Growth, Inflation & Policy
- Cleveland Fed inflation nowcast for July is currently at 8.9% Y/Y, not providing significant relief from June’s surprise upside surprise of 9.1%.
- Inflation needs to come in below 0.5% in July M/M in order to decelerate.
- For reference, for CPI to subside to 5% Y/Y, inflation needs to come in at 0% M/M for 5 consecutive months
- While there are numerous reasons inflation should roll over (lower commodity prices, strong dollar, slowing growth), the shelter component of inflation could continue to accelerate for 6 months or more. Inflation will thus likely remain elevated through the end of the year.
RATE HIKE EXPECTATIONS
- The next FOMC meeting is next week (July 27th) and expectations are for a 75-bps hike.
- Current expectations, as per the Fed futures curve, suggests the Fed will be done hiking by the end of the year and will then revert to cutting by as early as March next year.
- While this may seem positive, there is risk of over optimism. If demand doesn’t come down as the Fed hopes, inflation may not come down by enough to alter the Fed’s trajectory. If demand does indeed come down, what happens to asset prices? It’s a three-horse race between the Fed’s mandates: price stability, maximum unemployment and financial stability
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This material is provided to advisors by Mount Yale Investment Advisors, LLC and contains market commentary from third-party sources it believes to be reliable. However, Mount Yale has not independently verified or otherwise investigated such information and makes no guarantee as to its accuracy or completeness. In the event any of the assumptions used herein prove not to be true, results may vary substantially. All investments entail risks. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested indirectly. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. It is not intended to be a client-specific suitability or best interest analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities.
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