The author says that they are expecting a modest gain in the CPI coming out this week with prices staying tame in spite of stubbornly high inflation. The inflation figures aren’t expected to change fed policy. He goes on to say the S&P stays near 52 week highs.
Economists expect July’s CPI to climb 0.2% vs. the prior month, after a similar gain in June. Core CPI, which excludes food and energy, also should rise 0.2% vs. June.
The annual CPI inflation rate, however, is expected to pick up to 3.3% from June’s 3%. That reflects flat prices in July 2022. The core inflation is seen holding at 4.8%.
The author comments that gasoline prices have some people worrying about wages keeping up with inflation.
Fed Policy Impact
Barring a surprisingly strong CPI inflation report, the Fed policy impact may be minimal.
First, policymakers know that a higher July CPI inflation rate will largely reflect tough year-earlier comparisons, not a reacceleration of price pressures broadly.
Second, Fed officials have signaled they are near the end of rate hikes, taking a wait-and-see approach.
After a pause in June, policymakers hiked rates by a quarter-point at the July 25-26 Fed meeting. Fed chief Jerome Powell said the late September meeting would be “live,” meaning a rate hike was possible, but he gave hints that the central bank would take no action, noting that the inflation-growth risks are “balanced.”
Since then, policymakers have given some mixed signals since the July Fed meeting, but generally have signaled patience.
Philly Fed President Patrick Harker, who’s a voting member this year, said Tuesday, “I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.”
Markets see just a 13% chance of another rate hike at the Sept. 20 meeting, rising to just over 30% by the Nov. 1 meeting. The odds have trended lower over the past week.
Finally the article talks about the S&P being up 17% in spite of the recent pullback. The ten year treasury is near 2023 highs. The short term notes have held steady over the past few weeks and they reflect fed policy more than the longer term notes.
I think the Moody bank ratings changes that hit this week caused a shudder to the market and this will impact the fed decision making policy. The fed doesn’t want a catastrophic collapse of banks and these interest rate hikes seem to be causing the banks some problems. Someone smarter than me might comment on what these interest rate hikes do to banks and their financial stability. Was their a change in banking law that is causing problems with interest rate hikes and solvency? I don’t know…doc