“Fair to Middling” – US economic data continues to muddle along.

Former St. Louis Bank fed president James Bullard attempted to steal the thunder from the Fed’s feel good summer meeting in Jackson Hole with his Thursday missive of accelerating growth and the need for the Fed to continue with rate increases.  We asked Mr. Bullard to point to the 5 most recent economic indicators that are accelerating – He didn’t respond to Halyard’s questions.   

Following last week’s retail sales beat, the only indicators to surprise to the upside were new home sales and jobless claims.  Halyard would describe the economic data as “fair to middling”.

Existing home sales, which are 5x more than new home sales, fell again and are 7.2% lower year to date.  Durable goods and PMI surveys both underwhelmed.

On Friday, the University of Michigan released its survey’s and the headline and details were all weaker.  Interestingly, the survey’s inflation expectations turned up a notch – we are wondering if this is a result of immediate historical bias or evidence of a resurgence in inflation.

The market clearly set up for a hawkish Jackson Hole and were rewarded with just that.  For the week the yield curve closes higher in the front end and virtually unchanged out longer.   The message out of the unnecessary boondoggle is higher rates for longer.   Perhaps the FOMC contingent sipping west coast chardonnay can mention to the US Treasury Secretary that increased borrowing for deficits might actually impact future growth would be warranted.  However, when we look at the current US Treasury Secretary’s dialogue, she would be quick to dismiss any criticism as unwarranted.  Add this to the fact the Fed has continued to blame inflation on the war in Ukraine – really?

Our biggest issue is with fixed income portfolio positioning – Does one stick with “I can buy and hold short term UST Treasury Bills” and let it ride?  Or will the yield curve and interest rate environment look different one year from now?

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