The economic calendar was packed this week, but one event took center stage. At the conclusion of its September 17-18 meeting, the FOMC announced a 50 bps reduction in the federal funds rate to a target range of 4.75%-5.00% (chart). The commencement of monetary policy easing comes at a time when overall economic growth remains solid, supported by stronger-than-expected retail sales, industrial production and residential construction in August. Yet, signs of labor market weakness haveposed meaningful threats to the sustainability of growth, which underpinned the Committee's decision to start the easing cycle with a 50 bps cut, rather than a conventional 25 bps move.
Chair Powell summarized: "It’s a process of recalibrating our policy stance away from where we had it a year ago when inflation was high and unemployment low to a place that’s more appropriate, given where we are now and where we expect to be, and that process will take place over time." We suspect the 50 bps reduction was made in an effort to front-load policy easing, and we now look for the FOMC to opt for a smaller 25 bps cut at each of its two remaining meetings this year—see Interest Rate Watch for full detail.
The reduction of the fed funds rate was widely anticipated by financial markets, evident in the roughly 90 bps descent in the average 30-year fixed mortgage rate since early July, per Freddie Mac. The drop in mortgage rates helped to spur home construction in August (chart). Single-family housing starts jumped 15.8% to a 992,000-unit annual pace, marking the first improvement in six months. Construction of apartment properties remains comparatively weak (multifamily starts decreased 4.2% month-over-month) amid a robust supply of multifamily developments already under way.
While the pipeline of apartments under construction is robust, lower financing costs will likely incentivize more multifamily building as rental demand remains firm amid poor affordability conditions in the for-sale market. Existing home sales slid 2.5% to a 3.86 million-unit annual pace in August. The recent decline in mortgage rates was likely not realized by homebuyers in August, as interest rates are typically locked in a month or two before the sale is closed. We anticipate lower mortgage rates will spark demand, but steady home price appreciation will keep affordability constrained.
This Week's State Of The Economy - What Is Ahead? - 09 October 2020
Wells Fargo Economics & Financial Report / Oct 12, 2020
Weekly first time unemployment claims highlighted an extraordinarily slow week for economic news. Jobless claims fell slightly but continuing claims fell by one million.
This Week's State Of The Economy - What Is Ahead? - 22 April 2022
Wells Fargo Economics & Financial Report / Apr 27, 2022
I’ll wish you a Happy Earth Day anyway. Don’t expect a card this year. While the Earth continues to thankfully revolve at a steady rate, rising mortgage rates appear to be slowing residential activity
November 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Nov 12, 2020
U.S. gross domestic product (GDP) grew 7.4 percent, or $1.3 trillion in Q3, adjusted for inflation.
This Week's State Of The Economy - What Is Ahead? - 20 December 2019
Wells Fargo Economics & Financial Report / Dec 21, 2019
President Trump became the third president in U.S. history to be impeached by the House, but removal by the Senate is highly unlikely. The House also passed the USMCA, which should be signed into law in early 2020.
This Week's State Of The Economy - What Is Ahead? - 20 March 2020
Wells Fargo Economics & Financial Report / Mar 21, 2020
Daily life came to a screeching halt this week as governments, businesses and consumers took drastic steps to halt the COVID-19 pandemic.
This Week's State Of The Economy - What Is Ahead? - 10 September 2021
Wells Fargo Economics & Financial Report / Sep 13, 2021
Data from the opening weekend of College Football indicates that we will have to endure another season of Nick Saban deification.
This Week's State Of The Economy - What Is Ahead? - 01 May 2020
Wells Fargo Economics & Financial Report / May 04, 2020
U.S. GDP declined at an annualized rate of 4.8% in the first quarter, only a hint of what is to come in the second quarter.
This Week's State Of The Economy - What Is Ahead? - 28 February 2020
Wells Fargo Economics & Financial Report / Feb 29, 2020
The COVID-19 coronavirus hammered financial markets this week and rapidly raised the perceived likelihood and magnitude of additional Fed accommodation.
This Week's State Of The Economy - What Is Ahead? - 17 February 2023
Wells Fargo Economics & Financial Report / Feb 20, 2023
Inflation in the U.K. receded for the third straight month in January, with the headline rate coming in at 10.1% year-over-year. In bad news, this is still five times the Bank of England\'s 2% target.
This Week's State Of The Economy - What Is Ahead? - 17 December 2021
Wells Fargo Economics & Financial Report / Dec 21, 2021
7 Interest Rate Watch for more detail. In other news, retail sales data disappointed as higher prices factor into spending and industrial activity continued to recover but remains beset by supply issues.
