Morning Report: Jerome Powell speaks in Jackson Hole

Vital Statistic:

			Last	Change
S&P futures			2865	6.75
Eurostoxx index			383.72	0.32
Oil (WTI)			68.91	1.08
10 Year Government Bond Yield				2.85%
30 Year fixed rate mortgage				4.58%

Stocks are higher this morning on no real news. Bonds and MBS are down.

Another slow news day. Low level talks between China and the US over trade didn't really go anywhere. 

Durable Goods orders fell 1.7% in July on weak aircraft orders, but the core capital goods rate jumped 1.4%, which shows another month of strong business investment, particularly business equipment. Many economists had been skeptical that cutting corporate taxes would increase capital expenditures, but it looks like it has. Theory certainly predicted it would. 

Jerome Powell is speaking in Jackson Hole this morning. There probably won't be anything market moving, but just be aware. The conference will focus on a academic papers for the most part. The agenda is here. One of the papers argues that the Fed should continue to hike rates, even in the absence of current indications of inflation, if the unemployment rate is below the long-term sustainable rate. Since monetary policy acts with a lag, a low unemployment rate can increase inflationary pressures before monetary policy takes effect. 

The Fed faces two major risks of “moving too fast and needlessly shortening the expansion, versus moving too slowly and risking a destabilizing overheating,” said Mr. Powell. “I see the current path of gradually raising interest rates as the [Federal Open Market Committee’s] approach to taking seriously both of these risks. In other words, expect maybe 2 more hikes this year, and maybe one or two more next year.

The Fed funds futures increased their handicapping of a Dec hike slightly, to 68% (Sep is a given). Longer term, the September 2019 futures predictions look like this:

The central tendency seems to be 2 more hikes this year, one more next year, and then the Fed takes a break. Slightly more people think the Fed stops after 2 hikes than those who think the Fed does 4 or more.

St. Louis Fed President James Bullard would vote to maintain the current Fed Funds rate through the end of the year. “If it was just me, I’d stand pat where we are and I’d try to react to data as it comes in,” he said Friday in an interview with CNBC’s Steve Liesman. “I just don’t see much inflation pressure. ... I’m an inflation hawk, but I just don’t see that developing. ... I just don’t think this is a situation where we have to be pre-emptive.” He also sees the economy slowing next year, and in 2020. 

The Senate Banking Committee voted 13-12 along party lines to advance the nomination of Kathy Kraninger to run the CFPB. Remember if Kraninger is rejected, Mick Mulvaney continues to run the agency, which was probably the plan all along.