Today we received retail sales data for the month of May and the number came in at 0.1% versus estimates of 0.2% and -0.2% in the prior month.
The probability of a 25bps (0.25%) rate cut in Sep FOMC meeting has risen on weaker than expected retail sales, lower CPI, Core CPI, PPI, Core PPI, and rising unemployment rate.
i.e. lower inflation, slightly weakening consumer, weakening job market.
Here is a chart of the probabilities for the September 2024 Federal Open Market Committee (FOMC) meeting:
Here is a reminder of the latest CPI, PPI, and the unemployment data:
- PPI MoM -0.2%.
- Core PPI 0.0% MoM.
- Core CPI YoY the lowest since April 2021.
- Core CPI MoM the lowest since August 2021.
- Headline CPI MoM the lowest since 2020.
- Unemployment rate is up to 4.0% from 3.4%.
US Unemployment Rate 18-Month chart (Source)
Here is a 10-year chart of Core PCE (Source):
The comparison of the U.S. Harmonized Index of Consumer Prices (HICP) and the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) suggests that if inflation were calculated similarly to the United States’ main trading partners, the Federal Reserve might be considering a rate cut.
Specifically, U.S. HICP stands at 1.95%. Here is a chart from Joseph Brusuelas (RSM US LLP Principal & Chief Economist. Named 2023 best rate forecaster by Bloomberg.)
We’re already below 2% inflation.
It is wholly inappropriate to have a monetary policy induced recession at this point.
Thanks for reading.
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