Economy and Policy
June 16, 2019
President Trump delayed, to December 15, about 60% of the tariff increases (10% on the remaining $300 billion in Chinese goods) that had been slated for September 1. These were mostly items likely to be purchased during the holiday season.
The spread between the 10-year Treasury note yield and the 2-year yield briefly dipped below 0. An inverted yield curve signals a strong likelihood of entering a recession within the next 12 months, but the odds of a recession had already been rising as the yield curve has flattened (moreover, the spread between the 10-year Treasury note yield and the 3-month bill rate has been inverted since May).
Retail sales results for July were stronger than expected, while manufacturing output was weaker than anticipated. Residential construction data showed improvement in single-family building permits (although still down year over year). Core consumer price inflation remained moderate.
Next week, investors will be focused on the FOMC minutes from the July 30-31 policy meeting and Chair Powell’s Jackson Hole speech. Recall that President Trump announced further tariffs on August 1, the day after the FOMC meeting, and recent global data have been weaker, so the minutes are unlikely to provide a read on what the Fed is currently thinking. However, we should see a discussion of the risks, with an indication of which way the Fed was leaning regarding future rate cuts. The theme of this year’s monetary policy symposium in Jackson Hole is “Challenges for Monetary Policy.” Investors will be looking to Chair Powell’s speech for clues about what the Fed will do in the weeks ahead. Following a flat trend from September to June, the Index of Leading Economic Indicators is expected to have risen by about 0.5% in July, reflecting a jump in building permits, a dip in jobless claims, and a higher stock market (all of which are likely to reverse in August).
Treasury Yield Curve – 08/16/2019
As of close of business 08/15/2019