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Tag: CPI

  • In his national address, President Trump claimed he’s bringing prices down. Here’s what the data shows.

    After nearly two months without new consumer price data, the Bureau of Labor Statistics released its latest report Thursday, providing a glimpse at energy costs, food prices and other everyday expenses.

    According to the consumer price index, inflation slowed in November, with prices rising 0.2% over the 0.3% observed in September. (BLS could not collect October data because of the government shutdown.)

    Still, inflation remains stubbornly high. Compared with a year ago, consumer costs are up about 2.7%.

    Thursday’s report came just a day after President Donald Trump delivered a prime-time address from the White House in which he largely discussed affordability concerns, from housing costs to grocery prices, saying the U.S. is “poised for an economic boom.”

    “The last administration and their allies in Congress looted our treasury for trillions of dollars, driving up prices and everything at levels never seen before. I am bringing those high prices down and bringing them down very fast.”

    In truth, of the 11 everyday costs tracked month to month by the consumer price index, only five have decreased since January.

    Here’s a closer look at the president’s claims and how prices are changing, or not, during his second term in office.

    To see the average U.S. price of a specific good, click on the drop-down arrow below and select the item you wish to view.

    Eggs

    In the wake of all-time highs set earlier this year, egg prices have collapsed in recent months.

    That downward trend continued in November, with the price dropping a whopping 63 cents from September and settling at $2.86 per dozen. It’s the first time since June 2024 that the average nationwide price for a dozen large Grade A eggs registered below the $3 mark.

    This steep drop-off in prices is a result of a declining number of bird flu cases in commercial and backyard flocks. In the first two months of 2025, tens of millions of birds were affected by highly pathogenic avian influenza across 39 states, according to U.S. Department of Agriculture data. With entire flocks culled to prevent the spread of the virus, the egg supply was strained, leading to shortages in stores and record costs for consumers.

    Following another spike in cases in the early fall, the number of new infections appears to be subsiding again, with less than 2 million U.S. birds affected in the past two months. More notably, zero outbreaks among egg-laying chickens have been reported in November and December.

    Consequently, costs are “falling rapidly” as highlighted by Trump in his prime-time address earlier this week.

    “The price of eggs is down 82% since March, and everything else is falling rapidly. And it’s not done yet, but boy are we making progress. Nobody can believe what’s going on.”

    While egg prices have dropped considerably from March’s record high of $6.23 per dozen, the difference of roughly $3.37 from March to November represents a 54% decrease — not the 82% cited by the president.

    In a statement given to the Tribune, a White House official clarified that he was referring to wholesale costs, not retail prices.

    Milk

    The cost of milk also saw a measurable decrease from the previous month, falling 13 cents.

    A gallon of fresh, fortified whole milk is now priced at $4.00 — that’s 2.5% less than it was in December 2024, before Trump took office.

    Bread

    The average price of white bread fell in November to $1.79 per pound, marking a three-year low for the pantry staple. Time for bread pudding, anyone?

    Bananas

    The cost of bananas fell slightly from September’s all-time highs, dropping just a fraction of a cent to $0.66 per pound in November.

    Recent price inflation is likely a byproduct of the president’s trade war, with tariffs imposed on the country’s top banana suppliers like Guatemala, Ecuador, Costa Rica, Colombia, Honduras and Mexico — all of which are currently subject to an import tax of at least 10%.

    But in mid-November, Trump took action to combat rising grocery costs, announcing that some agricultural products would be exempt from tariffs due to “current domestic demand for certain products” and “current domestic capacity to produce certain products.”

    Both fresh and dried bananas were among the listed exemptions, indicating that lower prices may be around the corner.

    Oranges

    No data on orange prices was available for November.

    However, in September, the cost of navel oranges was listed at $1.80 per pound, less than a cent shy of record highs and nearly 18% more than they were at the start of the Trump administration.

    Drastically low domestic orange production combined with steep tariffs on foreign growers have been helping to push costs skyward. But, as with bananas, oranges are now exempt from most reciprocal tariffs.

    Tomatoes

    As of November, the cost of field-grown tomatoes was $1.83 per pound. That price is 8 cents lower than the previous month of data and down roughly 12% since Trump took power.

    The change is somewhat abnormal given the growing season, as prices typically rise in the fall and peak in the early winter months, and could be attributable to the Trump administration’s recent course reversal on many of its tomato tariffs.

    Chicken

    The cost of fresh, whole chicken fell for a fourth consecutive month, to $2.04 per pound — its lowest price in a year.

    Rising feed costs and the effects of bird flu on the poultry supply chain have driven persistently higher prices, but with the number of cases dropping again, we could see lower prices in the new year.

    Still, the average cost is only about 2 cents less than it was when President Joe Biden left the White House.

    Ground beef

    Ground beef is getting more expensive.

    After shoppers saw some relief in September from climbing costs, the price of ground beef jumped another 18 cents.

    Rising costs can be attributed to a confluence of factors. The U.S. cattle inventory is the lowest it’s been in almost 75 years, and severe drought in parts of the country has further reduced the feed supply, per the USDA. Additionally, steep tariff rates on top beef importers also played a part in higher prices stateside, but as of Nov. 13 high-quality cuts, processed beef and live cattle are exempt from most countries’ levies.

    Still, since the change of administrations, ground beef costs have ballooned by 18% — translating to $1 per pound price increases at the grocery store.

    As of November, a pound of 100% ground beef chuck would set you back about $6.50.

    Electricity

    Electric costs have also been steadily rising.

    At approximately 19 cents per kilowatt-hour, the current price of electricity is a fraction of a cent off August’s high. According to the U.S. Energy Information Administration, the average American household uses 899 kWh every four weeks, translating to a monthly bill of about $170.

    Thankfully, the White House appears to be working to mitigate mounting costs. In his presidential address, Trump claimed that within the next 12 months his administration will have opened 1,600 new electrical generating plants.

    “Prices on electricity and everything else will fall dramatically,” Trump said.

    For many Americans, relief is needed. Since last December, the average price of electricity per kilowatt-hour has increased more than 7%.

    Gasoline

    Declining gas prices were another highlight of Trump’s Wednesday night remarks.

    The cost of gasoline has tumbled from the record-setting prices Americans saw three summers ago under Biden, and just last month, the price at the pump dropped more than 10 cents per gallon.

    “On day one I declared a national energy emergency,” Trump said. “Gasoline is now under $2.50 a gallon in much of the country. In some states, it by the way, just hit $1.99 a gallon.”

    According to the latest CPI data, the average nationwide cost for a gallon of regular unleaded gasoline is $3.23. And though prices are noticeably lower than they were two to three years ago, that average remains higher than it was just a year ago and up nearly 3% during the Trump presidency.

    Prices in Chicago, meanwhile, are about the same month-over-month, costing an average of $3.29 per gallon, according to EIA data.

    Natural gas

    Bucking its previous downward trend, piped utility gas, or natural gas, is another expense that’s climbing. The nationwide cost jumped 3 cents in November, landing at $1.64 per therm.

    On average, Americans are paying close to 8% more to heat their homes, ovens and stovetops than when Biden left office. Year-over-year, that gap is even more drastic: a roughly 10% change or difference of 15 cents per therm.

    Claire Malon

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  • Ken Griffin has a warning for Trump and the GOP: ‘I would not underestimate how grating a 3% inflation rate could be’ on Americans | Fortune

    For Citadel CEO Ken Griffin, the political implications of still-elevated inflation are not lost on him.

    Inflation has come down a lot from 9% in 2022 to 2.9% in the government’s latest CPI report. Core PCE prices, the Fed’s favorite gauge of inflation, rose 2.9% in August, matching July’s climb. 

