What’s the difference between an FOMC rate announcement and an iPhone product launch? Both highly anticipated, watched all over the world, heavily speculated for months prior and we are left with a feeling afterwards of “how much change is there really?”. The September Fed meeting has become the iPhone product launch. From excitement to boring in a short period. The Fed has been very hawkish (rates up) in their tone and the market saw the chance of a move in the next meeting as high as 42% two weeks ago. Reality (aka economic data) has brought that probability down to 22% today, cut almost in half. One day it’s almost certainty of an upcoming move, followed by the reality of no major changes. The key economic data for the past two weeks has been the following:
While an unemployment rate of 4.9% has met the Fed’s target, it was above the markets expectation of 4.8%. The areas highlighted in bold should cause the Fed to have some concerns. The shrinking manufacturing index (below 50 is shrinking and above 50 is expanding), the lack of wage growth and slow job growth are troubled areas. Some of this weak economic data on the backdrop of global issues and an uncertain election ahead should cause the Fed to pause. However that being said many at the Fed grow bolder every day in making the case for higher rates regardless. There is always a chance of a surprise but the Fed hasn’t surprised in nearly a decade, so hard to take them serious at this point. Even though September is very unlikely, it’s important to keep the corner of one eye open to that chance, albeit 20% or less, because the chatter is there.
In the interim I wouldn’t expect the 10yr to break the 1.45 to 1.65 range that has persisted for almost 2 months. Today it trades at 1.53%.