The Fed stands pat – The Daily Tearsheet

Vital Statistics:

Stocks are higher this morning after good numbers from Meta and Microsoft, along with a slew of new trade deals. Bonds and MBS are down small.

As expected the Fed maintained interest rates at current levels. “Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.”

There were two dissenters in the decision – Michelle Bowman and Chris Waller, who wanted to cut rates by 25 basis points. In the press conference, Powell said “The economy is not performing as though restrictive policy were holding it back inappropriately….The economy is in good shape, but it’s an unusual situation in that you have risks to both sides of the mandate,” referring to the Fed’s dual goal of keeping both prices and unemployment low.

That bolded sentence is important since it implies that the Fed thinks r-star might be higher than current conventional wisdom suggests. The Fed Funds futures are taking it that way – they went from seeing a 60% chance of a rate cut in September to seeing a 40% chance now. A month ago, the futures saw a 95% chance of a September cut. The December futures now only see one cut this year.

The Fed’s body language seems to be saying that it won’t cut rates unless the economy is weakening markedly. If unemployment starts pushing 5%, they will cut; otherwise, no dice.

Personal incomes rose 0.3% in June, and personal consumption expenditures rose 0.3% as well. The personal income number was higher than expectations, while spending was lower.

The PCE Price Index increased from 0.1% to 0.3%, while the core rate was unchanged at 0.3%. On an annual basis, the PCE Price Index rose 2.6%, while the core rate rose 2.8%.

Pending Home Sales fell 0.8% last month according to NAR. On a YOY basis, pending home sales fell 2.8%. “The data shows a continuation of small declines in contract signings despite inventory in the market increasing. Pending sales in the Northeast increased incrementally even though home price growth in the region has been the strongest in the country,” said NAR Chief Economist Lawrence Yun.

Home prices rose 2.3% YOY in May, according to the Case-Shiller Home Price Index. New York was the leader, rising 7.4% while Tampa was the worst falling 2.4%. “Monthly trends also signaled broad-based fatigue. All three headline indices rose just 0.4% on a nonseasonally adjusted basis, the slowest monthly gain since January. After seasonal adjustment, each declined 0.3%, marking the third consecutive month of seasonally adjusted declines for the National
Composite.

Only four cities – Cleveland, Minneapolis, Charlotte, and Tampa – showed month-over-month acceleration, pointing to waning momentum breadth even as most cities still registered nominal gains. Seasonal momentum is proving weaker than usual, and the slowdown is now more than just a story of higher mortgage rates,” Godec concluded. “It reflects a market recalibrating around tighter financial conditions, subdued transaction volumes, and increasingly local dynamics. With affordability still stretched and inventory constrained, national home prices are holding steady, but barely.”

Job cuts ticked up in July, according to outplacement firm Challenger, Gray and Christmas. “We are seeing the Federal budget cuts implemented by DOGE impact non-profits and healthcare in addition to the government. AI was cited for over 10,000 cuts last month, and tariff concerns have impacted nearly 6,000 jobs this year,” said Andrew Challenger, Senior Vice President and labor expert for Challenger, Gray & Christmas.