Month-In-Review: March 2024

Back-to-back months of higher-than-expected price pressures kept the Fed on hold for the fifth consecutive meeting in March. A lack of disinflation, however, did not deter officials from maintaining an optimistic outlook for three rate cuts later this year. Although, amid ongoing solid activity, a resilient consumer and mounting upside risks to prices, already officials are tempering forecasts, "recalibrating" expectations, and warning the risks of moving too soon far outweigh the risks of patiently waiting on the sidelines.???

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Market Activity and Commodities

·?????? Equities – Stocks ended higher in March, marking the fifth consecutive month of gains. Beginning at 5,096.27, the S&P 500 gained 3.1% in March, closing at a record high of 5,254.35. Additionally, the Nasdaq increased 1.8% in March, closing at 16,379.46. The Dow, meanwhile, gained 2.1%, rising from 38,996.39 to a record high of 39,807.37 in March. For the quarter, the S&P 500 climbed 10.2%, marking its best start to the year in five years. Meanwhile, the Nasdaq rose more than 9.1% over the same period, and the Dow gained 5.6%.

·?????? Treasuries – Treasury yields were mixed in March after ending higher in February. The 2-year Treasury yield closed out March at 4.62%, matching the closing yield in February. The 10-year Treasury yield, meanwhile, fell 5bps from 4.25% to 4.20% in March.

·?????? Commodities??????

o?? (Mar 26) – Cocoa prices topped $10,000 per metric ton for the first time ever. A lack of supply due to severe weather and crop disease, specifically in Ghana and the Ivory Coast (which account for 70% of global production), has sent cocoa prices higher in recent months. The recent rise, no doubt, is likely to affect chocolate prices with reports already suggesting some manufacturers are reducing sizes or promoting other alternatives to mitigate cost increases.

o?? (Mar 28) – Oil prices closed out the month of March higher, marking the third consecutive monthly climb, as reports indicated OPEC+ production cuts are likely to continue. Oil prices rose 6.3% in March to $83.17 a barrel. For the quarter, oil prices rose nearly 14%.

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National Growth and Outlook

• NFIB Small Business Optimism (Mar 12) – The NFIB Small Business Optimism Index unexpectedly declined from 89.9 to a reading of 89.4 in February, a nine-month low. According to the median forecast, the small business optimism index was expected to rise to a reading of 90.5 in the second month of the year.

·?????? Leading Index (Mar 21) – The Leading Index unexpectedly rose 0.1% in February, marking the first monthly gain in two years. According to the median forecast, the index was expected to decline 0.1%. Over the past 12 months, however, the Leading Index fell 6.3%, the 20th consecutive month of decline.

·?????? Chicago Fed National Activity Index (Mar 25) – The Chicago Fed National Activity Index rose from -0.54 to a reading of +0.05 in February, a three-month high. The Chicago Fed Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In February, 46 of the 85 monthly individual indicators made positive contributions, while 39 made negative contributions.

·?????? GDP (Mar 28) – GDP was unexpectedly revised higher from a 3.2% gain to a 3.4% increase on an annualized basis in the final Q4 report. According to the median forecast, activity October to December was expected to be unrevised at a 3.2% rise. In the details of the report, personal consumption was revised higher from a 3.0% rise to a 3.3% gain in the final Q4 report. Goods consumption, on the other hand, was revised lower from a 3.2% rise to a 3.0% gain, due to a downward revision in nondurables consumption from a 3.3% increase to a 2.9% gain. Durables consumption, on the other hand, was unrevised at a 3.2% rise in the final Q4 report. Services consumption was revised higher from a 2.8% rise to a 3.4% increase in the final Q4 report, the largest gain since Q3 2021. Gross private investment, a gauge of business spending, was revised down from a 0.9% rise to a 0.7% increase, a three-quarter low. Fixed investment was revised up one percentage point to a 3.5% gain in the final Q4 report, a two-quarter high. Nonresidential investment, including office buildings and factories, was revised up from a 2.4% gain to a 3.7% increase, due to upward revisions in structures investment from a ?7.5% gain to a 10.9% increase, and intellectual property investment from a 3.3% rise to a 4.3% increase, as well as equipment investment from a 1.7% drop to a lesser 1.1% decline in the final Q4 print. Residential investment was revised down from a 2.9% gain to a 2.8% rise, still the second consecutive quarterly increase following nine consecutive quarters of decline. On the trade side, exports were revised down from a 6.4% increase to a 5.1% gain, and imports were revised lower from a 2.7% rise to a 2.2% increase. Finally, government consumption was revised up from a 4.2% gain to a 4.6% increase. Federal spending was revised up one-tenth of a percentage point to a 2.4% gain, national defense spending was revised up a tenth of a percentage point to a 0.5% increase, and state and local spending was revised up from a 5.4% gain to a 6.0% rise in the final Q4 report, the largest quarterly increase since Q2 2019.

