The Fed Signals Next Steps: September 20 – 24

Solid economic growth and building inflation has the Fed preparing for a change. Here are the five things we learned from U.S. economic data released during the week ending September 24.


The Federal Reserve signals that they are about to make a move. The policy statement released after the past week’s meeting of the Federal Open Market Committee (FOMC) noted that both the economy and labor market “have continued to strengthen,” but also that the rise in COVID infections had slowed the recovery. The Committee voted unanimously to keep the fed funds target rate at near zero percent and to continue purchasing at least $80 billion in Treasury securities and $40 billion in agency mortgage-backed securities each month. But a change may be in the offing. The statement noted that a “moderation in the pace of asset purchase” could happen “soon” should the recovery continue “as expected.”  

Released concurrently were economic projections from the meeting’s participants. They see the U.S. economy growing 5.9 percent for all of 2021 (down from their previous median forecast of +7.0 percent) and 3.8 percent next year (up a half-point from their prior projection). The median inflation forecast has prices rising 4.2 percent for this year but then moderating next year with a 2.2 percent jump. Finally, the median projection has the first bump in the fed funds target rate in 2022, with a single 25-basis point increase sometime next year.

Forward-looking indicators suggest robust economic growth for the remainder of this year and into 2022. The Conference Board’s Leading Economic Index (LEI) rose by 1.1 points to a reading of 117.1 (2016=100). The measure has surged by 6.4 percent over the past six months. Eight of ten LEI components made positive contributions, led by jobless claims, new manufacturing orders, and building permits. The coincident index added 2/10ths of a point to a reading of 105.9 (+2.8 percent over the past six months), with all four components making positive contributions. The lagging index inched up by a tenth of a point to 106.3 (off 4/10ths of a point over the past six months), with three of seven components making positive contributions. The Conference Board expects the U.S. economy will grow 6.0 percent (year-to-year) for the remainder of 2020 and at a “still-robust 4.0 percent” next year.

Existing sales slipped in August. The National Association of Realtors reports that existing home sales declined 2.0 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.88 million units. All four Census regions experienced small(ish) sales declines in September (ranging from -0.8 percent to -3.0 percent). Nonetheless, sales remained ahead of their pre-pandemic levels (e.g., 2019 sales were at 5.34 million). The number of homes on the market remained sparse, with inventories shrinking 1.5 percent to 1.29 million (or a 2.6 month supply). As a result, the median sales price of $356,700 was up 14.9 percent from a year earlier.

New home sales, meanwhile, edged up in August. Sales of new single-family homes grew 1.5 percent to a seasonally adjusted annualized rate of 740,000. However, even with the gain, the Census Bureau measure was off 24.3 percent from a year earlier. Sales grew during the month in three of four Census regions, with the exception being the Midwest (all four regions experienced year-to-year sales declines). More new homes were on the market as inventories increased 3.3 percent to 378,000 (up 32.2 percent from August 2020 and the equivalent to a 6.1 month supply).

Housing starts picked up in August. Housing starts rose 3.9 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.615 million homes. The Census Bureau data series was up 17.4 percent from a year earlier. Single-home starts dropped 2.8 percent in August, while those of multi-family homes jumped 21.6 percent. Permitting activity suggests housing construction will remain strong. Permits rose 6.0 percent to an annualized 1.728 million (+13.5 percent versus August 2020), with gains for single-family and multi-family permits of +0.6 percent and 19.7 percent, respectively. On the flipside, completions slowed 9.5 percent during the month to an annualized 1.330 million (+9.4 percent versus August 2020).

Other U.S. economic data released over the past week:

  • Jobless Claims (Week ending September 18, 2021, First-Time Claims, seasonally adjusted): 351,000, +16,000 vs. the previous week, -528,000 vs. the same week a year earlier). 4-week moving average: 335,750 (-61.4% vs. the same week a year earlier).
  • Chicago Fed National Activity Index (August 2021, Index (0.00 = U.S. Economy Growing at Its Historical Average): +0.29 (vs. July 2021: +0.75; vs. August 2020: +1.21). Three-Month Moving Average: +0.43 (vs. July 2021: +0.36; August 2020: +3.29).
  • Housing Market Index (September 2021, Index (>50= More Home Builders View Housing Market as “Good” Compared to Seeing It as “Bad,” seasonally adjusted): 76 (vs. August 2021: 75; September 2020: 83).

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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