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Perspective: Morning Commentary for September 17

By: Mike Castle, Market Intelligence - Fertilizer Analyst

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September 17 – The Fed delivered a 25-basis point rate hike as expected yesterday, bringing their benchmark range to 3.75% - 4.00%. This is officially the first rate hike by the Fed in more than three years, dating back to July 2023. The market was pricing in near certain expectations of such a hike in the lead-up, leading to a relatively muted reaction in the trading that followed, though the Dow Jones and S&P 500 did both finish yesterday in the red. They’re looking to rebound to kick off trade this morning, however, with stock futures pointing to a notably stronger open across the board while the VIX is sharply lower, falling below 15.5 for the first time since last Tuesday. The dollar is in the red to start the day after pushing to a fresh six-week high of 100.35 yesterday, currently trading near 100.11 at the time of writing. Treasury yields are notably lower, particularly at the front-end of the curve, with 2-year yields back to 4.675%, 10-year yields at 4.949%, and 30-year yields at 5.307%. Crude oil is starting the day in the red, with nearby WTI down 1.9% to trade just above $100 at the time of writing, while nearby Brent is down a further 3.6% to trade near $102. Meanwhile, the ags are looking at a mostly lower open.

What was more surprising was the fact that this was a unanimous 12-0 vote to hike, a dramatic shift from the 9-3 split seen at the July meeting. Rising inflationary pressures and a largely resilient U.S. labor market in the time since their last meeting appear to have provided enough evidence to the July hold voters to join the dissenters. Looking ahead, new policy projections also show a majority of FOMC members anticipating one more 25-basis point rate hike by the end of 2026, most likely coming at the December meeting. Fed Chair Kevin Warsh has been explicit about his preference for the Fed providing less forward guidance and for the market to place less importance on it, as evidenced by his refusal to submit a projection for the dot-plot again, but it’s worth noting the changes seen. Instead of showing the full dot plot, the graphic below shows the broader shift in median rate expectations across the entire curve compared to the Fed’s June meeting. With more certainty regarding the 2026 path, look for the market to increase focus on the years ahead, with the FOMC’s median projections showing a larger (+0.50%) shift upward in both 2027 and 2028. The market appears to be focusing on Warsh’s comments yesterday that this hike “removed a dose of accommodation,” potentially signaling that this may be just the beginning of a longer upcycle.

Fed officials raised their 2026 inflation expectations to 3.7% versus the 3.6% seen previously, with inflation then falling to 2.3% in 2027, 2.1% in 2028, and ultimately achieving their target 2.0% in 2029. On a more positive note, the Fed’s forecasts showed a slight rise in growth expectations, with GDP seen rising 2.3% versus 2.2% previously, while unemployment in the year ahead is seen holding at 4.1%, down from the 4.3% seen previously. Kevin Warsh’s press conference emphasized the ongoing strength of the U.S. economy, with the real focus being on inflation, stating: “even over the last several weeks, I think we now have data broadly defined that says the economy has indeed strengthened. Underlying growth is higher. Inflation is the problem.”

Highlighting the strength in the labor market, weekly first time claims for unemployment benefits fell to 196k in the week ended September 12, down from 206k in the week prior, sharply below the average estimate of 208k, and marking the lowest weekly print in two months. This pushed the four-week moving average down to 203.25k from 206k in the week prior, marking its lowest level in five weeks. Continuing jobless claims also showed notable strength, falling to 1.73M, sharply below the 1.78M estimate and representing the lowest level seen in nearly three years, dating back to the first week of 2024. Furthermore, the week prior was revised down slightly to show 1.769M versus the 1.774M previously reported. All in all, this continues to point to an ever-resilient U.S. labor market. That’s obviously a positive as it relates to the Fed’s mandate of maximizing employment, but that continued permission signal for higher rates ahead can be taken as a negative by the doves.

Housing starts in the U.S. fell 2.6% month-on-month in August to a seasonally adjusted annualized rate of 1.275M, below the average analyst estimate of 1.309M. July data was revised notably higher, now showing 1.309M compared to the 1.239M previously reported, making today’s print show a month-on-month decline instead of a modest increase. Regionally speaking, the biggest decline was seen in the Northeast (-44.5%), followed by the Midwest (-12%), then South (-1.3%), while the West (+32.4%) saw a notable uptick. Applications for building permits also came in weaker than expected at 1.394M in August, down 2.7% from the 1.433M seen in July and below the average estimate of 1.410M. A similar regional pattern was observed here too, with the biggest drop in the Northeast (-15.8%), followed by the Midwest (-7.6%), then South (-0.4%), while the West (+1.6%) saw an increase. Overall, this morning’s data points to a softer U.S. housing market, not a huge surprise given the rise in mortgage rates being seen. We’ll get another look at the health of the housing sector today, with August pending home sales data due out shortly.

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Perspective: Morning Commentary for September 17

September 17 – The Fed delivered a 25-basis point rate hike as expected yesterday, bringing their benchmark range to 3.75% - 4.00%. This is officially the first rate hike by the Fed in more than three years, dating back to July 2023. The market was pricing in near certain expectations of such a hike in the lead-up, leading to a relatively muted reaction in the trading that followed, though the Dow Jones and S&P 500 did both finish yesterday in the red. They’re looking to rebound to kick off trade this morning, however, with stock futures pointing to a notably stronger open across the board while the VIX is sharply lower, falling below 15.5 for the first time since last Tuesday. The dollar is in the red to start the day after pushing to a fresh six-week high of 100.35 yesterday, currently trading near 100.11 at the time of writing. Treasury yields are notably lower, particularly at the front-end of the curve, with 2-year yields back to 4.675%, 10-year yields at 4.949%, and 30-year yields at 5.307%. Crude oil is starting the day in the red, with nearby WTI down 1.9% to trade just above $100 at the time of writing, while nearby Brent is down a further 3.6% to trade near $102. Meanwhile, the ags are looking at a mostly lower open.

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