    But inflation has been sticky as tariffs take hold, and Griffin predicted inflation will continue to be in the mid-2% to 3% range next year, still above the Fed’s 2% target.

    “The American voters have been exhausted of inflation,” he told CNBC on Thursday.

    In 2024, the high cost of living was a focal point in Trump’s reelection campaign, and Biden-era inflation hurt Democrats. They lost the White House and Congress, while Trump won all seven swing states.

    Many voters blamed Democratic policies—including stimulus spending—for sustained, high costs, exit polls found.

    “There’s no doubt that the president and the Republicans came to power on the back of frustration with inflation,” Griffin said. “I would not underestimate how grating a 3% inflation rate could be to tens of millions of American households.”

    Inflation could feature heavily in midterm elections next year, as the Republican Party looks to defend narrow majorities in the House and Senate. And voters are souring on Trump’s economy.

    A recent Reuters/Ipsos poll showed only 28% of respondents approved of Trump’s handling of their cost of living. A YouGov/Economist poll put Trump’s approval rating on the economy at an all-time low of 35%.

    One indicator of affordability has been a thorn in Trump’s side: high mortgage rates. Yet as Trump looks to the Fed for homeowner relief, many worry about political influence over the independent body.

    Trump has been criticized lately for pressuring the Federal Reserve and threatening its independence. Critics argue that his efforts to appoint loyalists to the Fed, public calls to lower interest rates, and attempts to remove a sitting governor represent a clear move to sway monetary policy for political purposes. 

    Griffin advised that continued Fed independence would be in Trump’s interest.

    “If I were the president, I would let the Fed do their job,” he said. “I would let the Fed have as much perceived and real independence as possible, because the Fed often has to make choices that are pretty painful to make.”

    The Federal Open Market Committee cut interest rates by a fourth of a percent earlier this month to buoy a slowing labor market. The move comes after months of continued pressure from the Trump administration on Fed Chair Jerome Powell and other committee members to cut rates.

    Still, President Donald Trump has been vocal about cutting rates further, even though the move likely will risk further price increases. 

    Griffin warned that erosion of Fed independence could lead to Americans conflating the White House and central bank.

    “If the president’s perceived as being in control of the Fed, then what happens when those painful choices have to be made?”

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    Nino Paoli

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  • Dow futures rise as recession fears grow while Wall Street awaits the one thing that could derail Fed rate cuts

    Stock futures gained momentum on Sunday evening as investors brace for fresh inflation data and political turmoil overseas that could ripple through the bond market.

    That comes as Friday’s dismal jobs report ratcheted up recession fears while also locking in odds for a rate cut later this month from the Federal Reserve.

    Futures tied to the Dow Jones Industrial Average rose 94 points, or 0.21%. S&P 500 futures were up 0.23%, and Nasdaq futures added 0.38%.

    The yield on the 10-year Treasury was flat at 4.091%. The U.S. dollar was up 0.05% against the euro and up 0.65% against the yen after Japan’s prime minister announced he will step down after less than a year in office.

    More political turmoil in the world fourth-largest economy could rattle the bond market as investors gauge whether the next leader will lean toward fiscal discipline or more profligacy.

    Similarly, France’s government faces a confidence vote on Monday after bond vigilantes sent French yields higher on expectations for more gridlock and no progress on reining in deficits.

    U.S. oil prices rose 0.32% to $62.07 per barrel, and Brent crude added 0.40% to $65.76. That’s despite key OPEC+ members agreeing on another production hike meant to grab more market share.

    Gold fell 0.64% to $3,630 per ounce, but still hovering near record highs after recession fears sent safe-haven assets higher last week.

    More recession signals were lurking in the latest jobs data. On Sunday, Moody’s Analytics chief economist Mark Zandi point out that most U.S. industries have been shedding jobs rather than adding them for several months, warning that “this only happens when the economy is in recession.”

    Such labor market weakness basically guaranteed a Fed rate cut. According to CME’s FedWatch tool, Wall Street is certain that some kind of cut is coming when the central bank announces its policy decision on Sept. 17. The only question is whether it will be 25 basis points or 50 basis points. Right now, a 92% probability of a quarter-point cut is priced in.

    Perhaps the only thing that could put a rate cut in doubt is a surprise spike in inflation. The effect of President Donald Trump’s tariffs on inflation has been more muted that anticipated, but investors will get crucial updates.

    On Wednesday, the producer price index for August will come out, and economists expect a 0.3% month increase, cooling from the 0.9% surge in July.

    On Thursday, the consumer price index is due, and Wall Street sees a 0.3% gain, accelerating from the 0.2% pace a month earlier. On an annual basis, the CPI is also seen heating up, with August expected to see a yearly pace of 2.9%, up from 2.7% in July.

    But inflation in core consumer prices should remain steady at a monthly rate of 0.3% and an annual rate of 3.1%. Still, both the headline CPI and core CPI would continue to be above the Fed’s 2% target.

    On Tuesday, the Labor Department will publish preliminary benchmark revisions to its establishment survey data for 2025. With revisions earlier this year mostly trimming prior readings, more downward revisions could be due.

    Meanwhile, Fed Governor Lisa Cook is fighting Trump’s attempt to fire her, and a judge hearing the case could issue a ruling in the coming week, clarifying whether she will be able to participate in the FOMC meeting.

    In addition, the Senate could vote on Trump’s nomination of White House economic adviser Stephen Miran to the Fed’s board of governors, allowing him to take part in the meeting.

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  • Inflation fell to 1.7% in July – MoneySense

    The annual rate of inflation fell to 1.7% in July, Statistics Canada said Tuesday (Aug. 19), down from 1.9% in June. The reading was a tenth of a percentage point below most economists’ expectations.

    A 16.1% decline year-over-year in gas prices tied mainly to the removal of the consumer carbon price earlier this year fuelled the drop.

    BMO chief economist Doug Porter said in an interview that the July consumer price index was a “relatively favourable report” despite some stubbornness at the grocery store and in housing.

    Economists split on how July inflation may affect BoC’s next rate decision

    July’s consumer price index marks the first of two looks at inflation that the Bank of Canada will get before its next interest rate decision on Sept. 17. The central bank held its policy rate steady at 2.75% in July.

    The Bank of Canada has been looking for signs of how Canada’s tariff dispute is affecting inflation, and is particularly concerned with trends in core inflation that strip out influences from tax changes and other volatile inputs.

    Statistics Canada said the Bank of Canada’s preferred measures of core inflation held around 3% in July.

    Porter pointed out that another measure of core inflation that strips out influences from food and energy was lower in July, around 2.6%. Looking at those readings, he said the July CPI report “slightly turned the dial” toward a rate cut in September, aligning with BMO’s expectations.

    Financial market odds for a quarter-point rate cut in September increased modestly to around 40% as of Tuesday afternoon, according to LSEG Data & Analytics.

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    But with core inflation still elevated compared with the headline figure, Porter acknowledged BMO’s call for a cut next month was “a long shot” at this point. “We need some help in the inflation numbers. We probably need a relatively sluggish jobs number as well,” he said.

    CIBC senior economist Andrew Grantham said in a note that the lack of easing in core inflation can mostly be attributed to the base-year effect—the distortion from price movements last year on a particular month’s annual inflation comparisons. He said the shorter-term, three-month core inflation readings now show an annualized rate of 2.4% for July.

    Grantham said there’s still more data to come before the Bank of Canada’s next rate decision, but the July inflation figures support his call for a quarter-point cut in September.

    RBC, meanwhile, is maintaining its call for no more interest rate cuts from the Bank of Canada this year. Claire Fan, senior economist with RBC, said in a note that the monthly advance in core inflation was less than she was expecting. But she said pressure is still spread broadly through the consumer price index.

