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Briefing.com Summary:
*The market is in a wait-and-see mode in front of the FOMC decision (2:00 p.m. ET) and Fed Chair Powell's press conference (2:30 p.m. ET).
*The market wants Fed Chair Powell to provide tacit assurances that today is not a one-and-done rate cut.
*NVIDIA has slipped on a report that China has ordered its companies to stop buying NVIDIA chips.
There is a lot of pomp and circumstance surrounding President Trump's state visit to the UK, and understandably so, but the only circumstance the market truly cares about today is the visit between Fed officials and what that will produce.
The market is certain that the FOMC meeting will produce a rate cut of at least 25 basis points in the target range for the fed funds rate to 4.00-4.25%. It is less certain as to whether the visit will produce a consensus view that at least two more rate cuts are likely this year and that three more rate cuts are likely to follow in 2026, as is currently envisioned by the fed funds futures market.
Market participants will quickly turn to the Summary of Economic Projections (SEP) to get its market-moving answer. The SEP will be released at 2:00 p.m. ET along with the policy directive, which is apt to denote some dissenting views.
Newly appointed Fed Governor Miran is expected to dissent in favor of a larger rate cut (assuming the FOMC only goes 25 basis points today). Some Fed watchers think Fed Governors Waller and Bowman could do the same; meanwhile, there is some chatter that Kansas City Fed President Schmid could dissent with a preference for no rate cut at this meeting given the elevated inflation readings.
It is all on the table, and Fed Chair Powell gets to clean it all up afterwards at his press conference, which begins at 2:30 p.m. ET. Per usual, what he says will be important, but so, too, will be how he says it.
The market wants some tacit assurances that this is not a one-and-done rate cut, and it will be listening for those assurances in the Fed Chair's discussion of the dual mandate and which side of that mandate (maximum employment and price stability) the Fed feels it is at more risk of not meeting.
Spoiler alert: the market wants to hear more concerns about labor market weakness than it does about sticky inflation and tariffs. Failing that, and a projected pathway for two more rate cuts this year and at least three cuts next year, there will be room for disappointment in the price action.
Some have suggested, however, that there could be a sell-the-news response even if the Fed—and Fed Chair Powell—deliver as hoped since so much of the pent-up hope has been released into the price action already.
The August Housing Starts and Building Permits Report didn't help the hawks at the Fed. It was weak.
Total housing starts declined 8.5% month-over-month in August to a seasonally adjusted annual rate of 1.307 million (Briefing.com consensus: 1.375 million) from a revised 1.429 million (from 1.428 million) in July. Building permits declined 3.7% month-over-month to a seasonally adjusted annual rate of 1.312 million (Briefing.com consensus: 1.370 million) from an unrevised 1.362 million in July.
The key takeaway from the report is the weakness in single-unit starts (-7.0% month-over-month) and single-unit permits (-2.2%), which is a reflection of affordability constraints for builders and prospective homeowners alike. Strikingly, single-unit starts in the South—the nation's largest homebuilding region—plunged 17.0% in August.
On a better note, the MBA's Mortgage Applications Index showed a 29.7% week-over-week jump in mortgage applications, demonstrating the salutary effect of lower mortgage rates. The bulk of the gain, though, was driven by refinancing applications (+58%). Purchase applications were up, but by a modest 3%.
Separately, NVIDIA (NVDA) is down 1.0% on reports that China has ordered its companies to stop buying NVIDIA chips. That has been a pressure point for the equity futures market, which, for the most part, has operated in a wait-and-see mode in front of the FOMC decision.
Currently, the S&P 500 futures are flat and are trading in line with fair value, the Nasdaq 100 futures are flat and are trading in line with fair value, and the Dow Jones Industrial Average futures are up 62 points and are trading 0.1% above fair value.
