With the ongoing federal government shutdown, the economic data flow remains both lighter and more second-tier in nature, and the sparse data has generally led to both lower market volumes and volatility. A Philadelphia Fed-region services industry report was decidedly weak, but was offset by a somewhat improved Existing Home Sales report that posted the biggest gain since February. In some ways, the rates market marked time this past week until the eagerly-awaited Consumer Price Index (CPI) report was released just before this Weekly Update goes to press. This CPI report was a special release, as it was needed to ensure that the Social Security Administration could meet its deadline for calculating cost-of-living adjustments. The report will likely be dissected for accuracy, and, unless well-above expectations, is not expected to dissuade the Fed from a likely rate cut at the upcoming week’s FOMC meeting. The upcoming week offers a plethora of diverse data, although many of the reports are likely to be delayed.

We are now experiencing a “higher for longer” phase in the interest-rate cycle, accompanied by an inversion in the short-to medium terms followed by a steepening (see following chart). The Fed is still in a restrictive posture, but market expectations indicate a near-term easing, however, uncertainty surrounding the potential of future heightened growth leading to elevated inflation is causing steepening at the longer-end of the curve…

Kristina Hooper discusses her outlook for the economy and markets for the remainder of 2023 and beyond. From recent challenges in the banking industry to inflation to earnings, 2023 has already faced a variety of uncertainties…