The Weekly Grind: September 25, 2023
Make it 10
That’s 10 straight weeks of gains for the US Dollar Index. In the more than 40 years since the inception of the index, a streak of that length has only happened one other time: 2014. Back then, the Federal Reserve was still more than a year away from raising interest rates off the zero lower bound. This time, they’re nearing the end of one of the fastest tightening cycles in decades. Much like what we saw in 2022, stock prices have reacted poorly to the Dollar’s rally. Last week, the growth-oriented NASDAQ Composite led stocks lower with a 3.6% decline. The Dow Jones Industrial Average was moderately better, falling less than 2%. Meanwhile, 10-year Treasury rates rose to their highest level in more than 15 years.
The Federal Reserve surprised almost no one when they decided to keep their short-term interest rate unchanged at last week’s FOMC meeting. The Committee’s Summary of Economic Projections, though, where members detail their estimates for future economic data and policy actions, showed that officials are reticent to prematurely declare victory. Better-than-expected growth this year has the Fed looking at higher-than-expected rates in 2024 and 2025. In June, the FOMC had projected 100 basis points of rate cuts next year. In the September SEP, they cut that number in half.
GDP growth accelerated to a 2.1% annual rate in Q2, up from a 2.0% in Q1. The US consumer has proven more resilient than most economic forecasters believed possible, non-residential investment is accelerating, and last year’s downturn in residential construction appears to have turned the corner. A ‘soft landing’ – the scenario where the Fed successfully contains prices without creating widespread economic hardship – seems more and more likely with each passing month, and calls for recession are fading.
Inflation has decelerated significantly from last year’s peak, but it’s still well above the Federal Reserve’s 2% annual target. With consumer demand holding up and energy prices reaccelerating, further improvements in price trends will be harder to come by. Fortunately, an unemployment rate of just 3.8% is far better than the 50-year average and below what was considered ‘full-employment’ just a few short years ago.
Here are the key data releases to keep an eye on ahead of the long weekend.