US Durable Goods Beat, Core Capex Softens: Fed’s Jackson Hole Pivot in Focus
TREE NEWS reports: New US economic data released Wednesday painted a picture of resilient demand alongside cooling inflation, giving the Federal Reserve more room to hold interest rates steady while markets await Chair Kevin Warsh’s keynote at the Jackson Hole symposium on Friday.
What Happened
The Commerce Department reported that July durable goods orders rose 1.1% month-over-month, sharply beating the 0.5% consensus forecast and matching the prior month’s upwardly revised gain. However, the internals were less robust: excluding transportation, orders increased just 0.4%, below the 0.6% expected, while core capital goods orders—a proxy for business investment—rose only 0.2%, well short of the 0.7% forecast and down from June’s 1.2% surge. This suggests the headline strength was driven by volatile categories like aircraft, masking softer underlying business investment.
Separately, the Bureau of Economic Analysis reported that real consumer spending was flat in July after strong gains in May and June, while the PCE price index—the Fed’s preferred inflation gauge—rose 0.2% month-over-month, in line with expectations. Core PCE (excluding food and energy) also rose 0.2% monthly, bringing the annual rate to 3.3%, still well above the Fed’s 2% target. The overall PCE year-over-year rate stood at 3.7%, reflecting persistent but moderating price pressures.
Market Implications
The data suggest a ‘Goldilocks’ scenario for the Fed: the economy is cooling enough to ease inflation pressures, but not so sharply as to force immediate rate cuts. This bolsters the case for a pause at the September FOMC meeting. For markets, the implications are nuanced:
- Stocks: Equities may find support from the prospect of steady rates and resilient consumer spending, but the softness in core capex could weigh on industrials and technology hardware names.
- Bonds: Treasury yields are likely to stay range-bound as inflation remains above target but is trending lower. The 2-year yield, sensitive to Fed policy, may react to Warsh’s tone.
- Crypto: Bitcoin and other digital assets could see a mild boost if the Fed signals a prolonged pause, as that reduces the opportunity cost of holding non-yielding assets.
- Commodities: Oil prices remain elevated due to geopolitical tensions in the Middle East, but softer consumer spending could cap demand-driven gains. Gold may benefit from a less hawkish Fed.
- Currencies: The US dollar could weaken slightly if the Fed stays on hold while other central banks continue tightening, but safe-haven flows from geopolitical risks may limit losses.
Why It Matters for Investors
The combination of resilient headline orders and cooling consumption gives the Fed cover to maintain its current policy stance, which is generally supportive for risk assets. However, the divergence between headline and core capital goods orders is a warning sign for growth investors—business investment may be losing momentum, which could eventually weigh on corporate earnings. All eyes now turn to Jackson Hole, where Warsh’s remarks will clarify whether the Fed leans toward further tightening or a prolonged pause. Investors should brace for potential volatility around that speech.
