As we enter the holiday shopping season, the #Fed (much like Santa) increasingly has a keen eye on what’s naughty or nice for the economy. Yes, Santa Clause is coming to town, but #inflation is not.
So while the overheating crowd has loudly warned us: you better watch out, you better think twice because #inflation is going to erode household spending power... the cost of many favorite gifts (TVs, phones, GPS, recreational games and electronics) continues to deflate!
The weather outside may be frightful, but the #inflation hawks can’t deny the bargain prices of home heating oil as we enter the frigid winter months.
On a serious note, the holidays are a truly a season of giving, and keeping that in mind, there is no greater gift than full employment and rising wages for households. The #Fed acknowledges that spurring more jobs is the right policy and isn’t something to be curtailed.
Our workforce faces many future costs: rising U.S. debt burdens, underfunded #retirement plans, rising health care expenses and increased cost of education: yet growing #employment today does far more benefit to combat these issues than fighting the ghost of inflation past.
So while the Grinch would surely see higher #wages as inflationary, we see it as a gift in an economy where the cost of goods (food, energy, apparel, etc.) is in decline; meaning higher disposable #income for household savings, debt reduction, expenses, or a deserved vacation.
In short, higher wages doesn’t mean higher inflation (bit.ly/2FVCT89). So here’s a holiday cheer to a brilliant Fed that seems to realize this more than most!
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Today’s much anticipated #CPI report provided greater detail on the current #inflation picture, and importantly, on what the @federalreserve is most focused upon these days, and unfortunately, it’s hard to see it as anything other than a #setback.
Recently, it has become clear that the #Fed is taking on a patient stance with regard to #inflation coming down, but today's report was further evidence that it may take even longer for inflation to finally reach the Fed’s 2% target level.
In fact, today’s data means #CorePCE on a year-over-year basis may not get to 2.5% at any point in 2024, and that’s with a wedge where #CoreCPI is running around 100 basis points higher. This meaningful surprise therefore forces us to reassess some views.
Yesterday’s #CPI data was highly anticipated by #markets, and particularly whether the elevated shelter #inflation from last month’s data ended up being a quirky aberration within service level inflation that is still quite a distance from the Fed’s 2% intermediate-term target.
What compounded this quandary last month was a very strange divergence between the Owner Equivalent Rent (#OER) calculation and that for general #Rent.
Those two data points typically migrate closely together over time, with a maximum divergence of 9 basis points (bps) in 2023.
As was widely expected, the @federalreserve today halted the most aggressive policy rate #HikingCycle since 1980, leaving the Fed Funds range unchanged at 5.0% to 5.25%, a level that appears clear to us to be finally having an impact on the #economy.
We think today’s actions represent a “Hawkish skip,” which implies that #policy makers are seeking more #data before potentially hiking rates again in July, or September.
For our part, we think #ChairPowell’s comments at the press conference made it clear that the #FOMC is seeking to balance increasingly restrictive monetary policy with the high degree of uncertainty around the tightening of #CreditConditions…
Today’s #CPI report for May showed another very firm depiction of where #inflation currently resides in the U.S., with #coreCPI (excluding volatile food and energy components) printing at 0.44% month-over-month and 5.33% year-over-year.
Meanwhile, #headlineCPI data printed 0.12% month-over-month and came in just above 4% year-over-year, with declines in #energy components and some food prices being offset by gains in #shelter and used cars and trucks.
Overall, headline #inflation does appear to be moderating at a faster pace and we believe that the trend in inflation (despite the firmness of core measures in today’s report) is broadly heading in the right direction, relative to the @federalreserve’s inflation target.
We’ve seen the pace of #payroll gains decelerate to roughly the monthly trend pace from the last expansion; consensus has been waiting for this moment and expected a 195,000 job gain in May, but the data printed considerably stronger at 339,000 #jobs gained.
The three-month moving average of #nonfarm payrolls sits at 283,000, down from 334,000 jobs at the start of the year, but what the #LaborMarket imbalance needs is more supply and more slack.
The #unemployment rate ticked up to 3.65%, close to its 12-month average level, and average hourly #earnings (a volatile figure) gained 0.33% month-over-month and 4.3% on a year-over-year basis.
Today’s #CPI report continues to depict #inflation that is just too high for most people’s good, especially the @federalreserve’s.
In fact, the report showed that #inflation remains remarkably sticky, which doesn’t correspond to virtually any practical thinker’s timeline of when it might be expected to start to come down further.
These elevated levels of inflation continue to be remarkably high relative to the many months with which the #economy has now operated with persistently higher #InterestRates.