    What contributed to July’s inflation rate?

    Inflation on food from the grocery store accelerated to 3.4% annually in July, up from 2.8% in June.

    Confectionary prices rose 11.8% and coffee gained 28.6% to be among the biggest contributors to food inflation last month. Statistics Canada said poor growing conditions in countries that produce cocoa and coffee beans were to blame for higher costs.

    Prices for fresh grapes were up nearly 30%, driving the overall cost for fresh fruit up 3.9% in July compared with 2.1% in June.

    Porter said there are some hints that Canada’s tariff dispute with the United States is a factor keeping food inflation elevated, but he stopped short of blaming it for pain at the grocery store. “I think the bigger story is coffee prices … chocolate prices and beef prices, and those aren’t really a tariff story. Those are more climate issues,” he said.

    The Canadian Press

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  • Inflation report spurs mixed narratives on US economy

    Does the latest consumer price index report show that Americans are paying more or less for goods? You might be seeing mixed messaging based on the politicians you listen to or what your social media algorithms surface.

    Some say the numbers show President Donald Trump’s success. Others say the opposite. 

    Every month, the federal Bureau of Labor Statistics publishes the consumer price index, which measures price changes for goods and services including food, apparel, gasoline and housing. The report is used to assess economic stability and inform policy decisions.

    Sen. Rick Scott, R-Fla., celebrated the July report the day of its release.

    “Another month of inflation coming in lighter than expected. That’s GREAT NEWS for Florida families, and another reminder to trust in Pres. Trump!” Scott posted Aug. 12 on X, alongside a short Fox Business clip about energy and gas price decreases.

    U.S. Rep Kathy Castor, D-Fla., had a different take. 

    “Trump is raising your grocery bill to line the wallets of his billionaire friends. Nothing great about this for American families across the country,” Castor wrote in an Aug. 12 X post that included a link to a CBS News story that said in its headline that the index rose in July by 2.7% on an annual basis.

    Economists told PolitiFact this muddled framing isn’t new and people from different political tribes use varying metrics to reinforce their views. They said the full picture on the economy’s health and trajectory needs more time to come into focus.

    Overall, the report’s numbers are “another dose of modest bad news,” said Douglas Holtz-Eakin, president of the center-right policy institute American Action Forum. “It’s not dramatic yet, it’s not a crisis, but it’s not positive.”

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    Trump’s tariffs, widely watched to see how they affect consumer prices and inflation, are still new and some just went into effect in August. 

    “Since at least 2021 the CPI reports have become a partisan battle ground with both sides cherry picking the data to best support their argument,” said Jason Furman, an economist and professor at Harvard University’s John F. Kennedy School of Government who previously served as an economic adviser to former President Barack Obama. “And there is so much data in the CPI report that there is always some way to slice and dice it to support just about any view.”

    The consumer price index report and its meaning

    For July, the consumer price index increased 0.2% compared with the previous month and 2.7% from a year ago. That’s slightly cooler than the 2.8% rise economists had forecast, thanks to declines in gasoline and energy prices.

    Gary Burtless, senior fellow at the Brookings Institution, said the 2.7% 12-month rise in consumer prices for all items is a “bit lower than it was at the start of 2025,” to Trump’s advantage. But the number is also a bit higher than it was from March to July, he said, an advantage for Trump’s critics.  

    A separate measure, core inflation — which excludes food and energy because they are considered volatile measures prone to large, rapid fluctuations — increased 0.3% for July and 3.1% from a year ago. This is the first time annual core inflation, which officials use to monitor underlying, longer-term inflation trends, has risen above 3% in several months. This outpaces Federal Reserve projections before the 2024 election, which projected 2.2% median core inflation for 2025.

    “Economists tend to focus on the core because it is less erratic than food and energy prices,” said Dean Baker, co-founder of the liberal Center for Economic and Policy Research. “Food and energy prices are very important, but big changes in either direction tend to be reversed. Therefore it is often more useful if we are looking for future trends to look at the core index.”

    Despite the uptick, the report was mild enough for investors, as U.S. stocks closed near a record high Aug. 12. The stock market appears, for now, to be focusing on the likelihood that the Federal Reserve will cut interest rates in September given concerns about a cooling labor market. Central bank officials, to Trump’s disapproval, have held rates steady in 2025 as they wait to see tariffs’ effect on the economy.

    The July data comes amid a Bureau of Labor Statistics shakeup. After the agency’s downward revision of May and June employment data, Trump fired bureau Commissioner Erika McEntarfer, accusing her of political bias. Trump nominated E.J. Antoni, an economist at the conservative Heritage Foundation who has criticized the bureau, as the agency’s new commissioner.

    The long and winding road of Trump’s tariffs

    As the Trump administration highlights the collection of nearly $130 billion from the new tariffs so far, many economists expect that businesses will begin passing on the additional costs to U.S. customers.

    Goldman Sachs estimated in an analysis shared with Bloomberg that U.S. companies have so far absorbed the bulk of tariff costs — around two-thirds of the levies — while consumers absorbed around 22% of the costs through June.

    But Goldman Sachs said it expects the consumer share of the costs to soar to 67% by October if the tariffs follow previous patterns of how import levies affected prices.

    Trump wrote in an Aug. 12 Truth Social post that Goldman Sachs CEO David Solomon should replace its economist. “It has been proven, that even at this late stage, Tariffs have not caused Inflation, or any other problems for America, other than massive amounts of CASH pouring into our Treasury’s coffers,” Trump wrote.

    Some U.S. companies have avoided passing along higher prices by stockpiling goods ahead of the tariffs’ implementation. Others have absorbed costs to avoid losing customers or are holding off in hopes that courts nix the tariffs.

    “That’s just businesses making business decisions,” said Holtz-Eakin, from the American Action Forum. “But there will be a point if the tariffs stay in place at the current levels where that just won’t be feasible anymore.”

    Many studies of past tariffs have found that they harm the economy and raise consumer prices.

    For now, however, experts agreed that the U.S. economy is in a wait-and-see moment.

    Burtless, from Brookings, believes that the effects of tariffs on consumer prices are modest so far, and that price increases across different categories of goods and services appear “inconsistent with the idea that tariffs are the main driver of overall inflation.”

    “That may turn out to be the case in the future,” he said, “but not yet.”

    Holtz-Eakin also warned about putting too much stock in a single report.

    “Never believe one month’s data,” he said. “That’s a rule of life if you’re doing policy work.”

    RELATED: New Trump tariffs could put even more downward pressure on economy because they’re less targeted 

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  • Canada’s annual inflation fell to 1.6% in September – MoneySense

    Canada’s annual inflation fell to 1.6% in September – MoneySense

    The agency said Tuesday its consumer price index for September was up 1.6% from a year ago compared with a year-over-year increase of 2% in August.

    It was the slowest annual pace for inflation since February 2021 when it was 1.1%.

    Gasoline prices in September fell 10.7% compared with a year earlier. Excluding gasoline, the annual pace of inflation was 2.2% in September.

    Meanwhile, rent prices increased at a slower pace in the month but remained elevated as they rose 8.2% compared with a year ago following a year-over-year gain of 8.9% in August.

    Grocery prices increased 2.4%, rising faster than overall inflation

    Statistics Canada said prices for food purchased from stores rose faster than overall inflation as they increased 2.4% in September, the same rate as in August. Prices for fresh or frozen beef gained 9.2%, while edible fats and oils rose 7.8% and eggs increased 5%.

    Prices for food purchased from restaurants rose 3.5% compared with 3.4% in August.

    The inflation report is the last major piece of economic data before the Bank of Canada’s interest rate decision on Oct. 23.

