An already slow week for economic data, due to the holiday closure on Monday, was inhibited even further as Friday marked the 17th day of the Federal Government shutdown.
September inflation data has been delayed as the Consumer Price Index (CPI)—originally slated for release this week—has been postponed until October 24th. The Bureau of Labor Statistics is closed due to the government shutdown. Consensus estimates call for an uptick in headline CPI to 3.1% on an annual basis, while core levels are expected to remain unchanged at 3.1% from last September.
On Tuesday, Fed Chair Jerome Powell signaled the Federal Reserve may consider scaling back the on-going balance sheet assets reduction. The Fed stipulates a threshold for a minimum level of reserve balance liquidity necessary to cushion against market disruptions; Chair Powell remarked that currently Reserve Balances are “abundant”, however reserves may be nearing the level of “merely ample”.
Although the Housing Starts and Price Index reports are delayed, recent data indicates new home prices have been falling amid high inventory levels. For the past summer season, the median new home sales price fell below the median existing home sales price for the first time on record. Mortgage applications, as measured by the MBA Market Composite Index, declined for the third consecutive week, falling 1.8% in the week ending October 10. Despite this decline, the Freddie Mac 30-year fixed-rate mortgage was reported at 6.27% as of Thursday, hovering near its lowest level since October 2024.
Volatility picked up across capital markets as tariff tensions with China re-escalated, and the fallout from the Tricolor and First Brands bankruptcies raised credit concerns at the regional banking level. US Treasury yields fell across the curve with the 2-year Treasury falling to 3.45%, the 5-year 3.58%, and the 10-year 3.99% as of writing. The move marked the first time the 10-year Treasury has fallen below 4% since October 2024. The Fed Funds Futures market is implying a 25 basis-point rate cut at the upcoming October meeting of the Federal Open Market Committee (FOMC). The Chandler team supports the view that Monetary Policy will primarily focus on supporting the labor market. We maintain our view of a steepening yield curve, a 25 basis-point cut in October, with another 25 basis-point cut not off the table in December.
Next week: Scheduled releases…..Monday: LEI will not report, Wednesday: CFNAI will not report, Thursday: Initial and Continuing Claims, Existing Home Sales, Friday: CPI, S&P Global Manufacturing, New Home Sales, U of M Sentiment.
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