U.S. consumer prices saw a modest rebound in July, aligning with expectations and reinforcing the ongoing trend of easing inflation. This development bolstered the likelihood of the Federal Reserve cutting interest rates in its upcoming policy meeting next month.
The Labor Department reported on Wednesday that the Consumer Price Index (CPI) rose by 0.2% in July, following a 0.1% decline in June. Over the past year, the CPI increased by 2.9%, slightly down from a 3.0% rise in June.
Economists surveyed by Reuters had predicted a 0.2% monthly increase and a 3.0% year-on-year rise in the CPI. Additionally, the government noted a slight uptick in producer prices for July earlier this week.
Market expectations for the Federal Reserve’s September 17-18 policy meeting are now closely divided between a 0.5% and 0.25% interest rate cut. Futures trading on Wednesday indicated a slight shift in favor of a 25 basis point reduction, with odds calculated at 60.5%, according to LSEG.
Tom Graff, CIO of Facet in Phoenix, Maryland, commented, "The CPI numbers met expectations, with the core figure increasing by 0.2%, exactly as predicted. However, most of the monthly increase came from shelter costs, which hold less weight in the Fed’s preferred inflation measure, Core PCE. This suggests that Core PCE might come in slightly below the CPI.”
He added, “This data reinforces the argument for a rate cut in September, though it doesn't necessarily support a 50 basis point cut. The Fed might opt for a more cautious approach with an initial smaller cut, considering larger reductions later.”
David Doyle, Head of Economics at Macquarie in Toronto, noted, "While this report isn’t as favorable for disinflation as June’s, it still underscores the ongoing downward trend. This should provide the Federal Open Market Committee (FOMC) with further evidence that the rise in underlying inflation earlier this year was temporary and has since reversed.”
“There’s nothing in this data that should prevent the Fed from proceeding with a September rate cut, although the scale of the cut will depend on forthcoming data, particularly regarding inflation and employment. We expect a 25 basis point cut in September,” Doyle concluded.
Ilya Volkov, CEO of YouHodler in Lausanne, remarked, "The slight decrease in CPI, as anticipated, is good news for equity markets. The EUR/USD pair is likely to continue its upward trend, with the next resistance level between 1.12 and 1.13. This positive data could influence the Fed to consider a 50 basis point rate cut next month, with market sentiment potentially pushing the DXY lower, further supporting EUR/USD in the near term.”
Gennadiy Goldberg, Head of U.S. Rates Strategy at TD Securities in New York, observed, "The surprising element in the report was the acceleration in rent, which might explain the market’s somewhat disappointed reaction, despite the weaker-than-expected overall print. This has led the market to reassess the likelihood of a 50 basis point rate cut in September, with the probability dropping from 39 basis points before the report to 36 basis points now. It seems inflation is proving to be a bit more persistent than the Fed anticipated.”
"Nonetheless, this report still supports a Fed rate cut in September. The big question for the market remains whether it will be a 25 or 50 basis point cut, a decision likely to be influenced by data in the coming weeks,” he added.
Jack McIntyre, Portfolio Manager at Brandywine Global in Philadelphia, stated, "While CPI is important, it has dropped to about third in the hierarchy of economic indicators in terms of market impact, behind payrolls and retail sales."
He continued, "Financial assets have performed well recently, partly due to positive reactions to the Producer Price Index (PPI) report. However, as the dust settles, it seems nothing has fundamentally changed. This data gives the Fed room to cut rates, indicating that inflation is moving in the right direction. The longer the Fed delays action, the more restrictive monetary policy becomes.”
"We still don't know if the cut will be 25 or 50 basis points, but it’s likely that growth-related economic statistics, particularly labor data, will be the determining factor, rather than inflation," McIntyre concluded.
Rusty Vanneman, CIO of Orion in Omaha, Nebraska, observed, “Consumer price inflation met expectations, with the year-over-year CPI slightly better than anticipated at 2.9%, compared to the expected 3.0%. This, combined with the recent PPI data and declining short-term inflation expectations, strengthens the case for a Fed rate cut in September.”
Gerrit Smit, Head of Global Equity Management at Stonehage Fleming Investment Management in London, commented, "The July U.S. headline inflation figure of 2.9% marks the first time it has fallen below 3.0% since March 2021, which is lower than expected. This development could ease pressure on the Fed and might even lead to an early rate cut.”