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Employment

• ADP Private-Sector Employment Report (Mar 6) – ADP reported that private-sector employment rose by 140k, falling short of the 150k gain expected, albeit up from the 111k rise in January. This morning’s report, meanwhile, reinforces reduced?expectations for the all-important jobs report on Friday.
• JOLTS? (Mar 7) – Job openings edged lower to 8.86M in January from 8.89M in December. According to the median forecast, there were 8.85M job openings expected in the first month of the year.
• Jobless Claims (Mar 7) – Initial jobless claims were unchanged at 217k for the second consecutive week. The four-week average declined slightly from 213k to 212k. Continuing claims, or the total number of Americans claiming ongoing unemployment, ticked higher from 1.898M to 1.906M in the week ending February 24. (Mar 14) – Initial jobless claims fell unexpectedly from 210k to 209k in the week ending March 9, a three-week low. The four-week average dipped from 209k to 208k. Continuing claims, or the total number of Americans claiming ongoing unemployment, rose from 1.794M to 1.811M in the week ending March 2. (Mar 21) – Initial jobless claims unexpectedly declined from 212k to 210k in the week ending March 16, a two-week low. According to the median forecast, claims were expected to rise to 213k. The four-week average, however, inched up from 209k to 211k. Continuing claims, or the total number of Americans claiming ongoing unemployment, rose slightly from 1.803M to 1.807M in the week ending March 9, a six-week high. (Mar 28) – Initial jobless claims unexpectedly ticked lower from 212k to 210k in the week ending March 23, marking a three-week low. The four-week average also moved lower from 212k to 211k. However, continuing claims, or the total number of Americans claiming ongoing unemployment, rose from 1.795M to 1.819M in the week ending March 16, the highest since mid-January.
• Nonfarm Payrolls (Mar 8) – Nonfarm payrolls rose by 275k in February, surpassing the 200k gain expected according to Bloomberg. The three-month average, meanwhile, rose from 234k to 265k. January payrolls were revised down from a 353k gain to a 229k increase. With additional revisions to previous months, the?overall change in nonfarm payrolls (February data + net revisions) was 108k. Private payrolls rose by 223k in February following a 177k gain in January. Goods-producing payrolls increased by 19k, due to a 23k gain in construction payrolls and a 4k drop in manufacturing payrolls in February. Private service producing payrolls rose by 204k in February, up from a 153k gain in January. Education and health payrolls led the gain in February, rising 85k following a 107k increase the month prior. Leisure and hospitality payrolls rose 58k, and trade and transport payrolls climbed 40k in February, due to a 19k gain in retail trade payrolls. Professional and business services payrolls rose 9k, despite a 15k fall in temporary help payrolls, information payrolls gained 2k, and financial payrolls increased by 1k in February. Finally, government payrolls rose by 52k in February following a similar gain in January.
• Participation Rate (Mar 8) – The labor force rose by 150k following a 175k decline in January. Therefore, labor force? participation rate remained at 62.5% in February for the third consecutive month. According to the median forecast, the participation rate was expected to rise to 62.6%.
• Unemployment Rate (Mar 8) – Household employment fell by 184k in February following a 31k decline the month prior. With a 150k rise in the labor force, the unemployment rate unexpectedly rose two-tenths of a percentage point to 3.9% in February, the highest since January 2022. According to the median forecast, the unemployment rate was expected to remain at 3.7% for the fourth consecutive month. February’s 3.9% unemployment rate, however, marks the 25th month below 4%, marking the longest stretch since the 1960s.
• Average Hourly Earnings (Mar 8) – Average hourly earnings rose 0.1% in February, falling short of the 0.2% gain expected and following a 0.5% increase in January. Year-over-year, wages rose 4.3%, down from a 4.4% gain in January.
• Average Weekly Hours (Mar 8) – The average workweek ticked up from 34.2 to 34.3 hours in February.

