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Slowing Inflation and Rising Odds of Fed Pause Boost Markets

  • The Federal Reserve's preferred inflation measure, the PCE Index, rose 0.1% month-over-month in August, the slowest pace since late 2020.

  • Core PCE inflation, excluding food and energy, was 3.9% year-over-year in August, down from 4.1% in July.

  • Markets are now pricing in a 67% chance the Fed won't raise rates again this year, up from 58% last week.

  • The Fed forecasts core inflation peaking at 3.7% this year before cooling in 2023-2025.

  • If the government shuts down, the lack of economic data could keep the Fed on hold in November.

yahoo.com
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### Summary Former Toys "R" Us CEO Gerald Storch warned that the economy is likely to face a difficult holiday season due to persistent inflation. Other economic stresses such as rising interest rates, credit card debt, and student loans are also contributing to consumer difficulties. ### Facts - Inflation remains sticky despite the Inflation Reduction Act that was passed a year ago. - Sales of physical products have been declining for 11 consecutive months when adjusted for inflation. - The July consumer price index (CPI) rose 0.2%, with prices climbing 3.2% from the same time last year. - Pulte Capital CEO Bill Pulte suggests that the economy is in a period of stagflation with low growth and high inflation. - Shelter costs, accounting for 40% of the core inflation increase, rose 0.4% for the month and are up 7.7% over the past year. - Americans are spending $709 more per month on everyday goods and services compared to two years ago. - Consumers are shifting towards value retailers in response to inflation. - President Biden acknowledges that the Inflation Reduction Act was not solely aimed at reducing inflation but rather focused on generating economic growth.
### Summary Inflation rates would be significantly lower if the "owner equivalent rent" component was removed from the consumer price index, according to an opinion piece. ### Facts - Removing the "owner equivalent rent" (OER) component from the consumer price index (CPI) would result in a lower year-over-year inflation rate of about 1.5%, compared to the current rate of 3.2%. - The personal-consumption expenditures price index (PCE) would also see a decline in the inflation rate, from 3% to approximately 2.2%. - The author suggests that the inclusion of OER in these indexes causes inflation to be overstated. - These findings indicate that inflation has fallen more than what current flawed price indexes suggest.
Federal Reserve Chair Jerome Powell's comments about potential future rate hikes have put the focus on upcoming data releases, including the Personal Consumption Expenditures (PCE) index and the August jobs report, as investors assess the state of the economy.
The Federal Reserve's preferred measure of inflation, the PCE price index, increased in July, suggesting a higher likelihood of further interest rate hikes this year.
Stocks had a mixed day as investors reacted positively to the latest inflation data, but overall, it has been a challenging month for the equities market. The July personal consumption and expenditures (PCE) index showed a modest increase in consumer spending, while the core PCE remained unchanged. Despite the "disappointing" details, experts expect the Federal Reserve to maintain unchanged interest rates in September. Additionally, tech stocks like Salesforce saw a boost after reporting strong earnings and highlighting their generative AI initiatives.
UK inflation has slowed to a 17-month low of 6.8%, prompting expectations of potential interest rate cuts and concerns about the impact on house prices and mortgage rates.
The US economy grew modestly in July and August, with signs of consumers relying more on borrowing to support spending after depleting their savings, while inflation slowed due to decreasing price pressures in the goods sector, according to the Federal Reserve's Beige Book report.
Inflation has decreased significantly in recent months, but the role of the Federal Reserve in this decline is questionable as there is little evidence to suggest that higher interest rates led to lower prices and curtailed demand or employment. Other factors such as falling energy prices and the healing of disrupted supply chains appear to have had a larger impact on slowing inflation.
The Consumer Price Index is expected to show an increase in inflation in August, with headline inflation rising to 3.6% and core inflation easing to 4.4%, but the market is accustomed to this trend and the Federal Reserve is unlikely to change its rates at the upcoming meeting.
Despite a spike in gas prices, the rise in inflation appears to be easing gradually, with core prices exhibiting a slower increase in August compared to July, suggesting that price pressures are being brought under control.
Inflation is expected to fall below the Federal Reserve's 2% target by late next year, despite a recent rise in consumer prices driven by increased energy costs.
Cryptocurrency prices remained stable as inflation in the U.S. surpassed economists' expectations, with Bitcoin trading at around $26,100 and Ethereum experiencing a slight dip of 0.5%. The Federal Reserve will consider this report, among other factors, for its upcoming interest rate announcement on September 20. While inflation has decreased since June, it still exceeds the Fed's target of 2% annually. Core inflation, excluding volatile food and energy costs, decreased to 4.3% in August compared to July's 4.7%.
Wholesale inflation in the U.S. accelerates for the second month in a row, with the Producer Price Index rising to 1.6% and indicating that inflation is not yet in line with the Federal Reserve's target of 2%.
The Consumer Price Index (CPI) for this month shows that core CPI and all items CPI were slightly above expectations and accelerating, with the primary contributors to the acceleration being core services ex housing and energy, which may be a concern for the Fed. Additionally, owner's equivalent rent was a significant positive contributor to the monthly change in CPI, while used cars and trucks had a negative impact. There is potential for a re-acceleration of inflation, which could have negative implications for equity markets.
