A busy week of central bank decisions awaits in the days ahead, including the Federal Reserve’s expected announcement of a rate cut on Wed., Sep. 18. Central banks in Brazil, England, Norway and South Africa are also set to hold policy meetings this week. “We’re entering a cutting phase,” says John Bilton, global head of multi-asset strategy at JP Morgan Asset Management.
The US 10-year Treasury yield closed last week at 3.66%, near the lowest level since June 2023. The recent slide in the benchmark rate comes amid the consensus view that the Federal Reserve will cut interest rates on Wednesday (Sep. 18). Fed funds futures are estimating a coin toss between a 1/4-point vs. a 1/2-point reduction in the target rate.

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● Punishing Putin: Inside the Global Economic War to Bring Down Russia
Stephanie Baker
Interview with author via Marketplace.org
Since the invasion of Ukraine, Russia has been cut off from much of the global economy, with over 20,000 sanctions and other restrictions in place, according to Stephanie Baker, an investigative reporter at Bloomberg News. Companies like McDonald’s and Starbucks have pulled out. A coalition of countries have agreed to a price cap for Russian oil in the hopes of reducing the country’s energy revenue. Never before has an economy the size of Russia’s been targeted by so many sanctions, but are those sanctions working? Baker, author of the new book “Punishing Putin: Inside the Global Economic War to Bring Down Russia,” says it depends on your definition of success.

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Today’s revised estimate of US economic activity for the upcoming third-quarter GDP report continues to point to a slower-but-still solid growth rate, based on the median nowcast for several estimates compiled by CapitalSpectator.com.

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US jobless claims edged higher last week but remain at a middling level compared with the range over the past two years. This leading indicator continues to reflect a relatively upbeat outlook for the labor market. “After some noise earlier in the summer, initial jobless claims have settled into a tight range over the last several weeks,” says Nancy Vanden Houten, lead US economist at Oxford Economics. On a longer-term basis, claims layoffs remain near historically low levels.

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The premium for the US 10-year Treasury yield continued to fall in August relative to the “fair value” estimate based on a model developed by CapitalSpectator.com. The market rate remains moderately above the model’s estimate, but as expected in previous months (see the analysis from March, for instance) the unusually high premium is finally starting to normalize.

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US consumer price inflation at the headline level eased to a 2.5% year-over-year pace in August, the slowest in 3-1/2 years. Core CPI, however, remained sticky at 3.2%, unchanged from the previous month. “This isn’t the CPI report the market wanted to see. With core inflation coming in higher than expected, the Fed’s path to a 50 basis point cut has become more complicated,” says Seema Shah, chief global strategist at Principal Asset Management. Sarah House, senior economist at Wells Fargo, advises: “Inflation continues to decelerate on tend, but we’re seeing it take longer for some of the impact of the pandemic to fully unwind.”

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Market sentiment has recently shifted to prioritize defensive equity sectors. The attitude adjustment has lifted utilities shares, which are now outperforming the rest of the field as the top-performer, based on a set of sector ETFs through Tuesday’s close (Sep. 10).

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US household income rebounded in 2023, posting the first annual increase since the pandemic, according to new data published by the Census Bureau. Inflation-adjusted median household income rose 4% to $80,610 in 2023 vs. $77,540 in the 2022. Despite the statistical improvement, “For many households, they still don’t feel it,” says Beth Ann Bovino, chief economist at US Bank, in a reference to the lingering effects of inflation that spiked in 2022 but has been sliding ever since. While income rose in 2023, so did the poverty rate, which increased for a second year after pandemic aid provided by the government expired. The share of Americans living in poverty (defined by the Census Bureau) rose to 12.9% last year, up from 12.4 percent in 2022.

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Tomorrow’s update on US consumer inflation for August isn’t expected to derail expectations that the Federal Reserve will cut interest rates next week, but the disinflation trend of late looks set to stall. The estimate is based on CapitalSpectator.com’s ensemble model for the year-over-year change in core CPI.

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The threat of a US government shutdown on Sep. 30 is in focus after House Republicans unveiled a spending plan that’s expected to be a non-starter with Democrats. Even if the GOP bill passes the House, it will likely fail in the Democratic-led Senate. The odds of that the House will approve the legislation, however, are looking shaky.
Consumer inflation expectations are “largely stable” in August, reports the New York Federal Reserve. The median one-year ahead inflation outlook is unchanged at 3.0%, according to the latest survey by the regional Fed bank.

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