3/24 - Weekly Economic Highlights

3/24 - Weekly Economic Highlights

Market participants were highly focused on central bank activity around the world this week. The Bank of England hiked the benchmark rate another 25 basis points on the heels of the European Central Bank’s 50-basis point rate hike. Most significantly here in the U.S., at the March 22nd meeting, the Federal Open Market Committee voted unanimously to raise the target federal funds rate by 0.25% to a range of 4.75 – 5.00%. Fed Chair Powell reiterated the committee’s focus on bringing down inflation to their 2% target, which remains most persistent for non-housing services prices. However, the committee softened language about "ongoing increases" in rates in the prior statement to "some additional policy firming may be appropriate", with a focus on “may” and “some”.  The statement also emphasized that the U.S. banking system is “sound and resilient” and acknowledged the tightening in financial conditions. Powell indicated that the extent of these effects is uncertain but speculated that tighter credit conditions could be equivalent to a rate hike or more. The Summary of Economic Projections was little changed, with the consensus target federal funds rate rising to 5.1% by the end of 2023 (implying one more quarter point hike), falling to 4.3% in 2024 (up from 4.1% previously), and declining to 3.1% by the end of 2025. No rate cuts were in the Fed’s base case for this year, contrary to the market consensus. Although projections imply policymakers are winding down interest rate hikes, the statement clearly reflected optionality for the Fed to remain data dependent. Rates plummeted across the curve as the market priced in tighter financial conditions, slower economic growth, and future rate cuts. The Chandler team believes the Fed is likely near a pause in their rate hiking cycle.

In other economic news, housing data improved along with a dip in mortgage rates. Existing home sales jumped 14.5% in February to 4.58 million units, and new home sales rose 1.1% to 640,000 in February. The average Freddie Mac 30-year mortgage rate dipped to 6.39% this week. Supply remains constrained, and prices remain elevated. Additionally, the Chicago Fed National Activity Index fell to -0.19 in February, bringing the 3-month moving average to -0.13, and pointing toward slower economic growth ahead.

Rates were extremely volatile this week, and the curve steepened with the 2-year US Treasury down 13 basis points to 3.71%, the 5-year down 14 basis points to 3.36%, and the 10-year down 8 basis points to 3.35% as of this morning. In this volatile environment, we remain disciplined with our strategies, remaining up in quality and focusing on our clients’ investment objectives of safety, liquidity, and return.

Next Week:

S&P CoreLogic Case Shiller 20-City Home Price Index, Conference Board Consumer Confidence, Pending Home Sales, GDP Annualized QoQ, Personal Consumption Expenditures Index, University of Michigan Consumer Sentiment


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© 2023 Chandler Asset Management, Inc. An Independent Registered Investment Adviser. Data source: Bloomberg and Federal Reserve. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates. The Chicago Fed National Activity Index is a monthly index designed to gauge overall economic activity and related inflationary pressure. The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories. A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.