EP Wealth Advisors’ Post

US February Spending, Income & Inflation: Spending up 0.8%, income 0.3% while the Fed' s primary inflation metric advanced 0.3% on the month & 2.5% from one year ago. Core PCE increased 0.3% on the month & 2.8% Y/Y. US PCE Inflation: 2.5% year over year increase is well within what a forward looking central banker would consider tolerable and on way to the 2% target. In my estimation this is consistent with a June rate cut and three overall reductions in the federal funds policy rate this year.

Where did the Fed's 2% inflation target come from? I have little doubt you pondered this question assuming you've been concerned about inflation over the past few years. As a brief reminder, inflation (CPI) was at 9.2% in June 2022, one of the highest rates since the late 1970s. We are at 3.2% as of today. The 2% inflation target has been in place since 1996 but it became an explicit target in 2012 under Ben Bernanke. Many international banks have the same target, including the European Cental Bank, the Bank of Japan and the Bank of England. This is a comfortable benchmark for many developed economies that rarely experience growth rates above 2% to 3% or even lower. At least on the surface, inflation of 2% preserves the purchasing power of workers in these economies. In practice, there are numerous factors that make it challenging to justify any static inflation target. In fact, even the current Fed chairman Jerome Powel had a hard time justifying it when he was asked this specific question in one of his semi-annual testimonies. I personally believe it should fluctuate between a certain range, such as 2% to 4%, depending on the state of the economy. Let me know if you have any other ideas. #inflation #interestrates #federalreserve #wealthmanagement #capitalsquaredfinancial

Fed: Interest rate cut firmly planned for May could start to wobble on inflation reacceleration – Commerzbank The recent US inflation uptick in January, slightly surpassing expectations, may prompt the Fed to reconsider its planned interest rate cut in May. The rise, particularly in core inflation, suggests caution in declaring victory over inflation just yet. Observers are now questioning whether the initially planned rate cut for May will hold, given the resilient state of the real economy. A premature cut in March was already deemed unlikely. May's decision will hinge on January's PCE inflation data and any continued price pressure observed in February, shaping the direction of Fed policy moving forward. #InflationTrend #FedRateCut #EconomicOutlook #PCEInflation #FedPolicy

It is hot out there -- and not only referring to inflation. “The probability of a November rate hike is now close to a coin flip,” as core PCE, which is the best predictor of future inflation, rose 0.2% in July. Read KPMG chief economist Diane Swonk’s analysis. #inflation #economy

This chart illustrates the relationship between US underlying inflation and inflation surprises, with inflation surprises pushed ahead by 12 months. It tracks various measures of underlying inflation alongside the US Citi Inflation Surprise Index. The chart suggests that the inflation surprise index tends to lead actual underlying inflation by about twelve months, showing a predictive relationship across different inflation measures. Although US Consumer Price Index (CPI) inflation in April moderated and was relatively close to expectations, both headline and core CPI measures have consistently exceeded consensus estimates for several preceding months. This has driven increases in the economy’s inflation surprise index.  Given the higher and more positive trend of overall US inflation surprises, inflationary risks may persist. This persistent inflation risk complicates the Federal Reserve’s decision-making process regarding its monetary policy stance. While the Fed has been considering a shift from a hawkish to a dovish approach, continued inflation surprises may keep such a shift uncertain. #Inflation #Policy #Fed

Line chart with data from LSEG Datastream show the federal funds rate, PCE inflation and core PCE inflation in the US. The upcoming Fed meeting on September 20-21, 2023 is expected to pause its interest-rate hikes for the second time this year following a slowing in inflation. #fedmeeting #interestrates #inflation #economy #financialmarkets #personalfinance

Weekly markets roundup (02/16/2024): This week the January US inflation report showed core inflation accelerated 0.4% month over month (3.9% year over year). Currently, market expectations for rate cuts are less pronounced in comparison to the beginning of 2024, as the Fed still has work to do in combatting inflation. Connor, Clark & Lunn Private Capital Ltd. (CC&L) #federalreserve #fedpolicy #inflation #interestrates #macroeconomics #wealthmanagement