Highlights:
The central bank is unlikely to cut interest rates but may signal a shift in policy. The economy is forecast to add 175,000 jobs in July.
A flurry of economic data is coming out this week as July comes to a close, along with a Federal Reserve meeting that could provide the first hints of an interest rate cut.
The central bank is not expected to actually cut interest rates when it meets on Tuesday and Wednesday, but Fed Chairman Jerome Powell’s press conference after the meeting could signal a rate cut in September, as currently overwhelmingly expected by markets.
The Fed will likely have been encouraged by a strong report last week from the Personal Consumption Price Expenditures Index, a measure closely watched by Chairman Powell. The index showed that inflation slowed to 2.5% from 2.6% annually, still below the Fed’s 2% target but reinforcing the central bank’s ample room to signal a shift in policy.
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And then there’s the election. A variety of consumer surveys show Americans are worried about the outcome and are being cautious about how they spend their money. Polls since President Joe Biden dropped out of the race have shown a virtually neck-and-neck race between former President Donald Trump and the Democratic front-runner, Vice President Kamala Harris.
The Fed’s role will be more precarious because central banks value their independence from politics: Whatever policy it pursues, it will likely be the target of criticism from both parties.
“On the political front, a Republican landslide victory in November is the most likely outcome, though that possibility has diminished somewhat since Biden ceded the Democratic nomination to Kamala Harris,” said Mark Bitner, chief economist at Piedmont Crescent Capital. “In any case, we expect large stimulus packages such as the Stop Inflation Act and the Infrastructure Act to continue into 2025. The ‘Trump tax cuts’ are likely to be extended.”
“The political environment remains unusually volatile, and a better outlook will likely emerge after the Democratic National Convention and perhaps the first Trump-Harris debate scheduled for September,” Vitner added.
Van Hesser, chief strategist at KBRA, said the economy has performed better in the first half of 2024 than many had expected, but in many ways it’s a tale of two economies.
“The richest 20% account for 39% of consumer spending,” Hesser noted, and high-income earners have experienced most of the increase in wealth during the pandemic, driven by rising home prices and increased holdings of financial assets like stocks.
“The bottom 5 percent are suffering,” he added, which is showing up in rising credit card and mortgage delinquencies. Even with lower inflation and lower interest rates on the way, “normalcy is not going to be as good as it was in the low inflation period before the pandemic,” he said.
The one thing that remains constant is that there are plenty of jobs available for those looking for work. This week brings important new data on that front, specifically Friday’s report from the Labor Department on job creation numbers for July. The consensus estimate is for an increase of about 175,000 jobs, down from June’s 206,000 but still a healthy gain.
That comes ahead of a report on June job openings on Tuesday, which is expected to show a further decline from 8.1 million in May. On Wednesday is a monthly survey of employers by private payroll company ADP, which is expected to report that companies added 149,000 jobs in July after posting a similar increase in June.
Tuesday’s S&P CoreLogic home price report is set to bring some updates on the housing market, with price growth expected to continue at a moderate pace in May, but things may be slowing since then.
A report on pending home sales for June is due out on Wednesday, and a slight recovery is expected after mortgage rates eased slightly in June. Interest rates remain just under 7%, a figure that has been a barrier to entry for many would-be buyers.
But most of the attention this week will be on the Fed and interest rates as the economy slows in parts, and economists are broadly embracing a “soft landing” scenario of moderate growth, subdued inflation and a strong but not overheated job market.
