A quick recap of last week’s news:

The parade of Fed speakers last week signaled the Fed may be ready to pause rate hikes at their upcoming meeting on September 20. Comments from voting members were noteworthy. New York President John Williams, said he believes monetary policy is in “a good place” and “having the desired effect.” While he thinks the Fed needs to keep their options open based on incoming data, his tone suggested he favors pausing hikes this month.

Dallas Fed President Lorie Logan also said skipping a hike this month “could be appropriate.” She noted more tightening may still be needed for inflation to reach their 2% target. Philadelphia Fed President Patrick Harker has also said that the Fed may be at a point to “hold rates steady.”

Remember, the Fed has been hiking its benchmark Fed Funds Rate to try to slow the economy and curb inflation. Their latest hike in July was the eleventh since March of last year. The Fed Funds Rate is at the highest level its been in 22 years.

The Fed

has been looking for clear signs that the labor market is softening as they consider further rate hikes. The BLS data shows a clear downtrend in job growth. The amount of jobs created in June was revised from 209,000 all the way down to 105,000 after two months of revisions. That’s a big adjustment! The unemployment rate is now at 3.8%, up from 3.6%.

A loosening labor market is exactly what the Fed was waiting for. We’ve had a 2% year ove

r year increase in jobs, the least growth since 2021. Wage growth is now at 4.3% YoY and quit rates at 2.3% YoY, both also the lowest since 2021. New jobs spiked after significantly declining during Covid. Which makes sense. The job growth is stabilizing, fewer new job openings and less people quitting their jobs signal a slower job market. The Fed is paying close attention to wage growth. Less demand for labor, and the slowest growth in wages since 2021 proves the Fed’s plan is working. As a reminder, the unemployment rate was 14.7% during Covid. Our economy is still growing, but the rate of growth is finally slowing down. Without a downturn, the Fed will not stop hiking rates.

All signs are pointing to another Pause at the upcoming Fed meeting on September 20.

MARKET MOVING NEWS THIS WEEK: INFLATION

Crucial inflation reports are ahead, starting with August’s Consumer Price Index on Wednesday. Look for the Producer Price Index on Thursday, which will give us news on wholesale inflation. This is the last reading prior to the next Fed meeting.

Researchers at the Cleveland Fed are forecasting a significant increase in August's month-on-month CPI inflation. Primarily due to a more than 6% month-on-month rise in gasoline prices. However, when we exclude food and energy, the core CPI is projected to be at 0.4% month-on-month. This figure is higher than the previous two months but is less important to the Fed than the broader trends in key categories.

In addition to overall inflation levels, the Federal Reserve is particularly interested in tracking inflation within the service sector. Services encompass various categories like healthcare and financial services. The Fed's concern lies in the fact that service prices have been increasing driven by rising wages. Since wage growth has been slowing down in recent months, there's a possibility that service prices may also moderate. The Fed continues to closely monitor this data for any emerging trends, though recent data has been somewhat reassuring.

Secondly, the Fed is keeping a close eye on trends in home prices. The Consumer Price Index (CPI) lags behind the latest home price changes because much of the pricing data is based on lease rates. These rates are calculated using a panel approach, and leases often only adjust annually. Due to these measurement methods, CPI data for housing costs takes several months to catch up with the most recent home price trends.

The Fed believes housing expenses are likely to experience a decrease in inflation. Rent prices are cooling down. US rents are 1.2% lower than they were a year ago. The biggest decline since December 2020.  The decline in home prices during late 2022 and early 2023 will eventually be reflected in the CPI data also. There will be a delay before it shows up.

Summary:

We are fewer new jobs being creating, the unemployment rate is trending upward and the inflation report in September will send mixed signals. Gas prices will contribute to a spike in the report, but cooling shelter costs will level out expectations. The Fed is not likely to hike rates this month based on the data we have today, and the inflation reports incoming. The Fed’s decision to pause could be great for mortgage rates. We will watch closely as the news unfolds.

An improvement to mortgage rates is not just appealing to homebuyers. Sellers are holding onto low rates and hesitant to sell if they can avoid it. Lower rates will get sellers off the fence too. For the first time since the 2007, great financial crisis, existing home could pass new home prices. This could happen by December. People are paying more for existing homes. Contributing factors are massive builder incentives, and 90% of existing mortgages are under 5%.

We can all use a break in mortgage rates, and that moment is getting closer. If the Fed pauses, and continues to keep rates steady all year, I would consider that good news. We want to hear the Fed Talk pointing to a pause, then a cut. Ill post real time data on my IG and Twitter feed.