Allow us, during a slow week of economic releases, to do a little self-promotion. We will be hosting a Capital Markets Forum on October 15 in a livestream format. If you’re curious where the economy and interest rates might be headed, and what to do about it, spend a couple hours in the comfort of your home or work office as several of our CenterState Capital Markets professionals explore these questions and provide you with actionable ideas to defend your balance sheet and earnings in these unprecedented times. To register for the event follow the link here. Also, in this week's podcast, we are joined by Diego Zuluaga, associate director at Cato Institute’s Center for Monetary and Financial Alternatives, where he covers financial technology and consumer credit. We discuss the impact of financial regulation on community banks, the intentions versus consequences of these regulations, and what community banks need to do to stay ahead of the regulation curve in the coming years. The itunes link can be found here and the Spotify link here.
Fed Chair Powell spoke via livestream to the National Association of Business Economics group yesterday and while he lauded the economic recovery to date warned that “too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses.” Essentially he was saying the government needs to continue with stimulus efforts lest the gains made during the summer would be diminished. Powell said, “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.” As if on cue, President Trump later in the day announced stimulus negotiations would be halted until after the election. Then he walked that back in a later tweet with a deal to offer $1,200 checks, another limited round of PPP loans, and additional bailout funds for the airlines. Time is of the essence as Congress is in recess until October 19. Also, when they return, the Senate will begin hearings on the President’s Supreme Court nomination so that will take a lot of the oxygen in that body, so getting anything prior to the November 3 election remains an open question.
Meanwhile, job openings declined in August for the first time in four months, another sign that the pace of hiring is moderating as the pandemic drags on. The number of available positions slipped to 6.49 million from an upwardly revised 6.7 million in July, according to the Job Openings and Labor Turnover Survey, or JOLTS, released yesterday. Consensus expectations called for a decrease to 6.5 million. Competition among those looking for work remains elevated. 13.6 million Americans were jobless in August, leaving more than two unemployed workers vying for every job opening.
Bloomberg’s Updated Economic Forecast Sees No Rate Hike Until at least 2025
Bloomberg was out yesterday with its updated economic forecast for the U.S. and here are some of the highlights of the projections:
- Bloomberg estimates real GDP rebounded by 28.0% in 3Q after a 31.4% contraction in 2Q. A projected slowdown to 2.5% in 4Q will leave growth in negative territory for the year (-3.8%). They project growth in 2021 at 3.5%.
- Unemployment should drop below 8% this year and fall under 6% by the end of 2021 after peaking at 13% in this year’s 2Q. A massive exodus from the labor force is masking shadow unemployment.
- Pockets of strong inflationary pressure in select pandemic-impacted categories mask broader deceleration in services prices. Though substantial fiscal aid early in the pandemic supported spending and pricing power, that impulse is ebbing. Expect high unemployment and economic disruption to result in ongoing weakness in inflation.
- The Federal Reserve faces a long road to its 2% average inflation target. The new average inflation targeting regime will likely not trigger a policy rate hike until at least 2025.
- A Democratic sweep in November would turn fiscal policy from headwind to tailwind. The expansive $3.5 trillion Heroes Act House Democrats proposed in May illustrates the sort of big-ticket package that could arrive in 2021. Tax increases would be along for the ride, but the tailwind to growth from income transfers and spending could be substantial.
- A divided Congress or one in opposition to the president would likely leave less scope for near-term stimulus and also limit adjustments to long-term tax and spending priorities.
Agency Indications — FNMA / FHLMC Callable Rates
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