Consumer Activity and Confidence

• Vehicle Sales (Mar 1) – Total vehicle sales rose from 15.00m to a 15.81m unit pace in February, more than the expected increase to 15.40m and a two-month high. Over the past 12 months, vehicle sales jumped 6.3%, the largest annual gain since December.
• Consumer Credit (Mar 7) – Consumer credit increased by $19.5 billion in January, surpassing the $10.0 billion gain expected. Total credit outstanding, meanwhile, rose to a record $5.0 trillion. Revolving credit, including credit cards, rose $11.1 billion, and non-revolving credit, including car loans and tuition, climbed $8.4 billion at the start of the year.
• Retail Sales (Mar 14) – Retail sales rose 0.6% in February, falling short of the 0.8% gain expected and following a 1.1% decline the month prior (revised lower from the initial 0.8% decrease expected). Year-over-year, retail sales rose 1.5% in February, the most in two months. Car sales rose 1.6% in February following a 2.1% decrease the month prior, and gasoline stations sales increased 0.9%. Excluding autos, retail sales rose 0.3% in February and climbed 1.5% over the past 12 months. Excluding autos and gasoline, retail sales climbed 0.3% and increased 2.2% year-over-year. Finally, excluding food, autos, building materials and gasoline station sales, control group sales were flat (0.0%) in February and rose 2.2% over the past 12 months. In the details of the report, building materials sales rose 2.2%, miscellaneous sales gained 0.6%, and electronics sales increased 1.5%. Additionally, general merchandise sales rose 0.4%, despite a 0.2% decline in department store sales, food and beverage sales climbed 0.1%, and eating and drinking sales increased 0.4%. On the other hand, sporting goods sales were flat, while health and personal care sales fell 0.3%, non-store retailer sales declined 0.1%, clothing sales decreased 0.5%, and furniture sales dropped 1.1% in the second month of the year.
• University of Michigan Consumer Sentiment (Mar 1) – The University of Michigan Consumer Sentiment Index was revised lower from 79.6 to 76.9 in the final February report, the lowest reading in two months. In the details of the report, a gauge of current conditions was revised down from 81.5 to 79.4, a two-month low, and a gauge of future expectations was revised lower from 78.4 to 75.2 in the final February print, also the lowest reading since December. (Mar 15) – The University of Michigan Consumer Sentiment Index fell from 76.9 to 76.5 in the preliminary March report, a three-month low. In the details of the report, a gauge of current conditions remained at 79.4 for the second consecutive month, and a gauge of future expectations declined from 75.2 to 74.6 in the preliminary March print, the lowest reading since December.
• Consumer Confidence (Mar 26) – Consumer confidence, according to the Conference Board, unexpectedly slipped from 104.8 (revised down from 106.7) to 104.7 in March, a four-month low. According to the median forecast, confidence was expected to rise to 107.0. In the details of the report, a gauge of current conditions increased from 147.6 to 151.0, while a gauge of future expectations fell 2.5 points to 73.8 in March, the lowest reading since October.
• Consumer Spending and Income (Mar 29) – Personal income rose 0.3% in February, slightly lower than the 0.4% gain expected and following a 1.0% jump in January. Consumer spending, meanwhile, increased 0.8% in the second month of the year, surpassing the expected 0.5% gain and following a 0.2% rise in January. Year-over-year, personal income rose 4.6% in February, the weakest annual gain since October, while consumer spending increased 4.9%, the largest annual gain in two months. Adjusting for inflation, real income fell 0.1% in February, the first monthly decline since September, and real consumer spending rose 0.4%, a two-month high. Over the past 12 months, real disposable personal income gained 2.1%, the weakest increase since October, and real spending rose 2.4%, the strongest annual increase since December.

