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.

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.

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.

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.

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.

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.

A week ago, after hearing #ChairPowell’s testimony before Congress, all eyes were set to be on today’s #inflation data, which presumably would help market participants better understand the #FOMC’s policy reaction at its March 22nd meeting. What a difference a week makes these days! Of course, all eyes are still on today’s data, but now there are many other things we need to consider (such as #FinancialStability concerns), when judging the reaction function of the @federalreserve.

Today’s #JobsReport was very solid, but like is often the case in the movies, it’s very hard for the sequel (today’s report) to match such an unexpected hit (January’s revised 504,000 jobs gained). Still, a nonfarm #payroll gain of 311,000 jobs is quite good and having 815,000 jobs created so far this year after the #economy has already created 12 million #jobs over the past two years is pretty amazing in its own right.

In testimony before #Congress yesterday, @federalreserve #ChairPowell unsurprisingly displayed resolve that the central bank’s fight to return inflation closer to its 2% target is unfinished and that the historical record suggests that relenting too soon would be a mistake. Chair #Powell signaled more rate hikes and a higher terminal rate than previous #Fed projections, and an openness to adjust the pace of rate hikes depending on the totality of the data.

In the big picture, today’s #CPI data displays continued slow progress toward a lower y-o-y rate of #inflation, having come down from a cycle peak of 8.9% in June 2022 to the 6.4% reading today, at the headline level, which is the lowest 12-month inflation gain since Oct 2021. That is clearly encouraging, and in a lot better place than we had become used to in the Fall, which was at the center of the disappointment for the @federalreserve. However, like bridges during periods of traffic, progress can come with some slowing along the way.

Today’s #JobsReport was a clear indication that #LaborMarket dynamics are softening. For example, the 3-mo. moving average of nonfarm #payroll growth sits at 247k jobs, after a higher-than-expected print of 223k jobs for Dec, in contrast to 2022’s average mo. #job gain of 375k. We have witnessed a marked deterioration in temporary help services in recent months, and a slowing in #wage growth in December, which both highlight the relative slowdown in the labor #market overall, even as the #services sector remains quite buoyant.

The November #CPI report is notable in part due to the fact that it displays the second consecutive month of more moderate price pressures, providing some signal that the underlying trend of #inflation is decelerating. Turning to the data, #coreCPI (excluding volatile food and #energy components) came in at 0.2% month-over-month and rose 6.0% year-over-year.

Earlier this week the @federalreserve raised #policy rates at an extraordinary 75 basis point increment (its fourth time doing so this year), in an attempt to moderate excessively high levels of #inflation. Still, if the central bankers were hoping to see signs of slowing in the persistently solid #LaborMarkets, as an indicator that policies were slowing growth and in turn #inflation, they may be somewhat disheartened by today’s data.

The @federalreserve’s #FOMC has now moved in 75 basis point increments four times this year to get to a sought-after #policy destination very quickly. Yet, the destination seems to have moved further away with each subsequent elevated #inflation print, and with #employment in the country remaining very tight.

Today’s @federalreserve’s Federal Open Market Committee (#FOMC) meeting witnessed another historic 75 bps increase to policy rate levels (to a range of 3.0% to 3.25%) in an effort for the #CentralBank to manage its number one priority: fighting persistently high #inflation. The #Fed, including in today’s meeting statement and in the Chair’s press conference, has been clearer than arguably any central bank in identifying its current goal and moving #InterestRates and #liquidity provision to achieve it.

Today’s #JobsReport revealed an #economy that is producing #jobs at a slower pace than it has over the prior several months. That said, a historic number of jobs have been created in this recovery since the fall of 2020, so a slowing in the pace of #growth isn’t unexpected.

In his @federalreserve #JacksonHole speech #ChairPowell stated emphatically that the #FOMC’s “overarching focus right now is to bring inflation back down to our 2 percent goal. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy.” In other words, we take his statement today to mean that the #Fed won’t be easily swayed into reversing rate #hikes next year, and will stay with the elevated Funds rate for a long time.

As we approach the @federalreserve’s monetary policy conference at #JacksonHole this week, a question we’ve been asking ourselves is whether the abundance of survey-based, and goods-oriented, #economic data may be overstating the weakness in the #economy as a whole? Without question, many broad-based surveys, including those focused on #ConsumerConfidence and small #business optimism, are painting a very bleak picture of the #economic trajectory.

The headline #inflation data today moderated a bit on the back of falling #gasoline prices, but it’s still running at a worryingly high rate. Over time, we think the slowdown in #economic growth, the continuation of the @federalreserve’s assertive #HikingCycle and the possibility of resolution with several persistent supply chain issues should influence broad #inflation lower.

The #JobsReport came in at 372,000 jobs gained, the #unemployment rate at 3.6%, which was coupled with #wage growth of 5.1% year-over-year: all solid numbers in a historic context. Still, when taken in the context of much of the #economic data coming in, last week’s #employment report reemphasized two key tenets of the economy and consequently of #investment markets: 1) the U.S., and indeed the global economy, is tangibly slowing…

The @federalreserve’s Federal Open Market Committee raised the target range for the Federal Funds #policy rate by 0.75% yesterday, to between 1.50% and 1.75%, as was increasingly anticipated. The move by the #Fed to progress faster to neutral will be applauded in the long run by the #economy, business decision-makers and ultimately by# markets.