    The central bank, which has a target of 2% for inflation, has cut its key interest rate three times so far this year to bring it to 4.25%.

    The Canadian Press

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  • Bank of Canada holds key rate steady at 5%, says too early to cut – MoneySense

    Bank of Canada holds key rate steady at 5%, says too early to cut – MoneySense

    That’s because they expect the Canadian economy to weaken further under the weight of decades-high interest rates. 

    Statistics Canada reported last week the economy grew at an annualized pace of 1% in the fourth quarter. But that modest growth was largely due to a surge in exports, rather than a rise in domestic activity. On a per-capita basis, both real gross domestic product and consumer spending fell over the last three months of the year.

    Dawn Desjardins, chief economist at Deloitte Canada, said the Bank of Canada is looking for more progress on inflation before pulling the trigger. 

    “The bottom line is the economy is moving generally in the direction the bank anticipated. And inflation is not quite where they would like it to be,” she said in an interview. 

    Higher interest rates have helped slow the pace of price growth by causing a pullback in spending in the economy. Canada’s inflation rate dropped to 2.9% in January, falling back within the Bank of Canada’s 1% to 3% target range.

    However, rapidly rising housing costs are standing in the way of getting inflation down even lower. In January, shelter prices were 6.2% higher than they were a year ago. 

    The Bank of Canada has continued to point out the outsized effect housing costs are having on inflation. But Macklem said it’s not the sole issue driving the central bank’s decision-making. 

    “Yes, shelter price inflation—it is the biggest contributor to inflation right now. It’s certainly weighing on our decisions,” Macklem said. “Having said that, our target is for total CPI inflation.”

    The Canadian Press

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  • Subprime car-loan rates are hitting 17%-22%. Should investors be worried?

    Subprime car-loan rates are hitting 17%-22%. Should investors be worried?

    Many borrowers with subprime credit have been paying 17% to 22% rates on new auto loans this year as the Federal Reserve’s inflation fight takes a toll on lower-income households.

    That borrowing range reflects the average cost, or annual percentage rate, for a loan in recent subprime auto bond deals, according to Fitch Ratings, an increase from last year’s average APR of closer to 14%.

    Higher borrowing costs can mean households need to put more of their income into monthly auto payments, ramping up the risks of late payments, defaults and car repossessions. Those risks, however, have yet to make investors flinch.

    The subprime auto sector already has cleared almost $30 billion of new bond deals this year, according to Finsight, a pace that’s slightly below volumes from the past two years, but still above historical levels since 2008.

    The subprime auto bond market is revved up, even as borrowing rate soar


    Finsight

    “I do believe there has to be a reckoning if rates stay higher for longer,” said Tracy Chen, a portfolio manager on Brandywine Global Asset Management’s global fixed income team.

    Figuring out when the tumult might hit has proven difficult. Instead of slowing, the economy has shown resilience despite the Fed lifting its policy rate to a 22-year high of 5.25% to 5.5%. The central bank also indicated it might need to keep rates higher for some time to fight inflation. Longer-duration bond yields, as a result, have pushed higher, but still hover below 5%.

    Subprime standoff

    Inflation eats away at paychecks, especially those of lower-wage workers, a problem the Fed hopes to solve by keeping borrowing rates elevated. A gauge of inflation out Thursday showed consumer prices were steady at a 3.7% yearly rate in September, above the Fed’s 2% target.

    “This recession has been on everyone’s mind for the past three years,” Chen said. While she thinks the economy will likely contract in the middle of 2024, a lot of damage could be done before that. “The longer rates stay here, the harder the landing.”

    For now, the Fed is widely expected to hold rates steady at its next meeting in November. “Fed policy makers are now shifting their focus from ‘how high’ to raise the policy rate to ‘how long’ to maintain it at restrictive levels,” said EY Chief Economist Gregory Daco, in emailed comments.

    Stocks were flat to slightly higher in choppy trade at midday Thursday after the inflation report came in hotter than forecast, with the Dow Jones Industrial Average
    DJIA
    near unchanged and the S&P 500 index
    SPX
    up 0.2%.

    Past recessions and the burden of higher interest costs typically hit lower-wage workers harder, making subprime credit a canary in the coal mine for the rest of financial markets. Even so, investors in subprime auto bonds have yet to demand significantly more spread, or compensation, to offset potentially higher defaults among these borrowers.

    Related: Subprime auto defaults on path toward 2008 crisis levels, say portfolio managers

    Take the AAA rated 2-year slice of a new bond deal issued in mid-October by one of the subprime auto sector’s biggest players. It priced at a spread of 115 basis points above relevant risk-free rate, up from a spread of 90 basis points on a similar bond issued in August, according to Finsight, which tracks bond data.

    When factoring in Treasury rates, the yield on the bonds bumped up to about 6% and 5.7%, respectively. The shot at higher returns and low delinquencies in subprime auto bonds have likely helped with investor confidence. The rate of subprime auto loans at least 60-day past due in bond deals was about 5% in September, according to Intex, up from historic lows around 2.5% two years ago.

    “I think people still feel confident,” Chen said of subprime auto bonds. When putting a recent bond out on a Wall Street list to gauge its market value, she said bids come in right away.

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  • U.K. inflation surprisingly slips, making Bank of England decision a close call

    U.K. inflation surprisingly slips, making Bank of England decision a close call

    Inflation in the U.K. surprisingly eased in August against expectations it would accelerate, a welcome showing for central bankers just a day ahead of an interest-rate decision.

    The U.K. consumer price index fell a touch to 6.7% year-over-year in August from 6.8%, the Office for National Statistics said Wednesday.

    CPI was expected by economists…

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  • When will inflation cool to the Fed’s 2% target? By late next year, says JP Morgan strategist.

    When will inflation cool to the Fed’s 2% target? By late next year, says JP Morgan strategist.

    Inflation is likely to fall below the Federal Reserve’s 2% annual target by late next year, according to David Kelly, chief global strategist at JP Morgan Asset Management.

    Consumer prices rose again in August to reach a 3.7% yearly rate, based on Wednesday’s release of the monthly consumer-price index. That marked its biggest jump in 14 months and a higher reading than the recent 3% low set in June (see chart) as the toll of the Fed’s rate hikes kicked in.

    U.S. consumer prices rose in August, after touching a recent low of 3% yearly in June, as energy prices shot up.


    AllianceBernstein

    The catalyst for increased price pressures in August was a roughly 30% surge in energy prices
    CL00,
    +1.32%
    this quarter, according to Eric Winograd, director of developed market economic research at AllianceBernstein.

    West Texas Intermediate Crude, the U.S. benchmark, settled at $88.52 a barrel on Wednesday, as traders focused on supply concerns following decisions by Saudi Arabia and Russia to cut crude supplies through year-end. WTI was trading at a low for the year below $65 a barrel in May.

    “I don’t think that today’s upside surprise is sufficient to trigger a rate hike next week and I continue to expect the Fed to stay on hold,” Winograd said, in emailed commentary. “But with inflation sticky and growth resilient, the committee is likely to maintain a clear tightening bias—the dot plot may even continue to reflect expectations of an additional hike later this year.”

    Federal Reserve officials increased the central bank’s policy rate to a 5.25%-5.5% range in July, the highest in 22 years.

    Higher gasoline prices, however, also could act as a counterweight to inflation, according to JP Morgan’s Kelly. “Indeed, to the extent that higher gasoline prices cool other consumer spending, the recent energy price surge could contribute to slower growth and lower inflation entering 2024,” Kelly wrote in a Wednesday client note. 

