There were 3 reports and a balance sheet this week:
- Industrial Production (INDPRO): +0.48% m/m, +0.24% y/y. Short term: recovery.
- Retail Sales (RSAFS): +0.42% m/m, +1.57% y/y. Short term: recovery.
- Housing Starts (HOUST): +2.14% m/m, -29% y/y. Single Family house construction has been crushed (HOUST1F), down 39% y/y, while Multifamily 5+ (HOUST5F) fell just 13%. “You Will Own Nothing” in progress.
- Fed Balance Sheet (WALCL): -46B w/w. Short term: deflationary.
Both Industrial Production and Retail Sales were reasonably strong for the month, but both series look weak when viewed y/y.
The two market-moving events were Powell’s chat with Bernanke, along with the debt limit walkout, both of which happened on Friday.
Powell’s chat started around 11 am. At 11:13, silver and gold took off, along with the Euro. Was it something Powell said that hinted at a pause? Maybe: “The central [bank] may not need to increase rates as high because credit conditions have tightened”, Powell said – according to seekingalpha. On the other hand, “Markets appear to be pricing in a different rate path than the FOMC has communicated.” It might take more time than expected to lower inflation. This sums to “high for longer.” So it was a mixed bag.
In addition, the House Republicans apparently walked out of Friday’s debt ceiling negotiations meeting. Rep Garret Graves, heading the negotiating team, said “Until people are willing to have reasonable conversations about how you can actually move forward and do the right thing, then we’re not going to sit here and talk to ourselves” (source – Examiner).
I’m not sure what moved markets the most, but by end of week, rates had moved closer to the Fed Funds Rate; the 1-month fell, while the longer-term Treasury yields moved higher. By Friday’s close, the CME Fedwatch Tool projected just a 19% chance of a rate increase at the next meeting. The earliest rate cut projection is in September (32% chance). Prices are suggesting – maybe – a pause in rate hikes, at least at the next meeting. No pivot though.
The NY Fed has an interesting model for predicting recessions. See the model here (Source – NY Fed). In a copy of one of the charts below, I put green circles on each 10y-3m yield inversion that accurately predicted a
by cmartenson 