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Inflation

• CPI (Mar 12) – The Consumer Price Index (CPI) rose 0.4% in February, as expected and following a 0.3% gain in January. Year-over-year, consumer prices rose 3.2%, up from the 3.1% gain in January and slightly more than the 3.1% annual increase expected according to the median forecast. Food prices were flat (0.0%), while energy prices jumped 2.3% in February, the first monthly gain following four consecutive months of decline. Excluding food and energy costs, the core CPI rose 0.4% in February, topping the 0.3% gain expected and following a similar increase the month prior. Year-over-year, the core CPI increased 3.8%, down from the 3.9% gain in January, albeit slightly more than the 3.7% increase expected. In the details of the report, airline fares jumped 3.6% in the second month of 2024, the largest monthly gain since May 2022, transportation prices rose 1.4%, due to a 0.1% drop in new vehicle prices and a 0.5% gain in used cars and trucks prices, and commodities prices increased 0.4% in February. Education and communication prices rose 0.4% in February, as did shelter prices, with a 0.4% gain in the OER. Also, recreation prices climbed 0.2% in February following a 0.5% gain at the? start of the year. On the other hand, medical care prices were flat (0.0%), while other goods and services costs fell 0.3% in February. Another iteration of inflation, the supercore, defined as core services excluding housing, rose 0.5% in February and increased 4.3% over the past 12 months, down slightly from the 4.4% annual gain in January.
• PPI (Mar 14) – The Producer Price Index (PPI) rose 0.6% in February, double the rise expected and following a 0.3% gain the month prior. Year-over-year, producer prices rose?1.6% in February, up from the 1.0% gain in January and the largest annual increase in five months. Food prices rose 1.0% following a 0.3% decline the month prior, while energy prices jumped 4.4% in February, the largest monthly gain in six months. Excluding food and energy costs, the core PPI rose 0.3% following a 0.5% gain in January. According to the median forecast, core producer prices were expected to rise 0.2%. Year-over-year, the core PPI increased 2.0% in February, matching the 2.0% annual gain in January and more than the 1.9% gain expected. Additionally, services costs rose 0.3%, due to a 0.9% rise in transportation and warehousing costs and despite a 0.3% decline in trade costs.
• PCE (Mar 29) – The Personal Consumption Expenditures (PCE) Index rose 0.3% in February, and?2.5% year-over-year. While in line with expectations, this was an increase from the 2.4% annual gain in January. Excluding food and energy, meanwhile the core PCE rose 0.3% in February, as expected and following a 0.5% gain at the start of the year. Over the past 12 months, core inflation increased 2.8%, a minimal retreat from a 2.9% annual gain in January.

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Manufacturing and Production Activity

