Weekly Economic & Financial Commentary: How Much Will the Fed Tighten Next Week?

Summary

United States: GDP Head Fake Obscures Otherwise Intact Fundamentals

• In a jampacked week of economic data, Thursday’s negative GDP growth print took center stage. The U.S. economy contracted at a 1.4% annualized rate in Q1-2022. The weak headline figure raises concern at first glance, but the details of the report suggest underlying demand remained intact.
• Next week: ISM Surveys (Mon & Wed), Trade Balance (Wed), Nonfarm Payrolls (Fri)

International: Bank of Japan Doubles Down on Easy Monetary Policy

• The Bank of Japan held its monetary policy stance steady at this week’s announcement but, in a significant development, reinforced its pledge to cap any rise in Japanese bond yields. The central bank said it was prepared to buy government bonds in unlimited quantities to prevent a rise in yields. In other central bank activity, Sweden’s central bank raised its policy rate by 25 bps and signaled multiple further rate hikes in the quarters ahead.
• Next week: China PMIs (Sat.), Brazil Selic Rate (Wed.), Bank of England Policy Rate (Thu.)

Interest Rate Watch: How Much Will the Fed Tighten Next Week?

• Despite the 1.4% annualized rate of contraction in Q1 real GDP, we look for the Federal Open Market Committee to raise its target range for the federal funds rate by 50 bps at next week’s meeting. A 50 bps rate hike is completely priced into markets.
• We also look for the Committee to announce the commencement of balance sheet reduction, which would also act as a form of monetary tightening.

Topic of the Week: The Rise of Single-Family Rental Homes

• Housing affordability has been an increasing concern for potential homebuyers as scorching home price appreciation and rapidly rising mortgage rates have already pushed many buyers onto the sidelines. While homes are becoming increasingly difficult to afford for traditional homebuyers, a growing share of investor buyers have encroached on the market by purchasing and renting out single-family homes.

Full report here.