Displaying items by tag: fed
If higher inflation could be a headwind to rate cuts by the Fed, then there is new data today that could prove a tailwind. New figures show that retail spending was significantly weaker in August than in past months. The data showed that core retail spending stagnated after several months of strong expansion. The data is crucial because consumer spending, and American consumer health generally, has been a bedrock of the economy.
FINSUM: The American consumer has been keeping the economy afloat despite a lot of negative signs around the margins. This could either be a blip or the start of a worrying trend.
Everything you think about the direction of rates could be wrong. That is the general fear after this week’s inflation report. US core consumer prices hit a one-year high in August at 2.4% year-on-year growth, ahead of the Fed’s target. Importantly, it was also a bit higher than expectations. The Fed’s new cutting agenda is partly predicated on the fact that inflation has been so subdued, so any change to that assumption could prove disruptive to a cutting cycle.
FINSUM: We don’t think one month’s report will change the Fed’s path, but it is certainly something to keep an eye on. It is going to make September’s inflation report a lot more important.
Despite the seeming progress in the trade war this week, markets took a negative turn today. The reason why? The August jobs report. The US economy only added 130,000 new jobs in August, fewer than expected. Economists thought the economy would add 173,000 jobs. The August figure is also down substantially from July’s 159,000 figure.
FINSUM: The irony of the market falling on this jobs report is that it will likely support Fed rate cuts, which everyone seems to want. We think of this as a sort of goldilocks report—not too weak to make you worry, but weak enough to support loose monetary policy.
New data just released shows the US economy is a bit weaker than everyone expected. Second quarter GDP data has been revised downward, showing that the US expanded at only 2.0% in the quarter instead of the first-reported 2.1%. Government spending, weaker exports, and private inventories weighed on the numbers. However, the very good news in the data is that consumer spending increase was the strongest in 4.5 years.
FINSUM: Consumer spending is at its highest levels since 2014 at the same time as bond yields are at extraordinary lows and everyone is worried about a recession. Either a recession will arrive or there will be some big losses in bond markets.
Pimco is probably the most respected name in fixed income, and the firm just went on the record warning about the economy and encouraging the Fed to act. The asset manager argues that the US economy is in worse shape than many think and is admonishing the Fed to cut rates more aggressively than expectations. Pimco says that momentum in the labor market is slowing, the trade war is showing little sign of abating, and the risk of financial excess caused by lower rates appears minimal. According to Pimco, “We can’t emphasise enough that labour market momentum has decelerated more markedly than most forecasters were previously expecting”.
FINSUM: We actually are on the opposite side of the fence as Pimco. We think the market is blowing things out of proportion about the economy and is overly worried. We surely hope we are right.