• ISM Manufacturing (Mar 1) – The ISM Manufacturing Index unexpectedly fell from 49.1 to 47.8 in February, a two-month low and marking the 16th?consecutive month in contraction (a reading below 50). According to the median forecast, the index was expected to rise to a reading of 49.5. In the details of the report, backlog of orders rose 1.6 points to a reading of 46.3, and customer inventories gained from 43.7 to 45.8 in February. On the other hand, production fell two points to 48.4, new orders decreased from 52.5 to 49.2, inventories fell from 46.2 to 45.3, and prices paid declined from 52.9 to 52.5 in February, averaging 48.2 in the past six months. Additionally, employment decreased from 47.1 to 45.9 in February, a two-month low.
• ISM Services (Mar 5) – The ISM Services Index fell from 53.4 to a reading of 52.6 in February, surpassing the expected decline to 53.0. While still in expansionary territory (a reading above 50), February’s print of 52.6 marks a two-month low. In the details of the report, new orders increased from 55.0 to 56.1 in February, a six-month high. On the other hand, employment fell by 2.5 points to 48.5, averaging 49.3 over the past six months, supplier deliveries declined from 52.4 to 48.9, and prices paid decreased from 64.0 to 58.6 in February, a two-month low. Also, backlog of orders dropped 1.1 points to a reading of 50.3, and inventories declined two points to 47.1 in the second month of the year.
• Empire Manufacturing (Mar 15) – The Empire Manufacturing Index unexpectedly plummeted from -2.4 to -20.9 to March, the lowest reading since January 2024.?Following last month’s surge to the upside, the weakness at the end of the first quarter was widespread with declines in orders, shipments and employment. In the details of the report, prices paid fell from 33.0 to 28.7, while prices received increased from 17.0 to 17.8 in March, a six-month high. Additionally, new orders dropped from -6.3 to -17.2, the number of employees decreased from -0.2 to -7.1, averaging -4.0 over the past 6 months, and inventories fell from -9.6 to -12.9. Also, the six-month general business conditions index ticked up slightly from 21.5 to 21.6 in March, a five-month high.
• Industrial Production (Mar 15) – Industrial production rose 0.1% in February, surpassing expectations for no change (0.0%) and following a 0.5% decline the month prior.
• Capacity Utilization (Mar 15) – Capacity utilization was unchanged at 78.3% in February, falling short of the expected rise to 78.5%.
• Philly Fed Business Outlook Survey (Mar 21) – The Philly Fed Index fell two points to a reading of 3.2 in March, the lowest reading since the start of the year. At 3.2, however, this is much higher than the forecasted reading of -2.5 expected. In the details of the report, prices paid dropped from 16.6 to 3.7, averaging 15.1 over the past six months, while prices received moved down 1.6 points to a reading of 4.6. On the other hand, new orders climbed from -5.2 to a reading of +5.4, a seven-month high, and the number of employees inched higher from a reading of -10.3 to -9.6 in March, albeit still marking the fifth consecutive month in negative territory.
• Dallas Fed Index (Mar 25) – The Dallas Fed Manufacturing Activity Index unexpectedly fell from a reading of -11.3 to -14.4 in March, a two-month low and the 23rd consecutive negative print. According to the median forecast, the index was expected to rise to -10.0. In the details of the report, capacity utilization decreased from -1.0 to -5.7, production fell from +1.0 to -4.1, and new orders declined from to +5.2 to -11.8, averaging a reading of -9.6 over the past six months. Also, employment slipped from a reading of +5.9 to +1.5, a two-month low. Additionally, the six-month general business outlook index declined from +6.2 to +1.3 in March, the lowest reading in two months.
• Richmond Fed Manufacturing (Mar 26) – The Richmond Fed Manufacturing Index dropped from -5 to a reading of -11 in March, a two-month low and now marking the fifth consecutive month of a negative print. In the details of the report, the volume of new orders fell from -5 to a reading of -17, capacity utilization dropped from -4 to -21, and the number of employees slipped seven points to a reading of 0 at the end of Q1. On the other hand, shipments ticked up one point to a reading of -14, and wages also gained one point to a reading of +23 in March, the highest in two months.
• Durable Goods (Mar 26) – Durable goods orders rose 1.4% in February, surpassing the 1.0% gain expected and the first monthly increase since November. Year-over-year, headline orders increased 2.6% in February, marking the largest annual gain in two months. Transportation orders rose 3.3% following an 18.3% plunge the month prior, due to a 24.6% gain in civilian aircraft orders and a 1.8% rise in vehicle and parts orders. Excluding transportation, durable goods orders rose 0.5% in February, and increased 1.3% over the past 12 months, up from the 1.0% annual increase in January. In other details, machinery orders rose 1.9%, fabricated metals orders increased 0.8%, and primary metals orders climbed 1.4% in the second month of 2024. On the other hand, computers and electronics orders decreased 1.4%, and electrical equipment orders fell 1.5% in February, the first monthly decline since October.
• Capital Goods (Mar 26) – Capital goods orders rose 1.9% in February following two consecutive months of decline. Nondefense capital goods orders, meanwhile, climbed 4.4% following a 21.2% drop in January. Capital goods orders excluding aircraft and defense – a proxy for business investment – rose 0.7% in February, the largest monthly gain since November. Year-over-year, business investment increased 0.6%, a two-month high.
• Kansas City Fed Manufacturing (Mar 28) – The Kansas City Fed Index fell three points to a reading of -7 in March, a two-month low and the seventh consecutive month of decline. According to the median forecast, the index was expected to remain at a reading of -4 for the second consecutive month. In the details of the report, employment fell two points to +6, shipments plunged from +6 to -5, production dropped from +3 to -9, and the volume of new orders fell to a reading of -17 from -2. Also, the six-month outlook dropped one point to +1, a four-month low. On the other hand, prices paid rose from two points to +17.
• Chicago PMI (Mar 28) – The Chicago PMI unexpectedly fell from 44.0 to a reading of 41.4 in March, a four-month low. According to the median forecast, the index was expected to rise to 46.0 at the end of the first quarter. In the details of the report, prices paid rose, signaling expansion, while new orders, employment, inventories, supplier deliveries and order backlogs fell, signaling contraction.

