Will Jerome Powell Break the Cold Spell?


Forecasts pointed to a cold Thanksgiving, but that’s not the only thing cooling off.

Several economic reports this week have shown a quick deterioration of conditions in the U.S. That will raise the stakes for policymakers at the Federal Reserve, especially with Chairman Jerome Powell speaking next Wednesday.

On Monday, NAHB’s home-builder sentiment index unexpectedly cratered to its lowest level in more than two years. It wasn’t a huge shock given the run-up in interest rates but is a reminder that a key part of the U.S. economy remains in contraction.

Other data points on Wednesday were more important:

  • Durable-goods orders for October missed estimates as transportation demand plunged and business investment ground to a near-halt.
  • Initial jobless claims rose more than feared to 224,000, their highest level since the end of June. In September, this report was its best levels since the late 1960s.
  • The revision of consumer sentiment was worse than expected — for the third straight month.
  • Weekly rail traffic slowed to a crawl, growing at its slowest pace since January. This metric has also decelerated sharply since the start of October.

On top of those hard numbers, professional prognosticators also see a cold front headed in. Jan Hatzius at Goldman Sachs said on Monday that economic growth will get cut in half next year thanks to fewer tax breaks and less business investment. (We might have gotten a foretaste of that in Wednesday’s durable-goods orders.) JP Morgan echoed those sentiments two days later.

Still, let’s keep it in perspective and not be too negative. After all, no one’s talking about a recession and the market’s already pulled back a ton. Most importantly, the slowing follows some aggressive interest-rate hikes by the Fed.

That’s the big story because Powell and Vice Chair Richard Clarida both seemed to pivot last week toward a more dovish position. They said they’d be data dependent rather than committed hawks.

Given this week’s less-than-stellar data, that could keep attention focused on Powell’s appearance at the Economic Club of New York midday on Wednesday, November 28.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.