Ready to Cut With the Economy Still in a Good Place

As we wrote in our FOMC Briefing, the case for a funds rate cut is clear, if not overwhelming, and we expect the FOMC to cut the fund’s rate 25 basis points at this week’s FOMC meeting. 

Last week the incoming U.S. economic data were again fairly upbeat. Real GDP growth in Q2 came in at  2.1%, above expectations, with real consumer spending growth rebounding to a strong 4.3% pace after a  weak first quarter. The other major categories of final private domestic demand, business fixed investment, and residential investment, each declined slightly in Q2. In addition, net exports and inventories together took  1½ pp off real GDP growth. There was some good news concerning the outlook for BFI in the third quarter, however, with core capital goods orders posting a strong gain in June. Still, although fears of a  sharper slowdown in activity have not been realized, real GDP growth appears likely to moderate in the second half from its 2½% average pace over the first two quarters of the year. While BEA’s NIPA data through Q2  published last week were solid on the real side, they were soft concerning prices. Core PCE prices advanced at only a 1.8% pace in Q2, a disappointment after some recent monthly data have come in firmer.  It looks like the 12-month core PCE inflation in June, to be released tomorrow morning, will remain at 1.6%. 

There were no public remarks from policymakers last week because of the blackout period ahead of this week’s FOMC meeting. 

Recent Data 

Release Period Actual Consensus Revision to  Previous ReleasePreviously  Released Figure
FHFA House Price Index MoM May 0.1% 0.4% — 0.4%
Existing Home Sales MoM Jun -1.7% -0.4% 2.9% 2.5%
New Home Sales MoM Jun 7.0% 5.1% -8.2% -7.8%
Core Capital Goods Orders MoM Jun P 1.9% 0.2% 0.3% 0.5%
Core Capital Goods Shipments MoM Jun P 0.6% -0.2% 0.5% 0.6%
Advance Goods Trade Balance Jun -$74.2b -$72.5b -$75.0b -$74.5b
Wholesale Inventories MoM Jun P 0.2% 0.5% — 0.4%
GDP Annualized QoQ 2Q A 2.1% 1.8% — 3.1%
Real Personal Consumption QoQ 2Q A 4.3% 4.0% 1.1% 0.9%
Core PCE QoQ 2Q A 1.8% 2.0% 1.1% 1.2%

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