Askume, Sept 11 – U.S. consumer prices rose slightly in August , but underlying inflation showed some stability, which could prevent the Federal Reserve from cutting interest rates by a half basis point next week.
The US Labor Department said on Wednesday that the Consumer Price Index rose 0.2% last month after rising 0.2% in July. In the 12 months through August, the CPI rose 2.5%. It was the smallest annual increase since February 2021, after rising 2.9% in July.
Economists polled by Askume had expected the CPI to rise 0.2%, up from 2.6% from the same period last year. Although inflation remains above the Fed’s 2% target, it has fallen sharply.
Market Reaction:
Stocks: U.S. stock futures edged lower by 0.35%, indicating a soft opening on Wall Street. Bonds: The U.S. 10-year Treasury bond yield rose to 3.676%, and the two-year Treasury bond yield rose to 3.677%. Forex: The U.S. dollar index rose 0.11% and the euro fell 0.09%.
notes:
Brian Jacobson, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin
“A modest increase in core inflation data means the Fed will be less likely to start cutting rates as they did when they started raising rates: first by 25 basis points, then choosing to raise them as needed. What if the Fed cuts rates by more than 25 basis points, but they forget that it doesn’t matter as every meeting is accompanied by policy statements and press conferences.”
Ben Vaske, senior investment strategist, Orion, Omaha, Neb.
“This morning, the Fed’s stance on the economy’s need for a rate cut was clear, with the CPI coming in below expectations. Given recent growth in the labor force, it seems appropriate for the Fed to focus on employment rather than inflation at this time. The report was weaker than expected. We are fully expecting a 25 basis point rate cut a week from now, with markets benefiting from low rates and a weak economy.”
Chris Larkin, Managing Director, E*Trade Trading Investments, Morgan Stanley, New York
“The Fed is widely expected to cut interest rates by 0.25% next week, and today’s CPI data more or less confirms that. That may disappoint investors who were hoping for more rate cuts. But with inflation under control, the market can turn its attention to economic growth — particularly employment.”
Jason Pride, head of investment strategy and research at Glenmede, Philadelphia
“This continues the trend of soft inflation. The core number was slightly above expectations on a monthly basis, but the year-on-year number was actually in line with expectations, with the core number declining slightly year-on-year.”
“It’s a mixed picture, and I suspect the Fed would prefer to see weaker data to justify a potential 50 basis point cut at the upcoming meeting, and we would still say they would consider a 50 basis point cut at this meeting,” he said, but this may make them more likely to go ahead with a further cut of 25 basis points.
Michael Lorisio, senior fixed income trader at Manulife Investment Management in Boston
“(The market has) re-evaluated some of the immediate rate cut expectations… We see it closer to the 25 basis points expected at the September meeting, and maybe a little less than before but overall. That said, I don’t know if it will have a big impact on the Fed other than reinforcing that 25 votes may be an appropriate number of votes.”
Mona Mahajan, senior investment strategist at Edward Jones in New York
“Inflation data is generally in line with expectations, which is a good thing. Both headline CPI and core CPI are moving in the right direction, 2.5%, which is close to the Fed’s 2% target and what we’ve been seeing.” With WTI, this situation should continue this month as well.
“Overall, we’re seeing some positive trends in both new and used vehicles, especially year-over-year, but we’re still seeing high levels in home and rental prices and motor vehicle insurance prices. We expect both factors to continue to decline over time.”
“The overall signal from the market is that we are headed in the right direction. This will help the Fed begin the rate-cutting cycle next week. They have said inflation is more likely to be low. Feel reassured. Now they’re looking at their dual mandate. The other side of the equation is the labor market.
Ben McMillan, Chief Investment Officer, IDX Insights, Tampa, FL
“It actually came in below expectations. Even looking at the individual components, they weren’t a big surprise. The immediate conclusion is that a 50 basis point rate cut next week in September is very unlikely. “We’re down a little bit because I think the market is very aggressively calling for a 50 basis point rate cut in September, and that’s really what the Fed is focused on — the jobs data.
Chris Zaccarelli, chief investment officer, Independent Advisor Alliance, Charlotte, NC (email note)
“First, let’s be clear – given that the inflation report was in line with expectations and the Fed has been given approval to cut interest rates by 25 basis points next week, some may be disappointed that inflation is lower than expected. This leaves the Fed with room to cut rates by an additional 50 basis points, but most Fed speakers have said they want to start slowly rather than cut rates quickly.
Peter Cardillo, Chief Market Economist, Spartan Capital Securities, New York
“The report essentially confirms that core inflation is still rising. This may require the Fed to cut interest rates by a quarter of a percentage point.”
“Overall inflation is really low, especially year-over-year, and it’s moving in the right direction and getting closer to the Fed’s 2% target.”
“I don’t know if it’s shocking, but this report shows that core inflation is still a question mark. This could lead to a 25 basis point rate cut from the Fed.”
Wasif Latif, President and Chief Investment Officer, Sarmaya Partners, Princeton, NJ
“This is a clear green signal for the Fed to proceed. The market reaction may reflect this. The Fed is looking for this clear signal. So, to me, this is a clear signal to proceed with rate cuts.” This is a very strong signal that they need to cut rates by 25 basis points, and perhaps this will increase the likelihood of a 50 basis point cut.