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Housing Market Activity

• Construction Spending (Mar 1) – Construction spending fell 0.2% in January, the first monthly decline since December 2022. According to the median forecast, construction spending was expected to rise 0.2%. Over the past 12 months, construction spending rose 11.7%, down from the 14.4% increase in December.
• NAHB Housing Market Index (Mar 18) – The NAHB Housing Market Index unexpectedly rose three points to a reading of 51 in March, an eight-month high. According to the median forecast, the index was expected to remain at a reading of 48 for the second consecutive month.?
• Building Permits (Mar 19) – Building permits rose 1.9% in February, pulling the annual pace up from 1.49M to 1.52M, a six-month high. Building permits were expected to increase 0.5% in February, according to Bloomberg. Single family permits rose 1.0% and multi-family permits gained 4.1%. Year-over-year, building permits rose 2.4% in February, the weakest pace in four months.
• Housing Starts (Mar 19) – Housing starts jumped 10.7% in February, pulling the annual pace up from 1.37M to 1.52M, a three-month high. Starts were expected to rise 8.2%, according to the median forecast on Bloomberg. Single family starts rose 11.6%, and multi-family starts climbed 8.3%. Year-over-year, housing starts rose 5.9% in February, up from the 2.5% annual increase at the start of the year.? ?
• Existing Home Sales (Mar 21) – Existing home sales unexpectedly jumped 9.5% in February from 4.00M to a 4.38M unit pace, the highest in a year. According to the median forecast, existing home sales were expected to drop 1.3% in the second month of the year. Year-over-year, however, existing home sales fell 3.3% in February, the weakest annual pace in two months and marking the 31st consecutive month of decline. Due to a rise in sales, the months’ supply of existing homes ticked lower from 3.0 months to 2.9 months, averaging 3.0 months over the past three months. Additionally, from a price standpoint, the median cost of a previously owned home climbed 5.7% in February from a year earlier to $385k, the highest since November.?
• New Home Sales (Mar 25) – New home sales unexpectedly slipped 0.3% from 664k to 662k in February, a two-month low. According to the median forecast, new home sales were expected to rise 2.3% in February. Over the past 12 months, however, new sales rose 5.9%, the strongest annual pace in four months. Due to a decline in new sales, the months’ supply of new homes ticked up from 8.3 to 8.4 months. From a price standpoint, the median cost of a newly constructed home fell 3.5% from the month prior to $401k, the lowest since June 2021. Year-over-year, however, new home prices dropped 7.6% in February following a 4.0% decline in January.??? ????
• S&P/CS 20 City & National Index (Mar 26) – The S&P Case-Shiller 20 City Home Price Index rose 0.14% in January, falling short of the 0.20% gain expected and following a 0.26% increase in December. The National Home Price Index, meanwhile, rose 0.36% in January following a 0.19% increase at the end of last year. Over the past 12 months, the 20-city index rose 6.63% and the national index increased 6.07%, both marking the largest annual gains since December 2022.
• Pending Home Sales (Mar 28) – Pending home sales rose 1.6% in February, slightly more than the 1.5% gain expected and following a 4.7% decrease the month prior. Over the past 12 months, however, pending home sales dropped 2.2%, marking the 27th consecutive month of decline.

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Trade and Currency

• U.S. Dollar (Mar 29) – The U.S. dollar increased for the third consecutive month in March as traders continued to push out expectations for the first Fed rate cut following uneven inflation data with the PCE showing an acceleration in headline price pressures and minimal improvement in the core. The dollar rose 0.3% to $104.49.
• Trade Balance (Mar 7) – The U.S. trade deficit widened 5.1% from $64.2b to $67.4b in January, the largest since April. Imports rose 1.1% to $324.6b and exports increased 0.1% to $257.2b.
• Import & Export Prices (Mar 15) – Import prices rose 0.3% in February, as expected and following a 0.8% gain in January. Meanwhile, export prices also jumped 0.8% in February, double the rise expected and following a 0.9% increase at the start of the year. Over the past 12 months, import prices slipped 0.8% and export prices declined 1.8%, up however from the 1.3% and 2.2% drop, respectively, in January.

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Monetary Policy, Reports, and Commentary

• Atlanta Fed GDPNow Forecast

o?? (Mar 26) – Following an upward revision to Q4 growth in the final report from 3.2% to 3.4%, the forecast for GDP in the first quarter of 2024, according to the Atlanta Fed GDPNow model, is 2.1%, significantly lower than the initial 3.0% forecast. At 2.1%, this would mark a three-quarter low.

