The Federal Reserve kept the target Fed funds at the 0.25%-to-0.50% range in yesterday’s policy announcement. The Treasury market’s reaction was muted, with yields sticking close to the levels we’ve seen all week. But one curious development that’s worth keeping an eye on in the days ahead: the modest rise of late in the Treasury market’s implied inflation forecast, which continued to tick higher yesterday (Jan. 27), based on daily data via Treasury.gov.
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● Fed acknowledges slower growth, leaves rates unchanged | WaPo
● New US home sales surge in Dec to 10-mo high | Bloomberg
● US mortgage applications rise 3 weeks straight | HousingWire
● UK Q4 GDP Growth Accelerates On Stronger Services | MNI
● Saudi Arabia Keeps Pumping Oil, Despite Risks | NY Times

Recession chatter is on the rise… again. And for an obvious reason: there are fresh signs of weakness in several key indicators. But there’s also ample evidence of strength, at least for the moment. How can we separate the signal from the noise? Carefully, methodically, and with a healthy dose of skepticism when we’re told that a single number marks the tipping point. Let’s dig slightly deeper into these guidelines via a summary of best practices for analyzing the mother of all known risk factors.
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● PMI: US Service sector expands at slowest pace since Dec 2014 | Markit
● US consumer confidence inches high in Jan | Conf Board
● S&P Case-Shiller: US home prices continue to rise in Nov | S&P
● Redbook: US Retail Sales Fall 1.4% in First 3 wks of Jan | WSJ
● Richmond Fed: Slightly Slower Mfg Growth in Jan | 24/7 Wall St
● German consumer confidence remains stable: GfK survey | RTE
● The 5 Scenarios Now Facing the Federal Reserve | Bloomberg

The wheels of the US stock market’s discounting machine are spinning rapidly these days as the crowd continues to price in the risk of slower economic growth. The S&P 500 is off a bit more than 8% for the year so far and is lower by nearly 7% over the past 12 months in total-return terms through yesterday (Jan 25). Formal estimates of GDP are on board with the market’s bias for downsizing expectations. The main debating point at this stage centers on one question: How much deceleration is lurking?
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● Dallas Fed mfg survey slides to recession-era levels | MarketWatch
● Americans Still Generally Upbeat About Personal Finances | Gallup
● US East Coast blizzard’s will cost up to $3 billion | CNNMoney
● Global stocks, dollar fall as oil sell-off resumes | Reuters
● Cheap prices fail to kill boom in US oil production | CNNMoney
● 6 key factors that will drive oil prices in 2016 | OilPrice.com

Several pieces of the major asset classes rebounded sharply last week, based on a set of representative ETFs. But the revival wasn’t strong enough to wipe away the red ink for the trailing one-year period. For the second week in a row all the major asset classes are posting varying degrees of loss over the last 12 months when measured in total returns through Jan 22.
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● Chicago Fed Nat’l Activity Index Confirms Below-Avg US Growth | 24/7 Wall St
● US Mfg PMI rebounds in Jan, led by rise in new orders | Markit
● US home resales rebounded strongly in Dec from 19mo low | Reuters
● US Leading Index slips in Dec but still signals moderate growth | Bloomberg
● German Ifo: Business sentiment at nearly year low in Jan | MarketWatch
● Oil falls 3% on Mon on swelling oversupply | Reuters

● The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse
By Mohamed El-Erian
Review via The Economist
Mohamed El-Erian, a former IMF economist and executive at the Pimco fund management group, is the latest to sound the alarm. While central banks “averted tremendous human suffering”, he argues that they have failed to generate what the Western world really needs—“the combination of high, durable and inclusive growth together with genuine financial stability”.
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US economic growth continued to decelerate in December, according to this morning’s update of the Chicago Fed National Activity Index. The benchmark’s three-month average (CFNAI-MA3) ticked down to -0.24—the third consecutive month of negative (below-trend) growth and the lowest reading since last March.
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