Rate Watch 8/15/2022

Last week’s CPI report came in lower on a year-over-year basis at 8.5% (vs 9.1% the month before). The month-over-month increase was at 0%. I had a feeling this report would come lower than expectations and am hopeful that it will be the start of a trend.

A September rate hike will still occur, even if September CPI comes in lower. I think our best case scenario is that September follows a similar path as August’s CPI report with maybe a month-over-month decrease. Then we get a 50bp rate hike from the Fed.

This week, we hear from some Fed members and get the Fed minutes and a lot of housing data.

Monday

• NAHB Home Builder’s Index

Tuesday

• Building Permits
• Housing Starts

Wednesday

• Fed Minutes
• Fed Governor Michelle Bowman Speaks

Thursday

• Initial and Continuing Jobless Claims
• Existing Home Sales
• Leading Economic Indicators
• Kansas City Fed President Esther George Speaks
• Minneapolis Fed President Neel Kashkari Speaks

Friday

• Richmond Fed President Tom Barkin Speaks

There has been a shift where more Fed members are Hawkish. 

Chart Check (see above)

We had a good day on Wednesday from the CPI report, but a weak treasury auction on Thursday led us to a bad day in rates. If the Fed truly begins to unload its balance sheet, it will need to make sure that there is an actual demand (Fed has been the #1 buyer in past/recent years) or bonds will plummet. 

The trendline I drew last week broke to the downside. We get some economic data this week and the Fed has made it very clear that they will make their decisions based on the data.

If we can put the inflation story behind us (inflation isn’t going away anytime soon, but it needs to peak/be controlled) then we should be able to see rates come back down.

A few months ago I mentioned how I thought the Fed will increase their inflation target from 2% to something higher as they see inflation running away. They haven’t yet, but members of the ECB have been discussing this. All part of normalizing an increasingly out-of-control situation.

Fed meets in Jackson Hole next week.

Click HERE to stay current with the Fed’s meetings this year. You can also view the statements and minutes from previous meetings.