Financial markets reacted in a zig-zag pattern to this week's economic data ahead of the next FOMC meeting. Price pressure is still not showing the sustained slowdown the Fed needs before it takes its foot off the throttle of tighter policy. At the same time, consumer goods spending and manufacturing activity are slowing, but not yet to a worrying degree consistent with contraction, and not enough to aid in bringing inflation lower. This week's data have thus further confirmed our view that the FOMC will press ahead with another 75 bp rate hike at its meeting next week. For more detail on our expectations for its meeting, please see our Domestic Outlook and Interest Rate Watch sections.
Wednesday's release of the August Consumer Price Index received the most market attention, in part because it came in hotter than the consensus estimate but also because the underlying details were a bit disappointing. Consumer prices rose 0.1% last month, while the consensus Bloomberg estimate had been looking for an equivalent 0.1% decline. This price gain still helped lower the year-over-year rate of price growth to 8.3%, which is a welcome but insufficient step in relieving excruciatingly high inflation for Americans.
The 0.6% gain in core inflation (excluding food and energy), which was more than double the consensus expectation, demonstrates that price pressure remains widespread across the economy. Core goods inflation specifically remained strong (+0.5%) despite indications that supply chains are functioning more smoothly, inventory stockpiles are building and goods spending is gradually slowing. Goods prices thus did not provide the needed offset to higher core services inflation, which saw a 0.6% rise due in part to stronger shelter inflation. Over the past three months, the core CPI has advanced at a 6.5% annualized pace, more than triple the Fed's 2% target (chart). A sustained return to 2% inflation remains even more distant at present, and the price data suggest more has to be done to rein in this stubbornly high level of inflation.
Wells Fargo Economics & Financial Report / Mar 21, 2020
Daily life came to a screeching halt this week as governments, businesses and consumers took drastic steps to halt the COVID-19 pandemic.
Wells Fargo Economics & Financial Report / Feb 15, 2020
Retail sales increased for a fourth straight month in January, underscoring the resiliency of the U.S. consumer. Fundamentals are solid and support our expectations for healthy consumer spending gains in coming months.
Wells Fargo Economics & Financial Report / May 30, 2020
The beginning of this week saw some optimism that the economic downturn could be relatively short-lived, but data through the rest of the week provided grim reminder of the economic damage from COVID-19.
Wells Fargo Economics & Financial Report / Apr 10, 2021
This week\'s economic data kicked of with a bang. The ISM Services Index jumped more than eight points to 63.7, signaling the fastest pace of expansion in the index\'s 24-year history.
Wells Fargo Economics & Financial Report / Jul 14, 2022
As with the Mets and Yankees when they ran into the Astros over the last couple days, consumers staying power is showing signs of running out as inflation persists and confidence moves sharply lower.
Wells Fargo Economics & Financial Report / Jun 20, 2022
After last week\'s stronger-than-expected CPI, less surprising was the 75 point rate increase put forth by the Fed.
Wells Fargo Economics & Financial Report / Feb 22, 2020
Minutes from the January 28-29 FOMC meeting indicate the coronavirus will not push the Fed to cut interest rates, and for the most part housing and manufacturing survey data this week supported that view.
Wells Fargo Economics & Financial Report / Apr 05, 2022
The key factor that will drive interest rates is the Fed’s belated effort to rein-in inflation.
Wells Fargo Economics & Financial Report / Mar 27, 2022
The fact that capital goods shipments surprised on the upside was one of the few things that went right in this week\'s durable goods report.
Wells Fargo Economics & Financial Report / Apr 18, 2020
Economic data from the early stages of the Great Shutdown have finally arrived, and they are as bad as feared. ‘Worst on record’ is about to become an all too common refrain in our commentary.