As I've discussed quite a bit recently, the recent sell-off in the U.S. Treasury arena seems to underscore the point that the money and bond markets have finally 'come to the Fed' and accepted this higher-for-longer theme.
Outlook
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The recent rise in long-term yields and the health of the banking sector will be top of mind for investors while Powell and the committee consider how high and how long the fed funds rate should be.
Rising bond yields weighed on stocks throughout the week, as economic data pointed toward a potential need for further rate hikes. China's flailing economic recovery and warnings of potential bank downgrades added to the market's woes.
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Although there's been somewhat of a seesaw pattern, the rise in the UST 10-Year yield really began back in early April.
Amazon's Prime Day sales event propelled ecommerce sales up 1.9%, while strong retail sales across the economy, led by sportswear, restaurants, and apparel, rose 0.7% month-over-month and 3.2% year-over-year.
The U.S. budget deficit, which has been a point of discussion among economists and investors, recently received a downgrade in credit rating from Fitch Ratings agency, citing expected fiscal deterioration, a high and growing general government debt burden, and erosion of governance.
As the Federal Reserve evaluates its next move on short-term interest rates, it's essential to consider the recent shift in wage growth and inflation.
The Federal Reserve's aggressive monetary policy tightening is slowly helping to moderate inflation, but it has more work to do to tame price increases in the sticky services components which will likely require further slowing in the labor market. Wage pressures remain strong driven by a tight labor market and consumption is slowing while GDP growth is easing.
The market's recent bounce may be a sign that the recession narrative has been put on hold, at least for now.
The idea that stocks go up more often than not should not be surprising, but the fact that August tends to be a down month in the S&P 500 is a well-known phenomenon.
The economy appears to have missed the Federal Reserve Bank memo telling it to slow down, with today's GDP and durable goods data exceeding expectations while initial unemployment claims point to persistent labor market tightness.