The Federal Reserve is unlikely to turn away from hawkish rate hikes despite positive signs this week that inflation in the US could ease, according to market strategists. market strategy.
On Thursday, producer price index In July, unexpectedly fell 0.5% month-on-month, compared with estimates for a 0.2% gain, according to a Dow Jones survey. On a year-over-year basis, the index rose 9.8%, its lowest level since October 2021.
That next is encouraging data it shows Consumer prices up 8.5% in July. The ratio was slightly below the 8.7% expectation of analysts surveyed by Dow Jones and the pace slowed from the previous month.
With both CPI and PPI falling, markets have begun to temper expectations of a Fed rate hike. The positive data doesn’t mean the Fed has done its job “done,” said Ben Emons, managing director of global macro strategy at Medley Global Advisors.
“If you remove any headline noise, some… CPI, even PPI [numbers] He told CNBC on CNBC’s “Squawk Box Asia” on Friday. “The Fed can’t be done here. It could mean a 75 basis point rate hike is still on the table.”
“The pricing of Fed funds futures and US dollar futures shows we’re still headed for a 75 basis point rate hike. And I think that’s because of the guidance that all the speakers have. Fed’s keep giving us – ‘just Don’t be complacent here, we’ll carry on,” added Emons.
Last week, St. Louis Federal Reserve Chairman James Bullard The central bank will continue to raise interest rates until it sees convincing evidence that inflation is falling.
That message was in line with other Fed speakers, including Cleveland’s Loretta Mester, Chicago’s Charles Evans and San Francisco’s Mary Daly. All of them suggest that the recent inflationary war is not over yet and more monetary policy tightening will be required.
The Fed raised its benchmark interest rate by 0.75 percentage points in both June and July – the largest consecutive increase since central banks began using the deposit rate as the main monetary policy tool in the early 1990s.
Victoria Fernandez, chief market strategist at Crossmark Global Investments, said the Fed cannot stop and turn dovish with rate hikes, based on current data.
“To me, there’s not enough evidence for the Fed to make a big swing from their position. I still think they’re looking at 50, 75 basis points at the September meeting,” she told CNBC. “Street Signs Asia” on Friday.
“There isn’t anything from today’s CPI or PPI economic reports that will change that at this point. I think we still have a long way to go,” she added.
Investors will be looking for guidance from Fed Chairman Jerome Powell on what the Fed can do at its next meeting in September.
Fernandez emphasized that the harder parts of inflation, such as wage and rent pressures, remain high. The energy, oil and gasoline components will not decline at the same rate, she said.
Inflation data in the next CPI report in September will be key for markets, she added.
“If those show us that we really have a plateau or the start of a downtrend, then I think the Fed could go back to 50 basis points a bit,” she said. “If it doesn’t show that, or if it’s even a little taller based on some of the harder components, then I think you’re going to be 75 years old again for the meeting,” Fernandez said.
The Federal Open Market Committee does not meet in August, when it will hold its annual symposium in Jackson Hole, Wyoming.
Powell could use that opportunity to update markets on the way to monetary tightening ahead, Emons of Medley Global Advisors noted, adding that the Fed understands that price pressures are “persistent and difficult so it’s hard to see” can’t really back down.”
“You shouldn’t underestimate Jackson Hole. Some people dismiss it – that it’s not fundamental. But he can also be receptive and should at least re-emphasize that the Fed is really on this mission to real inflation. That’s the main goal.”
– With reporting from CNBC’s Jeff Cox.