Why? The Fed kept their interest rate at “0” for 8 years. They started raising it after the 2016 election: a ¼ point each quarter thru December of last year. The increases came in March, June, September and December. Unless there is a major economic change, I think they hold to that type of schedule. And if they wait until September, I think it’s “one and done” for this year.
Housing starts were down almost -1% in May. They are down -4.7% year-over-year.
Existing home sales for May were up 2.5% and have improved to -1.1% year-over-year.
June’s Philly Fed index was expected to move from a +16.6 in May down to +11.0 read. The actual number came in at only +0.3.
My buddy Bill Wills has nicknamed Ohio… “Oh-rain-o”. But the excessive rain we’ve had this spring has caused issues for Ohio’s farmers. One example: corn. The U.S. Department of Agriculture said recently that normally the corn crop is all planted at this point. This year… only 50% is in the ground. That could and will likely lead to higher prices at the grocery store in the near future.
Focus of the week: Will the Street’s hopes/begging for a Fed rate cut continue to drive markets higher? Or will whispers about a possible trade deal with China impact markets this week?
We get the final read on Q1 GDP on Thursday morning. The last number came in at +3.1%. Expectations are for the number to remain at +3.1%.
Indicator focus: May’s new home sales (Tue); May’s durable goods orders (Wed); and the final read on Q1 GDP (Thu).
Enjoy the week.
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