All eyes on the US Consumer Price Index. According to the New York Fed survey of consumer expectations in July, Americans expect inflation to decline to 6.2% over the next year, from 6.8% in the June survey result, and to 3.2% over the next three years, from 3.6%. While there is a significant drop in inflation expectations, they still remain well above the Federal Reserve’s 2% inflation target.
Markets closely followed July’s inflation data to gauge the Federal Reserve’s next move at its September meeting. The central bank has raised the interest rate four times this year, bringing the current benchmark rate to 2.25%-2.5%. To tame soaring prices, the Fed raised the federal funds rate by +25 bps in March, +50 bps in May, +75 bps in June and +75 bps in July. The likelihood of a third consecutive hike of +75bps grew after a strong jobs report. The US Bureau of Labor Statistics reported last Friday that nonfarm payrolls rose by 528.000 in July 2022, better than the forecast of 250.000, and unemployment rate decreased to 3.5%, from 3.6% in the previous four months.
Concern over recession is still looming. The US is in a technical recession as its GDP contracted for two consecutive quarters (-1.6% in Q1 2022 and -0.9% in Q2), but the strong labour market says otherwise. Before the Fed’s meeting in September, August CPI data and August employment report will be published.
According to the US Bureau of Labor Statistics, the headline CPI slowed to 8.5% year-over-year in July 2022, from 9.1% in June and below market forecast of 8.7%. Core CPI remained at 5.9% in July 2022, below market forecast of 6.1%. Gasoline prices eased but other components such as food remained high. Shortly after the inflation data was released, US stock futures rose.