    “We still believe that, barring some further shock, year-over-year headline consumption deflator inflation will be below the Fed’s 2% target by the fourth quarter of 2024.”

    Kelly isn’t expecting the Fed to raise rates again in this cycle.

    U.S. stocks ended mixed Wednesday following the CPI update, with the Dow Jones Industrial Average
    DJIA
    down 0.2%, the S&P 500 index
    SPX
    up 0.1% and the Nasdaq Composite Index
    COMP
    up 0.3%, according to FactSet.

    But with oil prices well off their lows for 2023, Winograd said further progress on cooling headline inflation is unlikely this year, even though he expects core inflation to gradually decelerate, a process that will “keep the Fed on high alert.”

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  • Inflation could rebound later this year. And that might be a good thing.

    Inflation could rebound later this year. And that might be a good thing.

    U.S. inflation has slowed down significantly over the past few months, but it faces risks of reacceleration in the fourth quarter, or next year, some analysts are warning. 

    Data released Thursday showed U.S. consumer prices rose a mild 0.2% in July, while the 12-month rate of inflation edged up to 3.2% from 3% in the prior month, the first annual-rate increase in 13 months, the Labor Department said on Thursday. However, the so-called core rate of inflation, which omits food and energy prices, saw its yearly rate of increase slow to 4.7% from 4.8%, the slowest in almost two years. 

    On Friday the U.S. producer-price index showed a July rise of 0.3%, up from a revised flat reading in June, and the core PPI rose 0.2 in July, up from a 0.1% gain in the prior month. 

    “We could very easily see a reacceleration of inflation next year,” as base effects may soon work against inflation numbers, said Kathryn Rooney Vera, chief market analyst at StoneX. 

    If the inflation rate in the comparable period of the previous year was very low, even just a small monthly increase in CPI or PPI in the current year will render a high inflation rate now and vice-versa.

    U.S. inflation accelerated aggressively in the first half of 2022, before price rises slowed in the second half. In June 2022, the annual consumer-price inflation rate peaked at 9.1%; it thereafter started to fall. 

    The most challenging part of combating inflation was not slowing the yearly consumer inflation rate from 9% to 3% but lowering the yearly inflation rate for core personal consumption expenditures, or core PCE, to 2% from 4.1% in June, noted Rooney Vera of StoneX. 

    PCE is said to be U.S. central bankers’ preferred inflation metric.

    Julian Brigden, co-founder and president of Macro Intelligence 2 Partners, echoed the point. The idea that inflation is defeated is “ultimately wrong,” said Brigden. There are risks of upside surprise for inflation in the fourth quarter, noted Brigden. 

    “Goods inflation has fallen, food inflation has fallen, and energy inflation most materially has fallen. All of those [base] effects start to drop out in the not-too-distant future,” said Bridgden. 

    Meanwhile, the U.S. economy remains resilient, with unemployment numbers relatively low, supporting an elevated service-sector inflation rate. The Federal Reserve Bank of Atlanta’s real-time GDP tool forecasts the U.S. economy is growing at a 4.1% rate in the third quarter.

    “In a service-based economy based on consumption, with a core PCE that’s overwhelmingly driven by service-sector inflation and this economy could potentially grow in the third quarter by 4%, with real wages positive and unemployment at 3.5%, how do we expect service-sector inflation to drop?” said Rooney Vera. “So the Fed has to make a tough choice: Are they targeting 2% inflation or are they not?”

    See: Fed has ‘more work to do’ to get inflation back down, Daly says

    Also read: Worker pay at center of Fed’s inflation fight

    Federal Reserve chief Jerome Powell said in July that it appeared unlikely inflation would get back to the U.S. central bank’s long-term 2% target before 2025. 

    “I think it’s actually better off if we see some inflation,” according to Melissa Brown, global head of applied research at Qontigo. “Given the economic numbers and the employment numbers, I think to see inflation really come down, it probably is going to suggest a recession.”

    Earlier this year an elevated inflation rate made it difficult for companies to raise prices enough to offset their own rising costs, especially while the Fed was raising borrowing rates. But “even if we see some inflation going into the fourth quarter, that actually could be good. We would switch from this being bad inflation to being good inflation, which just means that the economy is strong enough to sustain higher inflation,” said Brown.

    U.S. stock indexes traded mixed on Friday. The Dow Jones Industrial Average
    DJIA
    gained 0.4%, and the S&P 500
    SPX
    was unchanged. The Nasdaq Composite
    COMP
    fell 0.5%.

    Read on:

    Want companies to lower their prices? Stop buying stuff from them.

    ‘Greedflation’ is replacing inflation as companies raise prices for bigger profits, report finds

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  • Hate to spoil the party but there’s a new risk in town — a ‘no landing’ economy

    Hate to spoil the party but there’s a new risk in town — a ‘no landing’ economy

    For the last 18 months, all you’ve heard from the markets is that the U.S. economy is three months away from a recession. Now, the popular analysis is that that inflation is on a smooth glidepath down and the economy will never have a downturn again.

    Worries about a recession have evaporated, and all the talk is about a “soft landing,” with the Federal Reserve not having to hike interest rates more than once more, at most.

    But behind the scenes, in some economic circles, there is growing concern about another risk for the economy, dubbed a “no landing” scenario.

    What does “no landing” mean? Essentially it’s marked by economic growth that’s too strong to allow inflation to fall all the way to 2%, where the Federal Reserve aims for it to be, and therefore an economy that will need more Fed rate hikes, according to Chris Low, chief economist at FHN Financial.

    So instead of the U.S. central bank starting to cut rates early next year, there may be more rate hikes in store.

    “There is still considerable work to do before the inflation beast is fully tamed,” Low said.

    Former Fed Vice Chair Richard Clarida described the risk in crystal-clear terms. “If the Fed finds itself  in March 2024 with an unemployment rate of 4% and an inflation rate of 4% with some of that temporary good news behind them, they are in a very tough spot,” Clarida said in a recent interview with Bloomberg News.

    “It is a risk. It is not the base case. But if I was still there [at the Fed], I would be assessing it,” he added.

    So why does this matter? Why would the Fed be in such a tough spot? Two words: presidential election.

    A Fed that is dedicated to bringing inflation down might have to slam the brakes on the economy forcefully to get the job done. That gets tough during an election year, especially one that already seems poised to be filled with acrimony.

    “The Fed does not play politics with monetary policy. The FOMC will do what is right for the economy, election year or not. Nevertheless, FOMC participants are already sensitive to triggering a recession. Doing it in an overt way when Congress, a third of the Senate, and the White House are up for grabs would be reckless,” Low said.

    Andrew Levin, professor of economics at Dartmouth College and a former top Fed staffer, said “raising interest rates sharply in the midst of an election cycle could be a delicate matter. Even the vaunted inflation fighter, Paul Volcker [the Fed’s chairman from 1979 to 1987], decided to ease off the brakes midway through the 1980 presidential campaign.”

    Ray Fair, a Yale economics professor, thinks that, whether or not the Fed successfully lowers consumer-price inflation to the vicinity of 2% will be what really matters for the 2024 presidential election. If inflation does not go gently and the Fed is still fighting next year, it would likely be negative for President Joe Biden and the Democratic Party, he said.

    See: Inflation could rebound later this year. And that might be a good thing.

    To avoid hiking rates next year, the Fed, in Low’s view, will raise interest rates to 6% by the end of this year. That is an out-of-consensus call. Financial markets think the Fed is done hiking with its benchmark policy interest rate in a range of 5.25% to 5.5%.

    Many economist and the financial markets are talking more about prospective Fed rate cuts in early 2024 than any more hikes.

    Asked during a recent radio interview if he thought a “no landing” scenario was taking shape, Philadelphia Fed President Patrick Harker replied: “I don’t think so.”

