A month ago, Harris still saw herself as the number two in Joe Biden's re-election campaign, and just last week, she officially accepted the Democratic presidential candidate nomination, marking the final countdown to the tumultuous 2024 U.S. presidential election.
Last Friday, Federal Reserve Chairman Jerome Powell sent a clear signal, hinting that the era of high interest rates during the COVID-19 pandemic is coming to an end. This means that from mortgages to car loans and credit card loans, various types of loans might become cheaper in the future, and the stock and bond markets may change accordingly.
Currently, the U.S. is shifting its focus from inflation concerns and political finger-pointing to discussing the future economic direction. Will the economy enter a slow but steady growth phase with a moderate increase in unemployment, or will it fall into a recession? Will economic policies change? Whether it's Trump's populist tax cuts or the continuation and expansion of Bidenomics, adjustments may be needed.
This Week's Economic Data
In formulating new policy directions, Powell likened it to a journey: "It’s time for policy adjustments. The future path is clear, and the timing and pace of rate cuts will depend on the upcoming data, evolving outlook, and risk balance."
This shifts the focus of investors, consumers, and economists to the real economic conditions rather than just relying on the Federal Reserve to solve problems.
A large amount of economic data will be released this week, from home sales and prices to the consumer confidence index, and an important inflation indicator closely watched by Powell and other Fed members.
Although many believe in Powell’s “soft landing” notion, not everyone shares this view.
On Monday, BCA Research stated, "We are skeptical about the possibility of a soft landing in the upcoming easing cycle. The current economic situation reflects the impact of the last tightening cycle, and the new easing cycle may come too late and too weak."
On Tuesday, the S&P CoreLogic Case-Shiller released the June home price report, showing that home prices continue to rise but at a slower pace.
Also on Tuesday, the U.S. Conference Board announced that the consumer confidence index for August rose to 103.3, higher than the revised 101.9 in July. This figure exceeds expectations, as economists had originally expected the index to remain around 100.9. This is the first consumer confidence survey since President Biden unexpectedly withdrew from the race last month, disrupting the 2024 presidential election.
As concerns over a recession gradually fade, public sentiment has generally become more optimistic. Overall consumer confidence in August has increased but remains within a narrow range over the past two years. While consumer assessments of the current labor market remain positive, expectations for the future are more pessimistic, particularly with inflation concerns diminishing.
Additionally, the second estimate of the second-quarter GDP will be released this week, and it is expected to maintain the previous 2.8% annual growth rate, which is unlikely to indicate a recession.
More data on pending home sales will be released on Thursday. With mortgage rates falling from 7% at the end of last year to the current 6%-6.5%, home buying activity has recently fluctuated, and the inventory of homes for sale has increased.
Friday will be an important day to watch the Personal Consumption Expenditures (PCE) index for July. Although this indicator is not as widely known as the Consumer Price Index (CPI), it is a key tool for the Federal Reserve to measure inflation and should show the progress the Fed has made in bringing inflation down to its 2% target.
However, from Powell's remarks at last Friday’s Federal Reserve meeting in Jackson Hole, Wyoming, it is evident that the Fed believes inflation is under sufficient control, shifting the current focus to safeguarding the labor market.
Although Powell stated that "now is the time" to start cutting rates, a rate cut in September is almost certain. He also emphasized, "We do not seek or welcome further deterioration in labor market conditions."
Nomura Securities wrote in a client report last Friday: "Overall, we maintain the expectation of a 25 basis points rate cut in September, November, and December. Powell appears very sensitive to downside risks in the labor market. If the August employment report shows an increase in layoffs, the rate cut could expand to 50 basis points. However, Powell and other dovish officials have ceased aggressive preemptive rate cuts."
If consumer spending remains stable — the July Personal Consumption Expenditure (PCE) report will be released on Friday — and the labor market does not deteriorate further, the economy could enter a relatively stable period.
The political environment is closely linked to economic performance. The economic conditions and voters' perceptions of the economy in the coming months are likely to determine who will become the next president.