• Fed Speak/News (Mar 4) – Atlanta Fed President Raphael Bostic pushed back against market expectations for rate cuts, declaring he expects only one rate cut delayed until the second half of the year, potentially followed by an extended pause. In comments published on the Atlanta Fed’s website, he said, “Given the uncertainty, I think there is some appeal to acting and then seeing how participants in the markets, businesses leaders and families respond to that.” (Mar 6) – In his semi-annual testimony to Congress, Federal Reserve Chairman Jerome Powell reiterated a message of patience, suggesting rate cuts would likely be appropriate at some point this year but the Committee is not ready yet. Powell was clear the Fed needs further evidence of disinflation, or at least further confidence in the inflation data that the underlying trend will continue to retreat to the price target of 2%. In prepared testimony to the House Financial Services Committee, Powell noted, “The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%...If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. But the economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured.” Capitulating to the Fed’s pushback against expectations for a near-term rate cut, investors priced in the first-round reduction in June (as opposed to March) with three to four cuts by year-end, down from an earlier forecast of six cuts. While now better aligned with the Fed’s forecast, even this reduced expectation may still be overly optimistic given the uneven nature and recent acceleration in inflation.? (Mar 6) – Speaking at an event hosted by the Wall Street Journal, Minneapolis Fed President Neel Kashkari reinforced the Committee’s ongoing message of a delayed start and patient approach to eventual rate cuts, noting expectations for just two?rate cuts this year, maybe even one. “It’s hard for me to see the data that have come in that are saying more cuts than I said in December...At a base case where I was in December, or potentially one fewer, but I haven’t decided yet,” Kashkari said. (Mar 6) – San Francisco Fed President Mary Daly commented on the still stubbornly elevated level of inflation, which she said was due?specifically to increased housing costs as a result of a lack of supply. Speaking at a conference in Portland, Daly said,?“Rising housing costs have been a key driver of these misses, boosting inflation and worsening affordability.” (Mar 11) – Marking one year after the failure of Silicon Valley Bank, the potential sensitivity of small to mid-sized financial institutions came back into focus. Concerns, however, are not arising because of maturity mismatches or surprise quarterly losses, but rather commercial real estate exposure. According to CRED iQ, there is roughly $1.2 trillion in commercial loans coming due in the next 21 months, resetting from low LTVs of 40% to 60% or 70%, which will require a significant amount of capital to right-size these loans, with the vast majority of this paper sitting on the balance sheets of institutions with less than $250 billion in assets. According to reports, regulators are increasing their focus and attention to potential issues with new regulations such as "Basel III Endgame," which focuses on the amount of capital banks must have against credit, operational and market risks, as well as other new rules that cover short-term capital liquidity restrictions. However, at this point, the concern of "exposure" remains. According to a research paper on financial stability, the IMF, for example, noted, “The high concentration of CRE exposures represents a serious risk to small and large banks amid economic uncertainty and higher interest rates, potentially declining property values, and asset quality deterioration.” It went on to say, “In the fourth quarter of 2023, a subset of banks remained with exceptionally high CRE concentration for which losses could compromise their safety and soundness... The turmoil also serves as a stark reminder of the impact that rapidly rising interest rates can have by interacting with underlying financial vulnerabilities." When asked about the potential risk of CMBS during a “60 Minutes” interview in February, Federal Reserve Chairman Jerome Powell downplayed concerns, suggesting earlier failures were one-offs and did not reflect the safety and soundness of the broader banking system. However, he said, it was something the Fed was keeping a close eye on.? (Mar 25) – Atlanta Fed President Raphael Bostic noted that he expects just one rate cut this year, citing, “cutting rates too soon could be more disruptive.” Speaking at a moderated discussion hosted by the University of Cincinnati, Bostic said, “I have an outlook for how the economy’s going to perform, if it does that, then I think we can afford to be patient.” (Mar 29) – Federal Reserve Chairman Jerome Powell joined the growing number of Fed officials reiterating a message of patience in the aftermath of the March FOMC rate decision. With Atlanta Fed President Raphael Bostic and Fed Governor Christopher Waller, for example, suggesting a reduced outlook for rate reductions relative to earlier forecasts at the end of 2023, Powell also suggested a potentially more tempered path. "We don’t need to be in a hurry to cut," he said at a San Francisco Fed event. “The fact that the U.S. economy is growing at such a solid pace, the fact that the labor market is still very, very strong, gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates.”

