Strange days for economic data
Weekly Bond Commentary
Which of these statements is more surprising: the 30-year fixed-rate mortgage reached its highest level in more than 20 years; industrial production rose 1% in July; or retail sales were stronger than expected?
The fact that all these are true, and that current measures of third quarter GDP expansion are pointing to an uptick in growth, complicates the Federal Reserve’s job. Markets had gotten comfortable with the idea that growth will slow, inflation will trend lower and the Fed will entertain the notion that the federal funds rate will soon fall. Instead, bond yields have risen and stock prices fallen in August.
The combination of summer doldrums, no Federal Open Market Committee meeting in August (the next takes place September 20), and probably a fair amount of fatigue have conspired to unsettle thinking. Perhaps guidance will emerge from the Fed’s annual Jackson Hole, Wyo., economic symposium starting August 24. The harsh reality is we are near the end of summer and the new school year. Until then, markets will try to squeeze in a bit more sun and fun.