As we approach the upcoming week, it’s crucial to be informed about the significant events that will shape the US economic landscape. The Federal Reserve’s recent decision to maintain policy rates at 5.25-5.5% has garnered significant attention. Coupled with this, the economic forecasts have been notably optimistic, with growth projections being revised upwards and unemployment estimates marked down. Furthermore, despite the anticipation of higher policy rates in 2024, the overall economic outlook remains positive. High-impact events to watch out for include potential economic headwinds, such as the ongoing UAW strike, a possible government shutdown, rising energy prices, and the resumption of student loan repayments. These events could significantly influence the Fed’s decisions and the broader economic trajectory.
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The Hot Zones this Week
1. The Fed’s Latest Moves
The Federal Reserve, in its recent meeting, decided to keep the policy rates steady between 5.25% and 5.5%. While some might have seen this as a hawkish move, the economic forecasts that followed were surprisingly optimistic. Despite the anticipation of higher policy rates in 2024, the growth projections were revised upwards, unemployment estimates were reduced, and inflation predictions remained unchanged. It’s like a Goldilocks scenario, but without the bears! 🐻
2. The “No Landing” Approach
The Fed seems to be embracing a “no landing” approach. They’re projecting another hike in 2023 and a reduction of just 50bp in 2024. However, the economic outlook remains positive. Growth projections for 2023 and 2024 have been upgraded, and unemployment rate predictions have been lowered across the board. This suggests that the economy can handle monetary tightening and slower-than-expected rate cuts without significant repercussions.
3. The Neutral Rate Debate
There’s an interesting discussion around the “neutral” rate. The Fed’s longer-run policy projections hint at the possibility that the neutral rate might be higher in this cycle. Chairman Powell, in his press conference, emphasized the importance of data and the uncertainties that lie ahead. He mentioned that the economy hasn’t yet felt the full impact of rate hikes and that a period of below-trend growth would be necessary to bring inflation back to target.
4. Economic Momentum and Challenges Ahead
While the economy seems to have enough momentum to avoid a recession, there are challenges on the horizon. The economy is expected to feel the lagged effects of monetary tightening, leading to a potential slowdown in growth in 2024. Additionally, there are imminent speed bumps to consider, such as the UAW strike, a possible government shutdown, rising energy prices, and the resumption of student loan repayments. All these factors could influence the Fed’s decision in the coming months.
5. A Glimpse at the GDP
Recent data shows that the 3Q and 2Q US GDP tracking remained unchanged at 2.9% and 2.3%, respectively. The ongoing UAW (United Auto Workers) strike has had a slight impact, leading to a decline in the inventory tracking estimate. However, the overall data flow has been consistent.
Stay tuned for more updates, and as always, keep those financial vibes positive! 💰🚀
Each week there are zones where trading can get wild. I call these the hot zones.
Macro Market
Growth
First off, the good news: we’re looking at a soft landing for the US economy. Imagine an airplane gently touching down on the runway – that’s what we’re hoping for with our economic growth. While 2024 might see growth taking a little breather (we’re predicting it’ll dip to 0.7%), it’s not all gloomy. We’re forecasting a bounce back with a growth of 1.8% in 2025. And hey, our predictions for 2023 and 2024 are even sunnier than before by 0.4pp and 0.7pp respectively. Go, economy! 🚀
Inflation
Now, let’s talk inflation. We’re seeing PCE inflation taking its time, settling down to 2.2% by the second half of 2025. That’s a tad slower than we initially thought. As for the nitty-gritty numbers: we’re expecting core PCE inflation to be at 3.8% in 2023, 2.8% in 2024, and then mellowing down to 2.2% in 2025. Not too shabby, right?
Federal Reserve
Alright, onto some Federal Reserve tea! 🍵 After taking a breather in September, we’re placing our bets on one more 25bp rate hike in November. That’ll bring us to a cozy range of 5.50-5.75%. But hold onto your hats, because we’re also predicting the first rate cut in June 2024, followed by some quarterly 25bp reductions.
Economic Calendar
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
Briefing.com
Last Week’s Numbers
The S&P 500 faced challenges this week, marking its third weekly drop in a row. So far this year, the index has risen 12.97%. However, it’s now 9.93% less than its highest point on January 3, 2022.
Here’s a quick look at the index’s performance over the last 5 days:
Earnings
Source I/B/E/S data from Refinitiv
Aggregate Estimates and Revisions
- 23Q2 Y/Y earnings are expected to be -2.8%. Excluding the energy sector, the Y/Y earnings estimate is 3.6%.
- Of the 499 companies in the S&P 500 that have reported earnings to date for 23Q2, 78.8% have reported earnings above analyst estimates. This compares to a long-term average of 66.4% and prior four quarter average of 73.4%.
- During the week of September. 25, eight S&P 500 companies are expected to report quarterly earnings.
Global Spotlight
U.S.-Pacific Summit The U.S. and 18 Pacific Island nations are having a meeting in Washington on Sept. 25-26. The U.S. wants to have more influence in the Pacific because China is also trying to have a bigger role there. The U.S. wanted the Solomon Islands to join them, but their leader might not come. The U.S. and Marshall Islands are going to talk about their partnership.
Asia Three-Country Talks China, Japan, and South Korea are meeting in Seoul on Sept. 26. They want to check on their cooperation group and try to have more meetings of their leaders. China is noticing that Japan and South Korea are getting closer to each other and the U.S. However, all three countries want to talk and keep their relationship good. They’ll probably decide to have more meetings, which will help their businesses. But, there might still be some disagreements about safety.
EU-China Trade Talks The EU’s Trade leader, Valdis Dombrovskis, is going to China from Sept. 23-26. He will talk about trade and meet Chinese leaders. The EU has some complaints about how China does business. China is not happy with some new EU rules. Both sides want to keep doing business and help each other in areas like the environment.
Maldives Election On Sept. 30, there’s going to be another election in the Maldives. The two main candidates are Mohamed Muiz and President Ibrahim Mohamed Solih. Whoever wins might decide if the Maldives gets closer to India or China. Some people think that voters are more worried about things like houses and health than these big politics.
U.S. Budget Crunch The U.S. needs to decide on their budget by Sept. 30, or the government might stop working. There are disagreements among the politicians about how much money to spend. They might decide on a short-term solution to keep the government running. If the government does stop, many workers won’t have jobs for a while, and some services will pause. How bad this is for the U.S. depends on how long it lasts.
Stratfor.com
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