Canada's annual inflation rate in August was 4.0 percent, with major cities experiencing varied rates, while South African bonds continue to decline, and the stock market awaits the Federal Reserve's decision on interest rates.
Inflation in Britain slowed for a third consecutive month in August, defying expectations of a rise due to higher fuel prices, with consumer prices rising 6.7 percent compared to the previous year, driven by slower increases in food prices and a decline in hotel room costs. Core inflation also fell more than anticipated, indicating a potential easing of inflationary pressures, though price growth remains uncomfortably high. The Bank of England is set to announce its decision on interest rates, with growing speculation that rates may be held steady due to signs of slowing inflation and a weak economy.
The U.S. Federal Reserve kept interest rates steady but left room for potential rate hikes, as they see progress in fighting inflation and aim to bring it down to the target level of 2 percent; however, officials projected a higher growth rate of 2.1 percent for this year and suggested that core inflation will hit 3.7 percent this year before falling in 2024 and reaching the target range by 2026.
Investors are focusing on the release of economic reports on GDP and inflation as they evaluate the Federal Reserve's stance on interest rates and its efforts to cool down inflation. Metal prices have slipped due to concerns over global demand and the economy, and the risk of a government shutdown is also adding to the bearish sentiment. Earnings reports from various companies and core PCE inflation data are expected in the week ahead.
Despite expectations of higher interest rates causing a spike in unemployment and a recession, the Federal Reserve's rate hikes have managed to slow inflation without dire consequences, thanks to factors such as replenished supplies, changes in the job market, and continued consumer and business spending.
Australian consumer inflation grew as expected in August, driven by surging energy and housing costs, raising speculation that the Reserve Bank may need to further increase interest rates.
The Federal Reserve's preferred measure of inflation decreased in August, indicating that efforts to combat inflation are progressing, although there are still price growth pressures that could lead to further interest rate hikes by the central bank.
The Federal Reserve's preferred inflation indicator, the personal consumption expenditures price index excluding food and energy, rose less than expected in August, suggesting progress in the central bank's fight against higher prices.
Consumer spending in the US increased by 0.4% in August, while core inflation fell below 4.0% for the first time in over two years, potentially reducing the likelihood of an interest rate hike by the Federal Reserve.
The Personal Consumption Expenditures (PCE) report showed higher than expected month-over-month PCE in August due to increased fuel prices, while personal spending and real spending were lower; core PCE came in lower than expected and core PCE year over year reached +3.9%, and the trade deficit improved in August.
The Federal Reserve's preferred inflation gauge, core PCE, showed lower inflation in August, signaling progress in the fight against inflation and providing relief to investors anticipating higher rates. LPL Financial Chief Technical Strategist Adam Turnquist attributes the outperformance of the energy sector to its relatively cheap valuation and dividend yield, and recommends focusing on the exploration and production (E&P) subsector for the most value.
Higher gas prices drove an increase in an inflation gauge tracked by the Federal Reserve in August, but measures of underlying inflation slowed, suggesting overall price pressures are moderating and raising the likelihood that the Fed will leave interest rates unchanged in its next meeting; however, the combination of higher gas prices and sluggish income growth may weaken consumer spending and mark a slowdown from last summer's healthy pace of spending.
The Reserve Bank of India (RBI) expects consumer price index (CPI) inflation to ease below 4 percent in fiscal 2024-25 if there are no further shocks and a normal monsoon, with the central bank rethinking rate cuts only if CPI inflation remains at or below 4 percent on a durable basis.
The Consumer Price Index (CPI) report for September 2023 is expected to show a slow increase in prices, with market expectations forecasting a 0.3% increase in core inflation on a monthly basis and 4.1% on a yearly basis, which may lead to stronger market reactions if the figures exceed expectations. Banks such as Morgan Stanley, Goldman Sachs, and Bank of America have provided their predictions for the upcoming CPI report. Analysts suggest that if the core CPI exceeds 0.1% on a monthly basis, it could lead to a decline in the stock market as it may indicate a potential interest rate hike by the Federal Reserve. This data is particularly significant as it precedes the FOMC meeting scheduled for October 31-November 1.
The U.S. government's upcoming inflation report is expected to show a cooling off of inflation, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, and core inflation expected to be up 4.1% from September last year, indicating slower price increases in September than in August.
The upcoming monthly inflation report is expected to show that inflation in the US is cooling off, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, indicating slower price increases in September than in August. However, if the report reveals that inflation remained higher than expected, especially in core areas, it may prompt the Federal Reserve to raise interest rates again, further slowing the economy.
Canada's inflation rate slowed to 3.8% in September, supporting predictions of the Bank of Canada keeping interest rates steady.
Canada's annual inflation rate unexpectedly slowed to 3.8% in September, leading to reduced expectations for an interest rate hike next week.
The rate of U.S. inflation is slowing, but it's not slowing as quickly as earlier this year, with the Federal Reserve expecting a 0.3% increase in the core PCE price gauge in September, indicating that progress towards the Fed's 2% inflation target will likely happen at a much slower rate in the months ahead.
U.S. PCE inflation slightly exceeded market expectations in September 2023, indicating that inflationary pressures are slowly moderating but still remain above the central bank target of 2%.