    Harker said the economy was likely on track to return to the low-interest-rate and low-inflation environment of 2012-19.

    “I think about this a lot, and I asked myself what’s different fundamentally about the U.S. economy now then the way it was before the pandemic,” Harker said. He concluded that there wasn’t much difference.

    The big trend Harker mentioned was demographics, with baby boomers still moving in large numbers into retirement. “I don’t think we have to stay in a high-inflation regime. I think we can get back to where we were,” he said.

    Steve Blitz, chief U.S. economist at research firm GlobalData.TSLombard, said he puts the probability of a “no landing” scenario at about 35%.

    Blitz added it was a common mistake for economists, policy makers, traders and journalists “to presume that the expansion to come is going to look like the expansion that was.”

    “At least in the United States, that was never the case,” he added.

    Blitz said that if the U.S. economy were growing at a rate below 2% with an inflation rate higher than 3%, the Fed would have to raise the policy rate to about 6.5%. But if the economy is humming along with 3% growth and inflation over 3%, that would be a trickier spot. “Does the Fed really want to slow that down?” he asked.

    See: The U.S. economy is aiming for a three-peat: 2% GDP growth

    The range of possible outcomes for the economy remains wide. Some economists still believe that a recession early next is the most likely outcome.

    Other economists, like Michelle Meyer, chief U.S. economist at Mastercard, think the economy will continue to grow, with inflation coming down. Meyer described that outcome as “a soft landing with bumps.”

    Stephen Stanley, chief economist at Santander U.S., said he thinks the U.S. economy will “muddle through” next year with subpar growth in the range of 1% for several quarters and inflation slowing gradually.

    “Obviously, that optimism melts away if we’re back to readings of 0.4% and 0.5% on core CPI in three months or six months,” Stanley said.

    Economic calendar: See what’s on the U.S. economic-data docket in the coming week

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  • Inflation could rebound later this year. And that might be a good thing.

    Inflation could rebound later this year. And that might be a good thing.

    U.S. inflation has slowed down significantly over the past few months, but it faces risks of reacceleration in the fourth quarter, or next year, some analysts are warning. 

    Data released Thursday showed U.S. consumer prices rose a mild 0.2% in July, while the 12-month rate of inflation edged up to 3.2% from 3% in the prior month, the first annual-rate increase in 13 months, the Labor Department said on Thursday. However, the so-called core rate of inflation, which omits food and energy prices, saw its yearly rate of increase slow to 4.7% from 4.8%, the slowest in almost two years. 

    On Friday the U.S. producer-price index showed a July rise of 0.3%, up from a revised flat reading in June, and the core PPI rose 0.2 in July, up from a 0.1% gain in the prior month. 

    “We could very easily see a reacceleration of inflation next year,” as base effects may soon work against inflation numbers, said Kathryn Rooney Vera, chief market analyst at StoneX. 

    If the inflation rate in the comparable period of the previous year was very low, even just a small monthly increase in CPI or PPI in the current year will render a high inflation rate now and vice-versa.

    U.S. inflation accelerated aggressively in the first half of 2022, before price rises slowed in the second half. In June 2022, the annual consumer-price inflation rate peaked at 9.1%; it thereafter started to fall. 

    The most challenging part of combating inflation was not slowing the yearly consumer inflation rate from 9% to 3% but lowering the yearly inflation rate for core personal consumption expenditures, or core PCE, to 2% from 4.1% in June, noted Rooney Vera of StoneX. 

    PCE is said to be U.S. central bankers’ preferred inflation metric.

    Julian Brigden, co-founder and president of Macro Intelligence 2 Partners, echoed the point. The idea that inflation is defeated is “ultimately wrong,” said Brigden. There are risks of upside surprise for inflation in the fourth quarter, noted Brigden. 

    “Goods inflation has fallen, food inflation has fallen, and energy inflation most materially has fallen. All of those [base] effects start to drop out in the not-too-distant future,” said Bridgden. 

    Meanwhile, the U.S. economy remains resilient, with unemployment numbers relatively low, supporting an elevated service-sector inflation rate. The Federal Reserve Bank of Atlanta’s real-time GDP tool forecasts the U.S. economy is growing at a 4.1% rate in the third quarter.

    “In a service-based economy based on consumption, with a core PCE that’s overwhelmingly driven by service-sector inflation and this economy could potentially grow in the third quarter by 4%, with real wages positive and unemployment at 3.5%, how do we expect service-sector inflation to drop?” said Rooney Vera. “So the Fed has to make a tough choice: Are they targeting 2% inflation or are they not?”

    See: Fed has ‘more work to do’ to get inflation back down, Daly says

    Also read: Worker pay at center of Fed’s inflation fight

    Federal Reserve chief Jerome Powell said in July that it appeared unlikely inflation would get back to the U.S. central bank’s long-term 2% target before 2025. 

    “I think it’s actually better off if we see some inflation,” according to Melissa Brown, global head of applied research at Qontigo. “Given the economic numbers and the employment numbers, I think to see inflation really come down, it probably is going to suggest a recession.”

    Earlier this year an elevated inflation rate made it difficult for companies to raise prices enough to offset their own rising costs, especially while the Fed was raising borrowing rates. But “even if we see some inflation going into the fourth quarter, that actually could be good. We would switch from this being bad inflation to being good inflation, which just means that the economy is strong enough to sustain higher inflation,” said Brown.

    U.S. stock indexes traded mixed on Friday. The Dow Jones Industrial Average
    DJIA
    gained 0.4%, and the S&P 500
    SPX
    was unchanged. The Nasdaq Composite
    COMP
    fell 0.5%.

    Read on:

    Want companies to lower their prices? Stop buying stuff from them.

    ‘Greedflation’ is replacing inflation as companies raise prices for bigger profits, report finds

    Source link

  • Why have frozen fruit and vegetable prices soared by almost 12% — but the cost of fresh produce has not?

    Why have frozen fruit and vegetable prices soared by almost 12% — but the cost of fresh produce has not?

    What’s going on with frozen fruit and vegetables?

    Food prices rose 0.2% on the month in July after remaining unchanged in June, and they rose 4.9% on the year, while the cost of food at home rose 3.6% on the year, government data released Thursday showed. Prices of fresh fruits and vegetables rose just 1.2% year over year.

    However, there were some big — even alarming — outliers: Frozen fruit and vegetable prices increased by 11.8% in July over last year, frozen vegetable prices rose 17.1% and frozen noncarbonated juice and drink prices rose 16.3%.

    Those price rises are at odds with overall inflation figures. U.S. consumer prices rose to 3.2% in July from 3% in the prior month, the Bureau of Labor Statistics said this week. It was the first increase in 13 months.  

    Why have the prices of frozen fruits and vegetables shot up over the past 12 months, while the cost of fresh fruits and vegetables has increased so little? 

    Climate change and extreme weather conditions — from heavy rainfall to drought, particularly in California — have led to big problems for farmers. This has been compounded by issues related to the war in Ukraine and an ongoing increase in the cost of labor, experts said.

    As a result, a large proportion of the fruits and vegetables grown were destined to be sold as fresh produce — which led to a shortage of ingredients for frozen goods, said Brad Rubin, sector manager at Wells Fargo Agri-Food Institute. “Because of the late crop, lots of produce is being pushed to the fresh market to keep up with demand,” he said.

    California weather

    California has experienced some drastic weather conditions over the last 12 months. Some 78 trillion gallons of water fell in California during winter 2022 and early spring 2023, according to data from the National Weather Service, delaying planting. And all that snow and rain was followed by a months-long drought in the region.

    What happens in California is felt by consumers across the country. 

