FOMC Meeting and Stimulus Negotiations Headline Week

Jul 27, 2020
Federal Reserve Building

FOMC Meeting and Fate of Stimulus Bill

This week’s FOMC Meeting won’t lead to any changes in monetary policy but the most important piece of information is likely to come from the post-meeting press conference where Fed Chair Powell is likely to be asked about what other measures might be employed from here. Most likely the answer will be the continued use of quantitative easing and perhaps some discussion of Yield Curve Caps. Also in Washington, eyes will be on Majority Leader McConnell to see if he can cobble together a stimulus bill, get it passed, and then to conference committee with House Dems. Meanwhile, second quarter GDP on Thursday will give us a look at the full scope of the lockdown-induced economic calamity.  The full brunt of the lockdown was felt in April with some improvement in May and June but even then activity remains well off pre-pandemic levels. Expectations are for the quarter to post a record-breaking decline of –35.0%, annualized. Personal consumption is expected to also decline –35.0% versus –6.8% in the first quarter. Head-spinning numbers for sure.


Treasuries
Treasury Curve Today Week Change
3 Month 0.10% -0.01%
6 Month 0.13% +0.01%
1 Year 0.13% UNCH
2 Year 0.14% UNCH
3 Year 0.16% UNCH
5 Year 0.27% UNCH
10 Year 0.58% -0.03%
30 Year 1.22% -0.09%
Short-Term Rates
Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.25%
6 Mo LIBOR 0.32%
12 Mo LIBOR 0.46%
Swap Rates
3 Year 0.218%
5 Year 0.299%
10 Year 0.570%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Jul 27 Durable Goods Orders Jun P 7.2% 6.9% 15.7%
Jul 27 Durable Goods Order Ex-Transports Jun P 3.6% 3.6% 3.7%
Jul 28 S&P CoreLogic CS 20-City HPA May 4.10% 4.10% 3.98%
Jul 28 Conf. Board Consumer Confidence Jul 94.5 94.2 98.1
Jul 29 FOMC Rate Decision Jul 29 0.00%-0.25% 0.00%-0.25% 0.00%-0.25%
Jul 30 GDO Annualized QoQ 2Q A -35.0% -35.0% -5.0%
Jul 31 Initial Jobless Claims Jul 25 1.410mm 1.450mm 1.416mm
Jul 31 Personal Spending Jun 5.3% 5.4% 8.2%
Jul 31 Core PCE Deflator YoY Jun 1.0% 1.0% 1.0%

calendar icon Top 5 Events for the Week

July 27—31, 2020

1.  FOMC Meeting — Wednesday
2.  2nd Quarter GDP — Thursday
3.  June Personal Income & Spending — Friday    
4.  July Consumer Confidence — Tuesday
5.  Initial Jobless Claims — Thursday

 

1.  FOMC Meeting — Wednesday

This week’s FOMC Meeting won’t lead to any changes in monetary policy but the most important piece of information is likely to come from the post-meeting press conference where Fed Chair Powell is likely to be asked about what other measures might be employed from here. Most likely the answer will be the continued use of quantitative easing and perhaps some discussion of Yield Curve Caps. This is the action of targeting a rate ceiling (say 1.25% on the 10yr) and buying said security in enough quantity to prevent the yield from breaching that level. The Japanese have successfully done this in their policy regime and it’s the likely next step for the Fed and something they will do long before negative rates.

 

2.  Second Quarter GDP — Thursday

Second quarter GDP will give us a look at the full scope of the economic calamity as the impact of lockdowns were felt for much of the quarter.  The full brunt of the lockdown was felt in April with some improvement in May and June but even then activity remained well off the pre-pandemic levels. Expectations are for the quarter to post a record-breaking decline of –35.0%, annualized. Personal consumption is expected to also decline –35.0% versus –6.8% in the first quarter. These results will be noted but are not likely to move the market as investors have long ago turned the page on the second quarter. Expectations are for the third quarter to provide a partial rebound with an 18.2% annualized print which would be a record positive result, but still less than half the second quarter plunge.

 

3.  June Personal Income and Spending — Friday

Personal income is expected to recover some from the –4.2% drop in May to  -0.6% month-over-month dip in June.  Personal spending, meanwhile, is expected to remain strong with a month-over-month increase of 5.4% versus an 8.2% pop in May.  Meanwhile, core PCE, the Fed’s favorite inflation indicator, is expected to remain stable at 1.0% year-over-year, the lowest since January 2011, and another indication that disinflation remains more a concern than inflation.

 

4.  July Consumer Confidence — Tuesday

With the two-thirds of the economy comprised of consumer consumption, measuring consumer confidence gives us an early tell on their future spending habits. The chart below details the decline in confidence but as you see the low is holding well above the prior recession and the expectation is that the July result will move slightly lower to 94.2 from 98.1 as rising virus cases take a little edge off confidence. Still, given the dramatic upswing in cases in some areas, confidence is expected to hang in there pretty well.

 

Conference Board Consumer Confidence

 

5.  Initial Jobless Claims — Thursday

The weekly change in initial jobless claims continues to be one of the best real-time indicators of how the economy is recovering.  The Bloomberg consensus expects jobless claims for the week ended July 25 to come in  at 1.450 million down slightly from 1.416 million the previous week.  Bloomberg’s preliminary forecast for the July employment report is for a gain of 2.7 million jobs compared to 4.8 million in June and with unemployment dropping to 10.0% versus 11.1%.

 

 


bar graph icon  Yield Universe

 Yield/Duration Relationship 

 

CenterState Disclosure

 


 

Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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