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This week's PPI and CPI both missed expectations coming in lower. This was in line with Federal Reserve Governor Dudley's view yesterday and Kaplan's today. The Philly Fed Economists also see 2% as illusory.What does the Fed do now?

You get the feeling Janet Yellen only wants to raise because they implied she would and have sold the story as the economy is ready to soar. Inflation hasn't played along, in nine years of bailouts and QE there is no inflation to spark activity./p>

"I want to now see more evidence that we are making progress in reaching our inflation objective," Dallas Fed President Rob Kaplan<

There are enough reasons to put off raising rates, geopolitical tensions, no inflation and an unknown tipping point. The positive for inflation chasers is CPI is up from last month. The stock market rally underscores how much optimism at the start of the year there was for growth and inflation, (lets leave the mania alert for another time). Now 2% growth with muddling inflation seems achievable. A collapse of the dollar will add some inflation on import prices but falling energy prices negates that.

July US consumer price index 1.7% vs +1.8% y/y expected, prior 1.6% y/y

  • Ex-food and energy 1.7% vs 1.7% exp
  • Avg weekly earnings +1.1% y/y vs +1.2% prior
  • Avg hourly earnings +0.7% vs +0.9% prior

Month-over-month data:

  • CPI +0.1% vs 0.2% exp prior 0.0%
  • Ex food and energy +0.1% vs +0.2% exp Prior +0.1%

Dallas Fed Governor Kaplan speaking at University of Texas at Arlington:

Highlights

  • Inflation is still running below 2%
  • Neutral rate is likely closer to 2 percent than to 3 percent. 
  • US GDP expected a bit above 2% in 2017
  • We're making good progress towards full employment
  • Tech disruption is limiting business's pricing power
  • World growing at sluggish rate by historical standards
  • China's 6.5% growth rate unlikely to be sustainable
  • Healthy to begin shedding bond holdings

Philly Fed survey of economists

 

  • Q3 core PCE inflation seen at 1.8% versus 2.2% in prior survey
  • Q4 core PCE inflation seen at 1.8% versus 1.9% in prior survey
  • Q3 unemployment rate seen at 4.3% versus 4.4% in prior survey
  • Q4 unemployment rate seen at 4.2% versus 4.4% in prior survey
  • Q3 GDP seen at 2.6% versus 2.5% in prior survey
  • Q4 GDP seen at 2.3% versus 2.4% in prior survey

 

From TradersCommunity Research

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