    “California produces nearly half of U.S.-grown fruits, nuts and vegetables,” according to estimates from the Sciences College of Agriculture, Food & Environmental Sciences at California Polytechnic State University in San Luis Obispo. “California is the only state in the U.S. to export the following commodities: almonds, artichokes, dates, dried plums, figs, garlic, kiwifruit, olives, pistachios, raisins and walnuts,” it says.

    The subsequent price rises hit ingredients like strawberries and raspberries especially hard, Rubin added. Inventories of frozen berries are “near five-year lows” after winter storms in Watsonville flooded agricultural fields, damaging and delaying the strawberry crop. Most of the strawberries in the U.S. are grown in California. 

    Labor costs

    Frozen fruits and vegetables have a longer supply chain than fresh produce, which can make them more vulnerable to disruptions in inventory, experts say. Rising energy prices are also pushing up the cost of cold storage. 

    In addition to those issues, U.S. farmers are dealing with increased labor costs and fewer migrant workers, partly due to changes in government policies and the closure of borders during the COVID-19 pandemic, according to a February 2023 report from the Federal Reserve Bank of San Francisco. 

    “Immigration has traditionally provided an important contribution to the U.S. labor force,” the report said. “The flow of immigrants into the United States began to slow in 2017 due to various government policies, then declined further due to border closures in 2020-21 associated with the COVID-19 pandemic. This decline in immigration has had a notable effect on the share of immigrants in the U.S. labor force.”

    Russia’s invasion of Ukraine also continues to affect agricultural production in the U.S., said Curt Covington, senior director of institutional business at AgAmerica Lending, a financial-services company providing agricultural loans. Because the war disrupted supplies of commodities like wheat and corn — also pushing up prices for those goods — farmers have been prioritizing planting those crops over vegetables. 

    “These escalating frozen-vegetable prices present a challenge for farmers as they grapple with increased production costs and labor pressures,” and that presents a long-term challenge for farmers, “potentially impacting their profitability,” Covington said. 

    All of these factors — from international supply chains to extreme weather conditions — will have an effect on the cost of frozen goods in U.S. supermarkets. Ultimately, experts said, consumers will end up paying the price.

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  • U.S. stocks rise as bulls get ‘wish’ on inflation report, yet soft landings for Fed are ‘pretty improbable’

    U.S. stocks rise as bulls get ‘wish’ on inflation report, yet soft landings for Fed are ‘pretty improbable’

    Markets seem to be embracing the notion of a soft landing for the U.S. economy despite inflation remaining above the Federal Reserve’s 2% target.

    “Soft landings are not impossible, but they’re pretty improbable,” said Bob Elliott, co-founder, chief executive officer and chief investment officer at Unlimited Funds, in a phone interview. “They’re particularly challenging in an environment where the labor market is tight,” he said, and yet  “many investors are sort of enamored with this idea that we could get a soft landing.”

    The U.S. stock market was rising Wednesday after fresh data showed inflation rose in June slightly less than expected. Meanwhile, the unemployment rate remains low in the U.S., with wage growth helping to fuel consumer spending in an economy that grew at a revised 2% annualized pace in the first quarter.  

    “There’s a race going on between the Fed slowing the economy down, and then on the other side, inflation becoming entrenched,” said Elliott. In that race, the Fed has been “one or two steps behind,” he said, ahead of Wednesday’s inflation reading.

    The consumer-price index showed U.S. inflation rose 0.2% in June for a year-over-year rate of 3%, according to a report Wednesday from the Bureau of Labor Statistics. Core CPI, which excludes energy and food prices, increased 0.2% last month for a year-over-year rate of 4.8%. The Bureau of Labor Statistics said core inflation’s rise in June marked the smallest monthly increase since August 2021. 

    “The Fed will see the June CPI report as progress, but they are still very likely to raise the target rate a quarter percent at their decision in July,” Bill Adams, chief economist for Comerica Bank, said in emailed comments Wednesday. “The Fed would rather overtighten and slow the economy more than necessary than under-tighten and risk inflation accelerating when the economy regains momentum.”

    Many investors have been expecting the Fed to hike its benchmark interest rate by a quarter percentage point at its policy meeting later this month, which would bring it to a targeted range of 5.25% to 5.5%. Federal-funds futures on Wednesday pointed to a 92.4% probability of such a rate hike and a slightly more than 80% chance of the Fed then pausing at its next meeting in September, according to CME FedWatch Tool, at last check.

    After the expected increase in July, traders in the fed-funds-futures market were on Wednesday largely expecting the Fed to hold rates steady for the rest of the year.

     “The bulls get their wish – CPI print came in better than expectations,” said Rhys Williams, chief strategist at Spouting Rock Asset Management, in emailed comments Wednesday. “We think the danger now is that the Federal Reserve does one too many rate increases and the soft landing turns into something harder.”

    In Elliott’s view, both the stock and bond markets lately appeared to be embracing the idea of a soft landing for the economy.

    The yield on the two-year Treasury note, which recently has been trading below the Fed’s benchmark rate, tumbled after the CPI report was released Wednesday. Two-year yields
    TMUBMUSD02Y,
    4.758%
    were down about 16 basis points around midday Wednesday at 4.73%, according to FactSet data. 

    “As the Fed has moved interest rates to very restrictive levels thus far, and probably will execute another hike or possibly two from here, we think that patience should be a real virtue in their overall disposition toward ongoing monetary policy,” said Rick Rieder, BlackRock’s CIO of global fixed income and head of the firm’s global allocation investment team, in emailed comments Wednesday. “Today’s CPI report for June displayed notable moderation, which is good news for policy makers, markets and households overall.”

    U.S. stocks were up Wednesday afternoon, with the S&P 500
    SPX,
    +0.83%
    gaining 0.7% while the Dow Jones Industrial Average
    DJIA,
    +0.39%
    rose 0.4% and the Nasdaq Composite
    COMP,
    +1.15%
    advanced 0.9%, according to FactSet data, at last check. The stock-market’s fear gauge, the Cboe Volatility index
    VIX,
    -7.28%    ,
    was down more than 7% at 13.8 around midday Wednesday.

    Read: S&P 500 is most likely going to correct back to 4,100, Mizuho warns market bulls

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  • I-bonds are over, long live I-bonds: This is your warning that rates are about to drop precipitously.

    I-bonds are over, long live I-bonds: This is your warning that rates are about to drop precipitously.

    Series I bonds had a good two-year run at the top of the interest-rate heap, but the next 6-month rate that will be announced on May 1 is likely to fall so low that buyers probably won’t show up in record-breaking numbers. 

    I-bonds are priced based on two factors: a variable rate based on six months of inflation data (from October through March) and a fixed rate that is less transparently calculated. The latest CPI numbers for March indicate that the variable rate is going to pan out at an annualized rate of 3.38%, down from…

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  • Bitcoin Price Pumps After Lowest CPI Report Since December 2021

    Bitcoin Price Pumps After Lowest CPI Report Since December 2021

    The price of bitcoin ($BTC) has jumped ~5% to nearly $18,000 after the most recent Consumer Price Index reading from the U.S. Bureau of Labor Statistics reflected a lower number than the 7.3% projected by economists.

    At 7.1%, CPI has now reached its lowest levels since December of 2021, which was the highest reported month that year. After two years of sustained inflation as a result of the Federal Reserve’s COVID-19 stimulus, the Fed was forced to aggressively hike rates in order to prevent runaway inflation. The latest CPI print confirms their aggressive actions have had an impact, although food and energy in particular maintain high levels of inflation (10.6% and 13.1% respectively).

