On Wednesday, the FOMC decided to leave the fed funds rate unchanged. Comments from both the official statement and Chairwoman Yellen noted that overall economic activity ‘picked up from the modest pace seen in the first half of the year’. They also noted that ‘job gains have been solid, on average’ and expects the labor market to ‘strengthen somewhat further’.
Where the more hawkish piece came into play today was on risk assessment, changing the language from risks having ‘diminished’ to being ‘roughly balanced’. They also added that ‘the case for an increase has strengthened, but decided for the time being, to wait for further evidence of continued progress towards its objectives’. All said, we think the Fed will skip the November meeting to make any changes, primarily due to the election, however, December looks to be a strong possibility for a rate hike if they are in the mindset of just getting something done before year-end. We don’t agree that the recent data justifies any sort of hike, so it will be interesting to see what state we are in come December.
In housing data, existing home sales for August fell -.9% to 5.33mln unit selling rate, while market expectations were for a stronger selling rate of 5.45mln units. Weakness in the report was mostly contained in the South where sales were down -4.6%. The primary cause was from the major flooding seen in parts of Louisiana, Texas and Oklahoma over the month of August.
Looking ahead to next week, the calendar is fairly active with a healthy mix of Fedspeak and data throughout the week. Highlights include Durable Goods and GDP, as well as an appearance by Janet Yellen on Thursdayevening. Looking at the market, the end of the week has provided some better pricing and rates, and while we are still looking for a close under 1.62% on the 10yr to get rates going stronger in the right direction, we suggest taking advantage of the current levels.