Last Friday’s unemployment report came in much stronger than expected (although I think part-time jobs had a big effect). It more than doubled expectations! Those wishing for lower rates were stung by this data as it provides gunpowder for the Fed to increase them.
It will also help support the argument that we are not in a “true” recession as most recessions had high unemployment rates. The unemployment rate fell back to pre-pandemic levels.
This week is another important one. We get our CPI numbers. As important as the unemployment numbers are when it comes to current Fed monetary policy, the CPI takes the cake.
Last month came in at 9.1%. If this week comes in at or below that figure, we should see a nice relief in rates. It will signal a possible peak in inflation, which has been running rampantly for over a year. The market will interpret this as a trend reversal has begun and will place their bets accordingly.
For what it’s worth, this coming CPI report is the first time that I think has a chance to show a month-over-month decrease.
Whatever the result, the Fed will have this August CPI and September CPI reports/data before their next monetary policy decision at the end of September. This month they will be doing their annual meeting at Jackson Hole.
- NY Fed 3 Year Inflation Expectations
- CPI Data
- Initial and Continuing Jobless Claims
- Producer Price Index
- 5 Year Inflation Expectations
We were close to touching the upper resistance line but fell short. We have an ascending horizontal wedge pattern and it seems we are looking to break out of it shortly. Wednesday’s CPI report has the potential to be the catalyst for the next move.
I mentioned last Sunday that it was too early to pop the champagne. We’re coming off the heels of a bad week but anything is in the cards now as we wait for Wednesday.
The best case scenario is that August and September CPI show a declining trend take place and Fed raises rates a maximum of 50bps in September. If those things happen, we will see a favorable year-end rally. The Fed will just need to be careful to cut rates without sparking an increase in consumer demand.
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