    Bitcoin, an asset often viewed as risk-on in traditional markets, benefits from low rate environments. The latest CPI print reinforces the narrative that the Fed will now shift to a slow down in its rate hikes, which could explain the current pump in bitcoin’s price. Bitcoin began its descent from the mid-$40,000 range in April of 2022 and has been hovering below $20,000 since June of this year. Contagion from the failure of the Three Arrows Capital hedge fund ultimately sparked this fall, which has only since been exacerbated by the collapse of industry titan FTX.

    BtcCasey

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  • Forget The Federal Reserve, The Market Is Pivoting Anyway

    Forget The Federal Reserve, The Market Is Pivoting Anyway

    “Fed Watch” is a macro podcast, true to bitcoin’s rebel nature. In each episode, we question mainstream and Bitcoin narratives by examining current events in macro from across the globe, with an emphasis on central banks and currencies.

    Watch This Episode On YouTube Or Rumble

    Listen To The Episode Here:

    Ansel Lindner

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  • Fed’s Waller says market has overreacted to consumer inflation data: ‘We’ve got a long, long way to go’

    Fed’s Waller says market has overreacted to consumer inflation data: ‘We’ve got a long, long way to go’

    Federal Reserve Gov. Christopher Waller said Sunday that financial markets seem to have overreacted to the softer-than-expected October consumer price inflation data last week.

    “It was just one data point,” Waller said, in a conversation in Sydney, Australia, sponsored by UBS.

    “The market seems to have gotten way out in front over this one CPI report. Everybody should just take a deep breath, calm down. We’ve got a ways to go ” Waller said.

    Investors cheered the soft CPI print, released Thursday, driving stocks up to their best week since June. The S&P 500 index
    SPX,
    +0.92%
    closed 5.9% higher for the week.

    The data showed that the yearly rate of consumer inflation fell to 7.7% from 8.2%, marking the lowest level since January. Inflation had peaked at a nearly 41-year high of 9.1% in June.

    Waller said it was good there was some evidence that inflation was coming down, but noted that there were other times over the past year where it looked like inflation was turning lower.

    “We’re going to see a continued run of this kind of behavior and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here,” Waller said.

    “We’ve got a long, long way to go to get inflation down. Rates are going keep going up and they are going to stay high for awhile until we see this inflation get down closer to our target,” he added.

    The Fed is focused on how high rates need to get to bring inflation down, and that will depend solely on inflation, he said.

    Waller said “the worst thing” the Fed could do was stop raising rates only to have inflation explode.

    The 7.7% inflation rate seen in October “is enormous,” he added.

    The Fed signaled at its last meeting earlier this month that it might slow down the pace of its rate hikes in coming meetings.

    The central bank has boosted rates by almost 400 basis points since March, including four straight 0.75-percentage-point hikes that had been almost unheard of prior to this year.

    “We’re looking at moving in paces of potentially 50 [basis points] at the next meeting or the next meeting after that,” Waller said.

    The Fed will hold its next meeting on Dec. 13-14, and then again on Jan. 31-Feb. 1.

    At the same time, Powell said the Fed was likely to raise rates above the 4.5%-4.75% terminal rate that they had previously expected.

    “The signal was ‘quit paying attention to the pace and start paying attention to where the endpoint is going to be,’” Waller said.

    In the wake of the CPI report, investors who trade fed funds futures contracts see the Fed’s terminal rate at 5%-5.25% next spring and then quickly falling back to 4.25%-4.5% by November. That’s well below the levels prior to the CPI data.

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  • September Inflation Figures Are No Cause For Alarm

    September Inflation Figures Are No Cause For Alarm

    The headlines for last week’s inflation figures look very familiar. The Federal Reserve is “losing the war against inflation” and it can’t let up in the face of the “alarming US inflation figures.”

    These kinds of headlines are great for grabbing people’s attention, but otherwise they are not very helpful. As I (and others) have pointed out repeatedly, the year-to-year inflation rates will remain elevated for many more months even if the price level stays perfectly flat. That’s simply the math that we’re stuck with because the initial spike in prices was so high.

    But those year-to-year rates say little about whether the Fed is currently failing to tame inflation or if the current rate of inflation is alarming.

    To get a handle on these questions, one must look at the month-to-month inflation trends. The year-to-year changes reveal more about how the price level behaved earlier in the year. So, let’s check out those month-to-month changes that were released on October 13th.

    From August to September, the Consumer Price Index rose 0.4 percent.

    Is that figure alarming? Is inflation out of control? Those terms are rather subjective, but the monthly rate is well shy of the 8.2 percent annual rate reported for September.

    As for the monthly trend, starting with July, the previous three rate increases were zero, 0.1, and 0.4 percent. So, the September rate is a bit higher than August when the monthly change was just 0.1 percent. Still, the last three months look better than the previous four, when the CPI increased by 1.2 percent (March), 0.3 percent (April), 1.0 percent (May), and 1.3 percent (June).

    For the last three months, the rate of inflation averaged 0.17 percent. It averaged almost one percent for the previous four months.

    Then, there’s the bigger question of what should the Fed do? To answer that question, let’s take a closer look at the details underlying the last two monthly CPI releases.

    Many of the individual categories driving the overall inflation rate (i.e., driving the full CPI) were essentially unchanged from September to August. Changes in both major food categories and shelter, for example, were identical. New vehicle prices were only 0.1 percentage point different.

    One of the main reasons the overall CPI rate was up a bit is that transportation services increased 1.9 percent in September, while it had only increased 0.5 percent in August. Moreover, energy prices fell just 2.1 percent in September after declining five percent in August. (Gasoline prices fell 4.9 percent in September after falling 10.6 percent in August, and fuel oil fell 2.7 percent in September versus 5.9 percent in August.)

    A deeper look at those transportation numbers reveals what caused the 1.9 percent spike in September. The transportation services category includes the following three smaller items: (1) Motor vehicle maintenance and repair; (2) Motor vehicle insurance; and (3) Airline fares. From August to September, the first two items changed very little. However, airline fires increased 0.8 percent in September after having declined 4.6 percent in August.

    Given that so many of the other CPI categories were essentially unchanged from August, if airline fares had declined at the same rate as the previous month, the overall CPI would have been flat. In that case, the average rate for the last three months would have been very close to zero.

    Either way, there’s not much cause for alarm in the September numbers compared to the last few months. When the overall CPI barely moves for two consecutive months, and only increases by 0.3 percentage points because airline ticket prices rose (after having declined in the previous month), it’s hard to say the United States is experiencing runaway inflation.

    This finer level of detail also has broader implications for the Fed and the way that it conducts monetary policy. The Fed adjusts its rate targets based on the overall rate of inflation to either slow down the overall flow of credit or boost it. For the last year or so, the Fed has been tightening, trying to slow down the overall flow of credit to slow down the economy and, therefore, the rate of inflation.

    Whatever the Fed does right now with rates, it will likely have very little effect on airline fares. The Fed has poor price setting powers regarding specific categories of goods. Monetary policy is a very blunt instrument, and the past year has been a textbook case for why a central bank should not target prices at all.

    So, while it makes sense for the Fed to stay its current course–talking tough on inflation and raising its targets if market rates continue to rise–it must avoid the clickbait.

    Put differently, the Fed can ignore the dire headlines and avoid tightening so much that it causes a recession. If inflation expectations stay anchored–and there are indications that the Fed has succeeded on this front–the Fed won’t have to go crazy.

    As I’ve argued before, journalists can help the Fed manage these inflation expectations. Just give more weight to the recent direction of the price level and stop fixating on the “record” annual rates. Those are going to stay high for many more months unless the Fed engineers a massive, rapid price deflation. And nobody, least of all the Fed, wants that outcome.

    Norbert Michel, Contributor

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