Stocks and Coins

What to expect from August US inflation data

The upcoming CPI release for August is expected to show further contraction. This could support a rate cut, as investors are now discussing the size of the cut rather than whether it will happen. With the recent weakening of jobs data and the negative review of previous reports, unemployment risks may receive more attention than inflation risks from the Federal Open Market Committee.

The August CPI is scheduled for release on September 11. The previous July version showed a monthly increase of 0.2% with a year-on-year increase of 2.9%. This compares to the inflation target set by the Federal Open Market Committee at 2%. Current forecasts from the Federal Reserve Bank in Cleveland suggest that the consumer price index for August will come in at 0.23% or 0.26% for core inflation, which eliminates food and energy price movements. This will translate into an annual inflation rate of 2.6% and a rise in core inflation to 3.2%. Forecast site Kalshi currently estimates headline inflation at 2.5%.

In addition, the PCE price index for July will be updated on August 30. The FOMC seems to prefer this measure, as it is expected to show a similar trend of contraction with expectations now pointing to a 2.6% annual rate of PCE inflation through July 2024. Inflation metrics for CPI and PCE may provide very similar readings.

A slowdown in inflation would therefore be welcomed by the Federal Open Market Committee as inflation appears to be returning to its annual target of 2%. In the first months of 2024, there was an increase in inflation, worrying policymakers and delaying any potential rate cut. However, the series of declining inflation figures now appears to be continuing. Wage growth indicators released by the Federal Reserve Bank of Atlanta suggest that wages are falling, contributing to a disinflation. The main driver of inflation currently is housing costs, which rose at an annual rate of 5.1% in July and carry significant weight in the consumer price index.

On the other hand, as inflation data generally improves, jobs data has become more worrying than inflation data. The unemployment rate has risen from relatively low levels over the past year and has now reached the point where the “Sahm rule” suggests that an increase in unemployment may be enough to trigger a recession. The “Sahm rule” suggests that a recession is possible when the unemployment rate rises by 0.5% or more over a 12-month period in absolute terms. This recession indicator was recently activated with the July jobs report. However, FOMC officials may not be too concerned about the labor market yet.

On July 30, the minutes of the FOMC meeting stated that "participants generally assessed that conditions in the labor market have returned to what they were at the time of the pandemic – strong but not overstated." However, policymakers also acknowledged that "upside risks to inflation expectations have diminished, while downside risks to employment have increased."

As a result, the FOMC minutes noted that "the vast majority noted that if the data continues to emerge as expected, it is likely that it will be appropriate to ease policy at the next meeting." The next decision will come on September 18, following the August CPI report. Currently, CME's FedWatch, which reflects the implicit appreciation of fixed income markets, suggests that the most likely outcome is to cut short-term interest rates to a range between 5% and 5.25%, but, there is a 1-in-4 chance that there will be a cut to 4.75% to 5%. Moreover, relatively low inflation data, expected in the August CPI report in September, could support a rate cut. As a result, unemployment data will become more important in the eyes of policymakers than inflation data, as it is interesting to look for September 6 when US unemployment rates will be released.

0 Comments

What to expect from August US inflation data

Other Articles

Your Financial Journey Starts Here!

Technical Analysis: Your Roadmap to Successful Trading

A Compass For A Successful Financial Journey

Navigating The Brokerage Maze

Stop Loss, Your Trading Companion

Smart Money Moves with Stocks & Coins

Trade Like a Pro, No PhD Required

الاتجاهات الاقتصادية الحالية وتراجعات أسهم وول ستريت

الانهيار الصغير في بورصة طوكيو، ارتياح سوق الأسهم الأمريكي ونظرة للأمام

ما يمكن توقعه من تقرير التضخم التالي لمؤشر أسعار المستهلك

صناديق الاستثمار تعمد على شراء الين للمرة الأولى منذ أربع سنوات

الذهب يسجل أعلى مستوى له مع ترقب إشارات من الفيدرالي الأمريكي

ما يمكن توقعه من ندوة جاكسون هول وخطاب باول اليوم

توقعات أرباح الربع الثاني لعملاق التكنولوجيا إنفيديا

Second-quarter earnings forecast for tech giant Nvidia

What to expect from August US inflation data

ما يمكن توقعه من بيانات التضخم الأمريكية لشهر أغسطس

تقرير الوظائف في أمريكا هذا الأسبوع

This Week's U.S. Jobs Report

الدولار الأمريكي في ظل تخفيضات أسعار الفائدة الأمريكية

US Dollar amid the Fed interest rate cuts

الجدل حول استراتيجية السياسة النقدية الأمثل لبنك الاحتياطي الفيدرالي

Debate over the Fed's optimal monetary policy strategy

يتطلع البنك المركزي الأوروبي الى تخفيض أسعار الفائدة قبل أيام من الفيدرالي الأمريكي

The European Central Bank is looking to cut interest rates days before the US Federal Reserve

ما يمكن توقعه من اجتماع اللجنة الفيدرالية للسوق المفتوحة هذا الأسبوع

What to expect from this week's FOMC meeting

ما الذي دفع بنك الاحتياطي الفيدرالي إلى البدء في التيسير النقدي بقوة؟

What prompted the Fed to start its monetary easing with a bang?

Join Our Community