What to Watch for in the Next Inflation Data Report
Key Takeaways
- The Fed hiked interest rates from 5.25 to 5.5 percent last week
- Interest rates remain high and are unlikely to come down just yet
- The next CPI report out in August will be an indicator of what’s to come in the fall
Last Wednesday, the Fed announced it had raised its key interest rate by 0.25% — an expected move. What markets truly want next is for the central bank to cut rates, but inflation isn’t yet under control enough for that. Below, we’ll discuss what’s on the horizon for inflation.
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What’s the next data point to look at?
Everyone is looking out for the next CPI report, which is released monthly by the Bureau of Labor Stastics. Particularly important are Core CPI and headline CPI. Headline CPI is considered the primary inflation gauge, while Core CPI excludes food and energy prices and is thought to be a more accurate predictor of future inflation.
Last week, Fed Chair Jerome Powell said the central bank no longer expects a recession to happen because of these increases, but concerns persist around whether or not the Fed can pull off this “soft landing.”
The next CPI report comes out on August 10th, and that will serve as an indicator of what’s likely to happen with interest rates heading into the fall. July’s core CPI is expected to increase 4.9% annually and 0.4% monthly. The Federal Reserve Bank of Cleveland’s “Nowcast” is predicting that headline inflation in July will increase by 3.4% year-over-year, a significant jump up from June.
What happens after the CPI report?
It’s really anyone’s guess. Core prices are still likely a little high for the Fed, meaning another hike could be coming in September.
“We all wish we could slow the economy ‘just enough,’” said Antulio Bomfim, head of global macro for the global fixed income team at Northern Trust Asset Management. “The margin of error is quite high…You are seeing an economy that is resilient in terms of activity but also stubborn on underlying inflation … The risks of doing too little — that asymmetry — is still there.”
The bottom line
Rates might go up again after July, and even if they don’t, they’re not coming down yet. Keeping debts low is the smart move right now.
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