It was 3 weeks ago that leading economists were calling for a 50 bp emergency non-meeting rate cut after the June employment report triggered a stock market meltdown. Year-end expectations jumped to as much as 1.50% of cuts by year end. This week’s data had two narratives: (1) 2ND quarter GDP was revised up to 3% (Q1 was 1.4%). Businesses ramped up spending on fixed investment (plants and equipment) spurred by government infrastructure spending and AI investments. Durable goods orders were robust and jobless claims leveled off. The soft landing is coming back into view; and (2) today’s benign PCE report keeps the “green light” on for a September rate cut. PCE core increased 0.2% for the month and 2.6% annually. The real core number was 0.16% for the month which translates to a 3-month annualized rate of 1.72% (“Are we there yet?”). Next Friday’s employment report will be closely watched. Recent weekly jobless claims numbers have stabilized. Will a downturn be welcomed as “bad news is good news” or will it trigger another panic? Stay tuned…
By David R. Pascale, Jr., Senior Vice President at George Smith Partners.