Weekly Economic & Financial Commentary: Higher for Longer

Summary

United States: U.S. Economy Still Resilient, but Headwinds Building

• It was a relatively light week on the U.S. economic data front. A slate of housing data offered additional evidence that high mortgage rates and limited inventory are weighing on housing market activity. Jobless claims remained low, but a still-declining LEI and a further climb in Treasury yields and oil prices suggest economic growth will slow in the months ahead.
• Next week: New Home Sales (Tue.), Durable Goods (Wed.), Personal Income and Spending (Fri.)

International: Central Banks Here, There and Everywhere

• It was a particularly active week for international central banks across the G10 and emerging markets, with several institutions delivering differing decisions and differing messages. Emerging market central banks saw a combination of rate hikes, rate holds and rate cuts. G10 central banks saw some rate hikes and some rate holds, with differing messages also on the likelihood of further monetary tightening in the months ahead.
• Next week: Mexico Policy Rate Decision (Thu.), Eurozone CPI (Fri.), China PMIs (Sat.)

Interest Rate Watch: Higher for Longer

• The Federal Open Market Committee (FOMC) held the target range for the federal funds rate at 5.25%-5.50% this week. While rates were left unchanged, the Committee retained a hawkish bias. The median projection for the midpoint of the target range at the end of 2024 rose to 5.125%, up from 4.625% in June.

Topic of the Week: Oil Prices Complicate the Fed’s Efforts to Reduce Inflation

• The climb in oil prices to a 10-month high has created a new challenge to corralling inflation. While having a bigger effect on headline inflation, the increase, if sustained, could also pass through to core prices and slow progress in returning inflation to 2%.

Full report here.