This week was a pivotal one for market participants who were hoping for a rate cut in the near future. On Thursday, monthly and annual CPI figures were released, and for the most part, they came in better than expected. On an annual basis, inflation came in at 3 percent, which beat the expected 3.1 percent prior to the release.
On a monthly basis, Core CPI was up .1 percent while overall CPI was down .1 percent. Core CPI was expected to be .2 percent for the month while overall CPI was expected to be .1 percent. Shortly after the news broke, Fed member Goolsbee posted a message on X saying that the numbers were to be expected if inflation were moving back toward 2 percent.
The good news sparked speculation that the Fed might be ready to cut interest rates as soon as September. Fed Chair Jerome Powell and other members of the Fed have acknowledged that policy is restrictive, and economic data has continued to show a slowdown in economic activity.
On Tuesday and Wednesday, Powell testified to members of the House and acknowledged that inflation is not the only hazard the economy faces. In addition, a labor shortage could also cause a recession or other problems for consumers and businesses. Therefore, if hiring begins to slow, it may also be a reason to cut rates even if inflation isn’t all the way back to 2 percent.
Powell also said that he was somewhat confident that inflation was going back to 2 percent and that there was no set number in mind before rate cuts could occur. He also declined to provide any guidance as to when the first cut would occur, so a September cut is still little more than speculation at this point.
On Friday, the Price Producer Index (PPI) was released and seemed to be at odds with Thursday’s developments. The Core PPI on a monthly basis increased by .4 percent while the prices of all goods went up by .2 percent. It was expected that Core PPI would go up by .2 percent while overall PPI would go up by .1 percent.
However, many who have had a chance to dive deeper into the data say that the increase is largely attributable to random volatility. Ultimately, the notion that inflation is cooling is the correct one and that rate cuts should still be on the table at some point this year.
In other news this week, unemployment claims came in at 222,000 compared to an expected 236,000. On Friday, the University of Michigan released its consumer sentiment and inflation expectation reports. They found that consumer sentiment dipped to 66 percent compared to an expected 68.5 percent. It was also revealed that consumers believed inflation would be at 2.9 percent 12 months from now.
The S&P 500 continued to make new highs as it finished the week at 5,615. During the last five trading days, the market gained 40.88 points, which was a .73 increase. The market made its low of the week on Monday when it dipped to 5,563 and made its high of the week on Friday when the market hit 5,651.
The Dow finished up 447 points to finish at just over 40,000. On Tuesday morning, the Dow reached its low of the week when it dipped to 39,190. On Friday afternoon, the market made its high of the week at 40,234.
The Nasdaq finished at 20,331, which was a dip of .23 percent for the week. The market would make its high of the week on Wednesday at 20,667 before falling to its low of the week 20,173 on Thursday afternoon.
In international news, the Bank of Japan (BOJ) reportedly intervened in the foreign exchange (FOREX) markets on behalf of the Yen on Thursday. The intervention reportedly cost the BOJ the equivalent of $22 billion. On Tuesday night, New Zealand announced it was holding its core interest rate steady at 5.5 percent. On Thursday morning, Great Britain announced that its gross domestic product (GDP) grew by .4 percent on a monthly basis.
The upcoming week will feature a few key news releases with the first coming on Monday when the Empire State Manufacturing report is released. On Tuesday, retail sales data will be made public while unemployment claims data comes out on Thursday. Jerome Powell is also scheduled to talk on Monday afternoon.