Fed doubles down, markets yawn at first, then react

<p>Kia ora,</p><p>Welcome to Thursday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the International edition from Interest.co.nz.</p><p>Today we lead with news the global economy is still adjusting to inflation, war, the pandemic and supply-chain issues.</p><p>First up, the US Fed <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20220727a.htm" target="_blank"><strong>raised</strong></a> its policy rates by +75 bps to 2.5%, unanimously, very much as expected, and for a second month in a row. While they acknowledged spending and output data had softened recently, they also said further rate rises are likely. Their commitment to clamping down on inflation is sort of being ignored by markets.</p><p>Markets handled this announcement with a surge in equities, a fall in bond yields, and a fall in the USD after the press conference remarks.</p><p>Meanwhile, US <a href="https://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf" target="_blank"><strong>durable goods orders</strong></a> rose much more than expected in June from May and are now almost +12% higher than year-ago levels. Capital goods orders are up almost 7.5%.</p><p>And updated data out for <a href="https://www.census.gov/econ/indicators/advance_report.pdf" target="_blank"><strong>inventories</strong></a> showing them rising in both the wholesale and retail sectors are at a pace that isn't worrying yet, but is probably not sustainable all the same, because they are up about a quarter from the same month a year ago, which was an unusual low point.</p><p>The American <a href="https://www.census.gov/econ/indicators/advance_report.pdf" target="_blank"><strong>merchandise trade balance</strong></a> slipped a bit in June from May, but remains elevated, consistent with expanding demand and activity.</p><p>But their residential housing market is in trouble, with <a href="https://www.nar.realtor/newsroom/pending-home-sales-fell-8-6-in-june" target="_blank"><s