In this week’s inflation report, the question is not whether the door will be open to a rate cut, but whether the Fed chooses to quietly step in or act hastily. Following the release of consumer and producer price data, the issue seems to have been clarified, if only a little: markets now see a greater chance of a 25 percentage point rate cut in September, but are still looking for more aggressive measures. Comments after the second CPI release of two shows the Fed is still weighing variables but is more likely to favor a slow start. Lauren Goodwin, chief market strategist at New York Life Investments, said, “While there is still plenty of time to prove otherwise, we do not believe today’s data represents an urgent call for September.” A 50 basis point cut is needed. “Economic momentum is slowing, but signs that we are already in recession — such as a sharp rise in jobless claims or a deteriorating business outlook — are not yet flashing red lights. “With the introduction of a more cautious and less urgent approach, traders in the federal funds futures market expect the Fed to choose the possibility of a 25 basis point (25 basis points) move in the open market on September 17-18.” Stock markets didn’t take much into account after the producer price index rose just 0.1% in July, according to CME calculations. CPI showed a monthly gain of 0.2% and an annualized gain of 2.9%. , the lowest since spring 2021, the major averages edged lower, but policy-sensitive 2-year Treasury yields and stocks were little changed All in all, the market remains hopeful that the Fed will get out of trouble and. Start easing policy as soon as possible. Liz Ann Saunders, chief investment strategist at Wealth Management, said this is a sign of darker things. Saunders said: “The deterioration of the labor market is more serious than what we are seeing and may trigger. A more radical position. “Hopefully the Fed will be careful in taking more aggressive action.” History shows that rapid rate cut cycles do not reward the stock market compared to slower rate cut cycles. “Current futures pricing indicates that the September rate cut will be followed by a 50 basis point cut in November and another 25 basis point cut in December. However, federal funds futures pricing is more volatile this year than in previous years, and the market now seems more worried that the Fed will admit The labor market may deteriorate. “I do worry that the Fed is basically fighting its last war,” said Fukui Tani, a macroeconomist at MetLife Investment Management. “The last war on inflation was in 1980, when the inflation rate was about 15%. “With core PCE prices rising to 2%, “It’s a completely different world and I think we’re overthinking it. Fukui pointed to rising unemployment and the potential for it to trigger recessionary indicators, but she said the economy has not yet truly contracted. “I’m not going to play with this stuff for the sake of perfection in terms of inflation,” she said. “A one-time substantial rate cut of 50 basis points will alleviate some of the pressure to a certain extent.”
Inflation report clears path for Fed to cut rates, but how much remains question | Real Time Headlines
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