Fed Watch – 10/25/2024

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello, I’m Brian Beaulieu, ITR Economics. Welcome to the October 25, 2024 edition of FedWatch.

Last week I mentioned that I wasn’t convinced at all that the Fed was going to be lowering interest rates in November. Still of that same mindset, still think there’s going to be some more rate decline on the other side of November. Just don’t be disappointed if it doesn’t happen.

This is neutral news, but I pleased me from a macroeconomic perspective. The money supply, M2 measure the money supply, deflated per inflation. The raw data rose again in September. That’s the fourth consecutive month of rise. That’s really good news. That’s statistically significant in terms of it being a viable trend reversal. This not only is for the general economy, but this is a good leading indicator long-term for the stock market. The stock market can get rather volatile because of the election, but this is a sign that once the waters calm down, we’re going to be moving in a good direction.

Another data point that came out was existing home sales. That data was weak, which is conducive for an interest rate decline maybe December, if not November, but it chucked that up into, okay, that’s something that the Federal Reserve could worry about. Single-family housing permits in September, not existing home sold, but permitting, was another good sign for interest rate decline toward the end of this year. The seasonal decline is within the norm but it’s steeper than last year. The 3/12 is at 0.7 and the trend is ill defined but when we projected it out for the next quarter it looks like it’s going to be slipping below the zero line.

Now the annual data is still good it’s up 12% year-over-year but that’s going to be getting downward towards zero at least over the fourth quarter of this calendar year if not also the first quarter of next year. So you put that one in the column also of probably pushing the Fed towards the more decline.

But that’s balanced off by new homes sold. So permits are a little bit more forward looking right but the new home sold data if that’s what the key in on that’s not conducive to seeing more interest rate decline. The 3/12 improved to plus 6.0% It was down to minus 2.2% just two months ago, so it’s picked up quickly. 12/12 is still in phase C at 4.1%, but the data trend has turned around over the last two months and is back to rising. And that’s good news. The September data was very strong at plus 5.4%. It’s normal to see August to September decline in these home sales. So the fact that it was up, not down, is encouraging. But keep in mind last year did the same thing, and that didn’t turn out so well toward the end of the year. So it’s nothing to get overly excited about, but it is a green shoot, really, amongst all the data.

Then the final data point that I looked at for this week’s FedWatch was consumer expectations. It’s not something that I would normally look at. It doesn’t help us gauge where retail sales are going. But it is sometimes interesting to look at the trend. And the trend right now is positive. The number itself, the index itself, is good. It’s not great, but it is good. And the trend is one of consumer expectations have been rising. That’s interesting, given all the political rhetoric that’s been going on for the last six months or so, particularly the last three months. We don’t have much time left between now and the election day. And with the rising consumer expectations, I think maybe some of the pessimism about the economy has been waning, as inflation has been waning. And that could be interesting come November 5th.

All in all, no change in our outlook, mixed views on the data. While some of it was not conducive to interest rate decline, keep in mind that there is some good news there in that it means that the economy is not going into recession. It means that we’re not about to slide downward. We’re still in ill defined territory in many series. You look at some manufacturing, or you look at industrial equipment manufacturing for instance, that’s in full fledged recession. But then you look at overall machinery and it’s down just 0.9 percent and some parts are obviously doing well.

So the Fed doesn’t have an easy job trying to call how much more of an interest rate decline needs to happen. The marketplace isn’t indicating that they’re in any hurry to lower interest rates but we think there’s going to be enough questionable data out there over the next one quarter maybe two quarters that we’ll get some more decline then you’re going to want to lock in.

Thanks for watching this edition at FedWatch. I’ll see you next week.