Market hopes rates have peaked as Fed holds target range steady

Nov. 2:

The Federal Open Market Committee made no change to the 5.25% to 5.50% target range for the Fed funds rate at yesterday’s FOMC meeting, as expected.

In his press conference, Federal Reserve Chair Jerome Powell reiterated the fight against inflation has a long way to go, and that the Fed is firmly committed to its 2% long-term inflation target.

At the same time, the tone of his remarks suggested that the economy may begin to move in the right direction. He also indicated the meeting minutes will show the committee does not forecast a recession.

Comparing yesterday’s press release from the FOMC to September’s, there were only a few wording changes. Yesterday, the FOMC said economic activity “expanded at a strong pace in the third quarter,” while the release at the September meeting described a “solid” pace. Yesterday’s release said job gains “moderated since earlier in the year but remain strong,” whereas the September release described job gains as having “slowed in recent months” but remaining strong.

Yesterday’s release also references “tighter financial and credit conditions” rather than simply “tighter credit conditions.” “Tighter financial conditions” refers to long-term rates, which could contribute to a reduction in the need for the Federal Reserve to act on the short end of the curve.

Fed funds futures now see only a 25% chance of another rate hike, with a rate cut priced in around June.

The Bank of England held rates steady at its meeting, and warned it is much too early to consider any rate cuts.

New unemployment claims remain low at 217,000

Weekly initial jobless claims ticked up a bit to 217,000 last week from 212,000 the prior week but remain quite low. The four-week moving average now stands at 210,000.

Q3 nonfarm productivity rose 4.7%

Nonfarm productivity rose 4.7% in the third quarter, according to a preliminary report. That increase is higher than expected. Unit labor costs fell 0.8%.

Index signals contraction in manufacturing

The ISM Manufacturing PMI index dropped to 46.7 in October from 49.0 the prior month, suggesting the economy might be slowing down a bit. Any number below 50 indicates an outlook for contraction in the national manufacturing sector.

Job openings topped 9.5 million in September

Job openings rose from 9.497 million in August to 9.553 million in September, which is the highest number of openings since May.

Multifamily construction spending slowed slightly in September

Construction spending was up 0.4% in September, with private multifamily construction spending down 0.1%.

State of the market

Rates fell sharply yesterday following the FOMC meeting, the ISM Manufacturing report and the U.S. Treasury’s announcement that long-term Treasury auctions will not increase as much as anticipated.

This morning, Treasury yields were down relative to Wednesday morning and the Dow traded up.