Bracing for Hurricane Milton; More Fed Speak on Deck

Florida residents are bracing for Hurricane Milton, which is expected to be among the most destructive storms to ever hit the Gulf Coast of Florida. According to reports, more than 1M people have been instructed to evacuate the area with early loss estimates topping $200 billion. Among other business closures, Disney announced its theme parks will be closed beginning today with a projected earnings hit of up to $200M.

We extend our heartfelt support to all those affected by the storm.

Yesterday, Fed Governor Adriana Kugler reaffirmed the Fed’s focus on returning inflation to the Fed’s 2% target. Speaking at an event in Frankfurt, Kugler said despite making progress, reinstating price stability at 2% “should remain the focus.” Kruger also said she favors “a balanced approach,” which allows the Fed to manage its attention between both sides of the FOMC’s dual mandate. As such, she supported the Fed’s September decision to cut rates 50bps, but from here, emphasizes a need to remain data dependent.

New York Fed President John Williams, meanwhile, continues to underscore the economy’s solid position for a soft landing. Speaking to the FT, Williams said the U.S. economy is “well positioned” for a soft landing at this point. However, in order to maintain that delicate positioning, from here on out, he supports a slow and controlled pace of rate cuts.

With a further emphasis back towards inflation, investors appear to be “recalibrating” their outlook for rate cuts, reducing expectations for a second-round outsized 50bp cut in November and sending the 10-year back over 4% for the first time since July. 

As we long advocated, the disconnect between market expectations and the likely pathway for Fed policy left ample room for market disappointment. However, the adjustment in investors’ expectations – both in terms of size and timing – has been even more notable than anticipated.

The 10-year is up 3bps at 4.04% as of 9:09 a.m. ET.

The array of Fed speak continues today with Atlanta Fed President Raphael Bostic giving welcome remarks at 8:00 a.m. ET at a Greater Atlanta Home Builders Association monthly meeting, at 9:15 a.m. ET, Dallas Fed President Lorie Logan will speak at an energy conference in Houston, and at 10:30 a.m. ET, Chicago Fed President Austan Goolsbee will give opening remarks at the Chicago Payments Symposium. Later this afternoon, we will hear from Richmond’s Barkin at 12:15 p.m. ET, and at 12:30 p.m. ET, Fed Vice Chair Philip Jefferson will discuss the discount window. Finally, this evening, Boston Fed President Susan Collins will speak at a Worcester event.

On the economic calendar, yesterday, the NFIB Small Business Optimism Index rose slightly from 91.2 to 91.5 in September, less than the expected increase to a reading of 92.0, albeit a two-month high. In the details of the report, the uncertainty index rose 11 points to a reading of 103, a record high as businesses await the outcome of the November election. Also, 34% of firms reported that they had job openings they could not fill, down from 40% the month prior and the smallest share since the beginning of 2021.

Also yesterday, the U.S. trade deficit fell 10.8% from $78.9b to $70.4b in August, the smallest in five months. In the details of the report, the value of imports decreased 0.9% to $342.2b, a two-month low, and exports climbed 2.0% in August to $271.8b, an all-time high.

This morning, MBA mortgage applications fell 5.1% in the week ending October 4 following a 1.3% decline the week prior. The 30-year mortgage rate, however, climbed 22bps to 6.36%, the highest level since August and the largest gain since July 2023.

Later this afternoon, the FOMC meeting minutes from the September 18 Fed meeting will be released, offering welcomed insight as to the no doubt fruitful discussion over 25bps vs. 50bps and the resulting dissent from Fed Governor Michelle Bowman.

Tomorrow, weekly jobless claims along with a key report of the week – September CPI, followed by the PPI report on Friday.

Following a mixed report in July with the core CPI along with the headline and core PPI rising more than expected, all eyes will still be looking towards this week’s reports. The September CPI is expected to rise 0.1% and 2.3% over the past 12 months, potentially declining from the 2.5% annual gain in August.

Meanwhile, the PPI is also expected to rise 0.1% in September and 1.6% year-over-year, potentially marking a decline from the 1.7% annual rise in August.

Excluding food and energy costs, the core CPI is expected to increase 0.2% and 3.2% year-over-year, matching the gain in August. The core PPI, meanwhile, is expected to rise 0.2% in September and 2.7% on an annual basis, potentially rising from the 2.4% pace reported in August.

Also on Friday, the preliminary October consumer confidence index from the University of Michigan.

-Lindsey Piegza, Ph.D., Chief Economist