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Some municipal market observers expect a recession in the next year or two, even assuming the Federal Open Market Committee cuts interest rates by 25 basis points Wednesday.

Although the Fed has repeatedly stated it is data dependent, it “is ignoring signals of a cooling domestic and global economy and seems hesitant to cut rates," said First Franklin Chief Market Strategist Brett Ewing. “We feel this Fed is picking and choosing what data to be dependent on and refuses to get ahead of the market on cutting rates. The Fed is continuing their backwards policy of cutting rates behind the market and raising rates ahead of it.”

While Ewing said both sides in the U.S.-China trade war seem poised for a breakthrough, or at least some sort of ceasefire, that alone wouldn't prevent a recession. "The Fed by itself may not be capable of it either," he said. “What we do believe is both of them, doing their part in concert would.”

Economic indicators continued to show a mixed picture of manufacturing, as industrial production grew 0.6% in August, the Federal Reserve reported Tuesday.

The increase followed a revised 0.1% slip in July, first seen as a 0.2% decrease.

Capacity utilization grew to 77.9% in August from an unrevised 77.5% in July.

Economists polled by IFR Markets projected a 0.2% increase for industrial production and a 77.3% capacity utilization rate.

Manufacturing output was up 0.5% in August, following a 0.4% decline in July.

Utilities’ output was up 0.6% after increasing 3.7% in July, while mining was 1.4% higher after a 1.5% drop the month before.

On the downside, on Monday, the Federal Reserve Bank of New York reported the Empire State Manufacturing survey fell to 2.0 in September from 4.8 in August. Economists expected the index to fall to 4.0.

Perhaps most distressing, the future capital expenditures index fell to its lowest level in three years, 4.6 from 23.2 a month earlier.

The services sector in the region “grew modestly,” according to the Bank’s Business Leaders survey, released Tuesday. The current business activity index fell to 4.9 in September from 9.1 in August.

Separately, the New York Fed said it conducted “an overnight repurchase agreement (repo) operation … in order to help maintain the federal funds rate within the target range of 2% to 2.25%.” The rate had jumped as a result of “a confluence of events that knocked cash reserves in the banking system out of balance with the volume of securities on dealer balance sheets: a corporate tax payment date, settlement of last week’s Treasury auctions, and last week’s bond-market selloff, in which investors sold securities back to dealers,” Bloomberg reported.

Home builders’ confidence rises
Builders’ confidence in the market for new single-family homes grew as the National Association of Home Builders' housing market index rose to 68 in September from a 67 in August.

“Builders are expressing growing concerns regarding uncertainty stemming from the trade dispute with China,” said NAHB Chief Economist Robert Dietz. “The slowdown in the manufacturing sector is holding back home construction in some parts of the nation, although there is growth in rural and exurban areas.”

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Monetary policy Economic indicators Federal Reserve FOMC Federal Reserve Bank of New York