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? - 12 August 2020
Wells Fargo Economics & Financial Report / Aug 15, 2020
The consumer has been a bright spot in the recovery so far, but with jobless benefits in flux and no clear path for the long-awaited stimulus bill, the support here could fade.
This Week's State Of The Economy - What Is Ahead? - 25 November 2020
Wells Fargo Economics & Financial Report / Nov 28, 2020
It may be a holiday-shortened week, but there have been as many developments and economic indicators packed into three days as we can recall seeing in any other week this year.
This Week's State Of The Economy - What Is Ahead? - 21 February 2020
Wells Fargo Economics & Financial Report / Feb 22, 2020
Minutes from the January 28-29 FOMC meeting indicate the coronavirus will not push the Fed to cut interest rates, and for the most part housing and manufacturing survey data this week supported that view.
This Week's State Of The Economy - What Is Ahead? - 21 August 2020
Wells Fargo Economics & Financial Report / Aug 18, 2020
Despite indications of lost momentum elsewhere, residential construction activity is picking up steam.
This Week's State Of The Economy - What Is Ahead? - 16 April 2021
Wells Fargo Economics & Financial Report / Apr 17, 2021
Data released this week continue to show that the economic recovery has gained momentum in March. The much anticipated consumer boom has arrived.
This Week's State Of The Economy - What Is Ahead? - 03 November 2023
Wells Fargo Economics & Financial Report / Nov 08, 2023
Although payroll growth is easing, the labor market remains relatively tight. The unemployment rate inched up to 3.9% in October, slightly higher than the cycle low of 3.4% first hit in January 2023, but still low compared to historical averages.
This Week's State Of The Economy - What Is Ahead? - 13 March 2020
Wells Fargo Economics & Financial Report / Mar 14, 2020
Financial conditions tightened sharply this week as concerns over the coronavirus and the economic fallout of containment efforts mounted.
The Regional Breakdown Of A Labor Market In Meltdown
Wells Fargo Economics & Financial Report / May 26, 2020
Employment fell in all 50 states and 43 states saw their unemployment rate rise to a record in April. The damage is already hard to fathom-a 28% unemployment rate in Nevada and still another month of job losses ahead.
June 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Jun 18, 2020
The Fed expects to hold interest rates near zero through the end of this year, perhaps well into next year, and maybe even into ’22.
This Week's State Of The Economy - What Is Ahead? - 11 February 2022
Wells Fargo Economics & Financial Report / Feb 14, 2022
Deep thought for the week, if a tree falls in the forest, or an Olympics occurs, and no one is there to hear it or see it, did it really occur?