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March 19-20 FOMC Rate Decision

·?????? As expected, the Fed left rates unchanged in a range of 5.25% to 5.50% for the fifth consecutive meeting, and also signaled a potential for fewer rate cuts in the future.?Maintaining an outlook for three rate reductions in 2024, the Committee reduced its forecast for additional cuts in 2025 from four to three. The updated Summary of Economic Projections (SEP) also indicated policy makers expect a slightly higher rate of inflation as well as growth in the near term.?Raising their projections for cost pressures in 2024 from 2.4% to 2.6%, the Committee also expects growth to rise more substantially nearer 2% versus a previous forecast of 1.4%.?The Committee also lowered its projection for the unemployment rate slightly from 4.1% to 4.0%.?The accompanying statement, meanwhile, was virtually identical to the January statement, maintaining a “solid”?assessment of the economy and characterizing job gains as “strong.”?The statement also maintained similar guidance that the Committee would consider incoming data, the evolving outlook and the balance of risks in making adjustments to policy. Furthermore, that no reduction would be appropriate until the Committee has gained more confidence that inflation is moving sustainably to the Fed’s 2% goal. The Fed, additionally, reiterated its intention to continue reducing its balance sheet by as much as $95 billion per month. The decision was unanimous.

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Domestic News and Activity?

• Politics and the Biden Administration

• (Mar 22) – President Biden signed a $1.2 trillion funding package, which will keep the U.S. government running through September 30, narrowly averting yet another partial government shutdown. According to reports, the funding package increases defense appropriations by 3%, while keeping overall domestic spending flat. More recently, such an exorbitant amount of funds in the annual budget has kept the government running for a mere five months. Though some in Congress have pushed for “deep” spending cuts, there appears more broadly a lack of support for significant fiscal restraint growing the longer-term woes of a massive debt and potential inflationary risks.
• (Mar 27) – Supply chains were back in focus after a massive cargo ship collided with the 1.6-mile Francis Scott Key Bridge in Baltimore, leading to the presumed tragic loss of life and the indefinite suspension of shipping traffic through the port. As officials search for answers, the immediate economic fallout is evident. Baltimore is the ninth largest U.S. port by trade volumes and one of the busiest on the U.S. East Coast, handling the nation’s largest volume of automobiles, along with other goods such as sugar, coal, gypsum and lumber. Last year, a record 52.3 million tons traveled through the port with total trade amounting to $80.8 billion. According to reports, every day the Baltimore port is closed could amount to an estimated loss of $217 million, not to mention the 15,330 direct jobs and the 139,180 jobs in related services that are likely to be impacted. Additionally, the rerouting of cargo ships could have inflationary implications at a time when consumers and policy makers alike are looking for a continued, sustainable downward trend in price pressures.

International News and Activity?

·?????? China

o?? (Mar 5) – The?National People's Congress (NPC) in China, a gathering of government delegates to set nation's economic priorities for the year ahead, announced a GDP growth target of "around 5%" along with an unemployment rate of 5.5%, with a target of 12M+ new urban jobs. Not unlike the targets for last year, the Chinese economy continues to grapple with deflationary forces, housing market weakness and demographic imbalances, suggesting such heightened expectations are an optimistic target, to say the least.?There was not the usual press conference with the?premier, however, reports indicate there were references to a focus on promoting childbirth, supporting new housing projects, and capturing "new productive forces" for industrial capacity. More importantly, reports indicate China has insisted it will lift all “foreign investment restrictions in the manufacturing sector and pool together strategic scientific strength and non-governmental innovation resources to make breakthroughs in core technologies in key fields." The lack of a specific?stimulus announcement was noticeable, however, many of the funds from an earlier 2 trillion yuan ($278 billion) stimulus package implemented to “stabilize plummeting stocks” is still being spent and allocated across sectors.

·?????? Japan

o?? (Mar 19) – The Bank of Japan (BOJ) scrapped its yield curve control program and hiked rates from -0.1% to a range of 0.0% and 0.1%, ending the world’s last negative interest rate. Setting the target range in positive territory for the first time in roughly eight years, officials offered no further guidance on additional rate movements. Despite the move, the Japanese currency weakened further and longer-term yields fell.

·?????? The U.K.

o?? (Mar 21) – The Bank of England (BOE) held its key rate steady at 5.25%, a sixteen-year high. The decision, however, was not unanimous with one policy maker voting for a rate cut.

·?????? Switzerland

o?? (Mar 21) – In somewhat of a surprise move, the Swiss National Bank (SNB) cut rates 25bps to 1.50%, its first rate cut in nine years. According to the statement, “The easing of monetary policy has been made possible because the fight against inflation over the past two and a half years has been effective. For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability.”

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-Lindsey Piegza, Ph.D., Chief Economist

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