Morning Report Fed unemployment forecast

Vital Statistics:

	Last	Change	Percent
S&P Futures	1669.4	-0.7	-0.04%
Eurostoxx Index	2686.9	5.6	0.21%
Oil (WTI)	105.5	0.6	0.55%
LIBOR	0.268	-0.001	-0.19%
US Dollar Index (DXY)	83.05	0.306	0.37%
10 Year Govt Bond Yield	2.55%	-0.03%
Current Coupon Ginnie Mae TBA	103.9	0.8
Current Coupon Fannie Mae TBA	103.4	0.1
RPX Composite Real Estate Index	203	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.52

Markets are flat this morning after yesterday's big rally and good earnings reports from JP Morgan and Wells Fargo were offset by a miss from UPS. Bonds and MBS are up small.

The Producer Price Index (a measure of inflation at the wholesale level) increased .8% in June, but that was primarily driven by high energy prices. The core came in at .2%. Both readings were ahead of expectations. At 10:00, we will get the preliminary University of Michigan Consumer Confidence Survey for July.

The thing that jumped out at me from the Fed Minutes was the downward revision in unemployment expectations. The Fed lowered the 2013 unemployment forecast from 7.4% to 7.25%, they took down 2014 from 6.85% to 6.65% and took down 2015 from 6.25% to 6%. Given that GDP was not revised materially upward leads me to believe that they believe the labor force participation rate will remain low, which could be a drag on the economy. The other thing is that the market has had the expectation that a hike in the Fed Funds rate is going to be a 2015 event. Given that the Fed has given a threshold number for raising the Fed Funds rate of 6.5%, we could be looking at a late 2014 / early 2015 tightening.