"With this psychological break below 3%, investors can now shift their focus from inflation concerns to economic growth considerations," Smit added.
(Source:www.investing.com)
The Labor Department reported on Wednesday that the Consumer Price Index (CPI) rose by 0.2% in July, following a 0.1% decline in June. Over the past year, the CPI increased by 2.9%, slightly down from a 3.0% rise in June.
Economists surveyed by Reuters had predicted a 0.2% monthly increase and a 3.0% year-on-year rise in the CPI. Additionally, the government noted a slight uptick in producer prices for July earlier this week.
Market expectations for the Federal Reserve’s September 17-18 policy meeting are now closely divided between a 0.5% and 0.25% interest rate cut. Futures trading on Wednesday indicated a slight shift in favor of a 25 basis point reduction, with odds calculated at 60.5%, according to LSEG.
Tom Graff, CIO of Facet in Phoenix, Maryland, commented, "The CPI numbers met expectations, with the core figure increasing by 0.2%, exactly as predicted. However, most of the monthly increase came from shelter costs, which hold less weight in the Fed’s preferred inflation measure, Core PCE. This suggests that Core PCE might come in slightly below the CPI.”
He added, “This data reinforces the argument for a rate cut in September, though it doesn't necessarily support a 50 basis point cut. The Fed might opt for a more cautious approach with an initial smaller cut, considering larger reductions later.”
David Doyle, Head of Economics at Macquarie in Toronto, noted, "While this report isn’t as favorable for disinflation as June’s, it still underscores the ongoing downward trend. This should provide the Federal Open Market Committee (FOMC) with further evidence that the rise in underlying inflation earlier this year was temporary and has since reversed.”
“There’s nothing in this data that should prevent the Fed from proceeding with a September rate cut, although the scale of the cut will depend on forthcoming data, particularly regarding inflation and employment. We expect a 25 basis point cut in September,” Doyle concluded.
Ilya Volkov, CEO of YouHodler in Lausanne, remarked, "The slight decrease in CPI, as anticipated, is good news for equity markets. The EUR/USD pair is likely to continue its upward trend, with the next resistance level between 1.12 and 1.13. This positive data could influence the Fed to consider a 50 basis point rate cut next month, with market sentiment potentially pushing the DXY lower, further supporting EUR/USD in the near term.”
Gennadiy Goldberg, Head of U.S. Rates Strategy at TD Securities in New York, observed, "The surprising element in the report was the acceleration in rent, which might explain the market’s somewhat disappointed reaction, despite the weaker-than-expected overall print. This has led the market to reassess the likelihood of a 50 basis point rate cut in September, with the probability dropping from 39 basis points before the report to 36 basis points now. It seems inflation is proving to be a bit more persistent than the Fed anticipated.”
"Nonetheless, this report still supports a Fed rate cut in September. The big question for the market remains whether it will be a 25 or 50 basis point cut, a decision likely to be influenced by data in the coming weeks,” he added.
Jack McIntyre, Portfolio Manager at Brandywine Global in Philadelphia, stated, "While CPI is important, it has dropped to about third in the hierarchy of economic indicators in terms of market impact, behind payrolls and retail sales."
He continued, "Financial assets have performed well recently, partly due to positive reactions to the Producer Price Index (PPI) report. However, as the dust settles, it seems nothing has fundamentally changed. This data gives the Fed room to cut rates, indicating that inflation is moving in the right direction. The longer the Fed delays action, the more restrictive monetary policy becomes.”
"We still don't know if the cut will be 25 or 50 basis points, but it’s likely that growth-related economic statistics, particularly labor data, will be the determining factor, rather than inflation," McIntyre concluded.
Rusty Vanneman, CIO of Orion in Omaha, Nebraska, observed, “Consumer price inflation met expectations, with the year-over-year CPI slightly better than anticipated at 2.9%, compared to the expected 3.0%. This, combined with the recent PPI data and declining short-term inflation expectations, strengthens the case for a Fed rate cut in September.”
Gerrit Smit, Head of Global Equity Management at Stonehage Fleming Investment Management in London, commented, "The July U.S. headline inflation figure of 2.9% marks the first time it has fallen below 3.0% since March 2021, which is lower than expected. This development could ease pressure on the Fed and might even lead to an early rate cut.”
"With this psychological break below 3%, investors can now shift their focus from inflation concerns to economic growth considerations," Smit added.
(Source:www.investing.com)
