And, because of fiscal stimulus, slowly rising incomes, and high levels of consumer and business confidence, Powell believes the current strength will persist.
That’s some of what Powell said during his speech at the recent gathering of global economic and financial eggheads in Jackson Hole, Wyoming, hosted by the Federal Reserve Bank of Kansas City.
If we live in a bubble where the economy grows at 4%, and the calculation for unemployment just keeps getting better, while wages and inflation are slowly creeping higher, Powell could be right in what the Fed’s prepared to do.
That’s to hike rates later this month and once again by year’s end.
There should also be a couple more hikes next year… if all goes according to plan.
Inflation Is on Target… Finally
The personal consumption expenditures index – also known as the PCE Index – was up 2.3% year over year in July. The core index also moved up to 2%.
After six years of extraordinary measures, we’ve finally hit the Fed’s inflation target!
The July Personal Income and Outlays report included even more good news for the Fed.
Personal income was up 0.3% following a 0.4% rise in June. Personal outlays – or “spending” – were up 0.4%, consistent with June.
And core inflation – or the prices of everything except food and energy – ticked up a modest 0.2%.
Housing Gets Weaker
The housing market is in trouble, with two more reports last week confirming the trend.
The S&P CoreLogic Case-Shiller 20-City Composite Home Price Index showed a meager 0.11% month-over-month increase.
And year-over-year growth slowed to 6.31%. That’s the weakest reading in nine months.
David Blitzer, the chair of S&P’s index committee, noted that, even as prices climb, the market is softening.
Sales of new and existing homes have been relatively flat over the last six months – and that’s with increasing inventories.
Meanwhile, the National Association of Realtors’ pending home sales index – a pretty accurate look-ahead at “official” existing home sales – came in 0.7% lower for July. The market expected a flat reading.
The next set of housing data won’t come out until the third week of September – just ahead of the next Federal Open Market Committee meeting.
Maybe after the FOMC boosts rates we’ll hear something about housing.
So, if the Fed continues to ignore housing, we can count on another rate hike in September and maybe another by year’s end.
Friday morning, the Bureau of Labor Statistics will release its Employment Situation report for August.
The Fed is hoping to see a pop in wages to justify its planned course of interest-rate hikes.
We’ll be watching for a surprise in either direction.
Uncertainty is a good thing for the well-prepared; indeed, interest-rate volatility is what we exploit in Treasury Profits Accelerator.