By Theresa Sheehan, Econoday Economist
July 18, 2022
Much of the economic data in the July 18 week will focus on the housing market, but what will be more in most people’s minds is the upcoming FOMC meeting on July 26-27.
The coming week is part of the communications blackout period around the FOMC meeting and starts at midnight on July 17 and runs through midnight on Thursday, July 28. Anything Fed policymakers have to say publiclly about their intentions going into the deliberations will already be out there. Fortunately, most of the pivotal economic data regarding inflation have been reported. Unfortunately, the Fed’s preferred measure isn’t among them. The June PCE deflator won’t be reported until Friday, July 29 at 8:30 ET and that report will include annual revisions.
Speculation is rife that the FOMC could hike rates a hefty 100 basis points at the July meeting following the example of the Bank of Canada on July 13. I am skeptical. The Bank of Canada did a 50-point rate move on June 1. Between the two meetings that’s 150 basis points in total. The Federal Reserve did a 75 basis point move on June 15. In the interim, policymakers have reiterated guidance that the next move could be 50 or 75 basis points. Recent comments suggest the majority are leaning toward another 75 basis point move. So that would be 150 basis points in total which should be sufficient to count as moving just as aggressively to fight inflation and maintain central bank credibility as was the intent of our neighbors to the north. However, there will be no public comment from Fed officials in regard to monetary policy in the July 18 week that will sway expectations one way or another.
The week’s housing data include the housing market index for July at 10:00 ET on Monday, then housing starts for June at 8:30 ET on Tuesday, followed by existing home sales at 10:00 ET on Wednesday. The housing market is undergoing an adjustment with rising mortgage rates. Homebuilders are likely slowing down construction and/or shifting projects to smaller units that may be more affordable. Upward price pressures for homes are abating with more supply and fewer qualified buyers, although this won’t bring currently elevated prices down much, if at all. While rates and prices have pushed some potential buyers out of the market, rising rents may still provide some motivation to think about buying instead of renting. The use of adjustable rate mortgages had nearly died out prior to the pandemic-fueled activity in the housing market. Now ARMs are getting more traction as a way to at least initially keep the mortgage payment down to a more affordable level.
The advance estimate of second quarter GDP is now only two weeks away at 8:30 ET on Thursday, July 28. It may be a little harder to forecast this time around since the numbers will include annual revisions. The two Fed district bank GDP Nowcasts are telling two very different stories. After the release of the June retail sales data, the Atlanta Fed’s GDPNow estimate was revised lower to minus 1.50 from minus 1.20 percent last week. The St. Louis Fed’s Real GDP Nowcast was revised higher to 4.11 percent after 3.93 percent last week. The average of the two points to an increase of 1.3 percent. I’m not sure which one deserves more credence at this point. The Atlanta measure has a better correlation with the headline of the advance estimate than the St. Louis forecast does, but both are subject to big misses with the Bureau of Economic Analysis number. My guess is that GDP will narrowly avoid a second quarter in a row of negative growth.