Summary
United States: Housing Data and FOMC Outcome Show Economic Recovery Still Intact
- The FOMC left monetary policy essentially untouched, but hinted at a forthcoming taper of bond purchases. Housing data for the month of August came in mixed, but generally showed still-strong activity. Existing home sales fell during the month, as rapid home price appreciation continues to take some air out of buyer demand, while new home sales rose modestly. Meanwhile, housing starts strengthened, although all the gain was in multifamily construction. The Leading Economic Index (LEI) advanced in August, which shows the economic recovery is still very much intact despite the Delta variant wave and pervasive supply side constraints.
- Next week: Durable Goods Orders (Mon), Personal Income & Spending (Fri), ISM Manufacturing (Fri)
International: European Monetary Policy Roundup
- Several G10 central banks made monetary policy announcements this week. Norway’s central bank became the first G10 central bank to raise interest rates, with a policy rate increase of 25 bps and signals of more to come. The Bank of England (BoE) held policy steady, but repeated that a modest tightening in policy would still likely be needed at some point. We expect the BoE to begin its tightening cycle with hikes in May and November 2022. The Swedish and Swiss central banks also held policy steady, with no change likely from either in the foreseeable future.
- Next week: China PMIs (Thu), Japan Tankan survey (Fri), Eurozone CPI (Fri)
Interest Rate Watch: Tapering “May Soon Be Warranted”
- The Federal Open Market Committee (FOMC) voted unanimously to keep the target range for the fed funds rate unchanged at 0.00% to 0.25%. The Committee also decided to keep its monthly pace of asset purchases unchanged at $80 billion of Treasury securities and $40 billion of mortgage-backed securities, but said that tapering “may soon be warranted.”
Topic of the Week: What Is All the Fuss About Evergrande?
- Evergrande, one of China’s largest real estate developers, injected volatility in global financial markets this week due to concerns that the company could default on its debts. Given its sheer size and the importance of the real estate sector to China’s economy, an Evergrande default could weigh on China’s economy and possibly spill over into the prospects for the global economy.
