Morning Macro 18 September
The Fed delivered its first rate cut since December, trimming 25 bps and pencilling in two more this year. Powell framed the move as insurance against “worsening employment conditions,” but stressed inflation risks remain. The meeting was messy: one FOMC member still projects a hike, while new governor Stephen Miran dissented for a deeper 50 bps cut. “There’s no risk-free path now,” Powell admitted.
The dot plot seemed doveish at first (Figure 1). Rates seen at 3.6% end-2025 (down from 3.9% in June), 3.4% in 2026, and 3.1% in 2027, with the long-run unchanged at 3%. Growth nudged higher (GDP 1.6% in 2025, 1.8% in 2026), inflation remains sticky (3% in 2025, easing to 2.6% in 2026), and unemployment steady at 4.5% before dipping.
Markets were disappointed as Powell reverted to a slightly more hawkish tone than in Jackson Hole. A fleeting Treasury rally fizzled, with 10-year yields up 6 bps to 4.09%, rejecting the 4% level. The EURUSD reversed from its break out (Figure 2). This pushing gold down to $3,639/oz and silver is now off 1.7% to $41.48 from its pre-FOMC peak. Gold has outperformed Silver in recent sessions seeing the Gold/Silver ratio tick up further to 87.75, but still remaining fairly neutral. Equities are mixed: S&P e-mini +0.3% since yesterday’s open, but Asia didn’t fair so well – CSI 300 is down 1.05% in the same period, and the Hang Seng is off 1.35%.
US housing starts tumbled 8.5% compared to the month prior in August to a 1.31m seasonally adjusted annualised rate – the weakest since May – as swelling inventories forced builders to slam the brakes. Single-family starts dropped 7% to an 890k pace, while multifamily fell nearly 12%. Permits sank to a five-year low, signalling further pain (Figure 3). Yet there’s relief on financing: 30-year mortgage rates slid to 6.39%, the lowest in almost a year, spurring refis to their strongest since 2022 and lifting purchase applications.
China will send the container ship Istanbul Bridge on an 18-day voyage from Ningbo-Zhoushan, the world’s largest port, to Felixstowe on Sept. 20 – escorted by icebreakers along Russia’s Northern Sea Route, in hopes of building a regular container service linking Asia and Europe via the Arctic. If realised, the route would shave more than a week off the Suez journey.
Data Today:
- BoE Rate decision
- Philly Fed Mfg
- Jobless Claims
- China FDI
