Powell and Yellen Travel to Capitol Hill Together
Powell & Yellen To Testify on Capitol Hill
Fed Chair Jerome Powell and Treasury Secretary Janet Yellen will appear twice this week on Capitol Hill to deliver a quarterly update on the CARES Act legislation. The Tuesday session will be before the House Financial Services Committee while Wednesday they will be in front of the Senate Banking Committee. The legislation requires these quarterly appearances but anytime the Fed Chair and Treasury Secretary get together it’s a newsworthy event. While there is not much chance Powell will offer up a different outlook from last week’s Fed meeting, he’s likely to be asked whether he has any concern over the recent increase in yields. That will give him one more chance to reiterate his patient stance. As for consequential economic data, we get the latest personal income and spending numbers for February. Income is expected to be down slightly but that’s the calm before the deluge of stimulus checks hitting this month. Spending is expected to be off slightly from January as well. We think, however, that the latest round of stimulus checks combined with improving economic and health outlooks will spur more spending that has been largely deferred up to this point. Expect second quarter to show a significant boost in consumer spending across many different discretionary categories. Finally, new and existing home sales for February are expected to post solid numbers while we wait to see if higher mortgage rates slow future activity.
|Treasury Curve||Today||Week Change|
|3 Mo LIBOR||0.20%|
|6 Mo LIBOR||0.19%|
|12 Mo LIBOR||0.28%|
|Date||Statistic||For||Briefing Forecast||Market Expects||Prior|
|Mar 22||Existing Home Sales||Feb||6.50mm||6.49mm||6.69mm|
|Mar 22||Existing Home Sales (MoM)||Feb||-2.8%||-3.0%||0.6%|
|Mar 23||New Home Sales||Feb||879k||873k||923k|
|Mar 23||New Home Sales (MoM)||Feb||-4.8%||-5.5%||4.3%|
|Mar 24||Durable Goods Orders||Feb P||0.9%||0.7%||3.4%|
|Mar 24||Durable Goods Ex Transportation||Feb P||0.6%||0.6%||1.3%|
|Mar 26||Personal Income||Feb||-7.0%||-7.2%||10.0%|
|Mar 26||Personal Spending||Feb||-0.8%||-0.8%||2.4%|
|Mar 26||PCE Core Deflator (YoY)||Feb||1.5%||1.5%||1.5%|
Top 5 Events for the Week
Mar. 22— 26, 2021
- Powell & Yellen on Capitol Hill —Tuesday/Wednesday
- February Personal Income & Spending – Friday
- February Durable Goods Order —Wednesday
- February Existing Home Sales—Monday
- February New Home Sales—Tuesday
1. Powell & Yellen on Capitol Hill—Tuesday/Wednesday
Fed Chair Jerome Powell and Treasury Secretary Janet Yellen will appear twice this week on Capitol Hill to deliver their quarterly update on the CARES Act legislation. The Tuesday session will be before the House Financial Services Committee while on Wednesday they will be in front of the Senate Banking Committee. The legislation requires these quarterly appearances but anytime the Fed Chair and Treasury Secretary get together it’s a newsworthy event. While there is not much chance that Powell will change any of his language and outlook from last week’s Fed meeting he’s likely to be asked about any concern over the recent increase in yields so he’ll get one more chance to reiterate his patient stance. Yellen is likely to be asked about the Treasury’s ability to fund the trillions in deficit spending that the various stimulus legislation requires along with her outlook on any upcoming infrastructure spending, and of course Biden’s proposed tax hikes. Expect headlines to provide some volatility to Treasuries this week.
2. February Personal Income & Spending—Friday
Personal income in February is expected to be the lull before the Stimulus 3.0 checks hit bank accounts. Thus, for the month, income is expected to be down -7.2% after Stimulus 2.0 checks hit in January. They were up 10.0% in January, the largest month-over-month increase since last April’s 12.4% increase when the first CARES Act checks hit bank accounts. Personal spending is expected to decrease a more modest-0.8% as consumers remain hesitant to spend much of the various stimulus checks that have come their way in the last year. With the improving economy and COVID/vaccine news we think this latest round of checks will encourage spending on pent-up items which should carry through much of the second quarter. Meanwhile, core PCE, the Fed’s favorite inflation indicator, is expected to remain unchanged at 1.5%. With super low numbers from March and April of last year set to roll off the year-over-year calculations expect a big jump in the coming months but it’s one the Fed will largely look past as temporary.
3. February Durable Goods Orders—Wednesday
While the services side of the economy has taken the brunt of job losses and softer sales, the goods and manufacturing side has faired much better without having to contend as much with customer-facing COVID restrictions. We should see that again in the February but less so as durable goods orders are expected to increase 0.7% versus a 3.4% gain in January. Orders less the volatile transportation sector are expected to be up 0.6% versus a 1.3% gain the prior month. Thus, while February orders are expected to be off solid January gains the report overall is expected to be solid.
4. February Existing Home Sales—Monday
Later this morning we’ll get February existing home sales—accounting for 90% of the residential market—which are expected to be down slightly from January. The February print is expected to shrink –3.0% month-over-month to 6.49 million houses from 6.69 sold in January, on an annualized basis. While some month-over-month slippage is expected, the housing sector continued to benefit from low mortgage rates and the February numbers should continue to reflect a housing market hitting on all cylinders. It will, however, be interesting to see if the 50bps increase in 30yr mortgage rates in February and March will have an impact on March sales activity. It’s certainly something the Fed will be looking at. While that pick up in mortgage rates is notable, by historical standards a 3.30% mortgage rate is still cheap; thus, we don’t expect much backsliding in activity.
5. February New Home Sales—Tuesday
While new home sales account for only 10% of the housing market they do bring with it all the elements that go into the construction of a home and so it is an important input to GDP, and also to the health of the housing market. For the month of February sales are expected to fall –5.5% to 873 thousand units sold on an annualized basis. In January, sales totaled 923 thousand. Sales peaked at 979 thousand annualized back in July as activity coming out of the spring lockdowns and the usual summer selling season coalesced. These numbers are still dwarfed by the nearly 1.4 million homes sold (annualized) in July 2005 as the housing bubble reached its zenith. In any event, present sales are at levels last experienced in 2007 as we were coming off the housing bubble peaks and that speaks to the continued strength in housing activity.
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