There are few “sure things” when it comes to economics. And yet interest rate traders are 100% convinced a cut is coming at the Fed’s next meeting.
Of course, this does mean markets may be setting themselves up for a world of pain if Jerome Powell and the Federal Open Market Committee (FOMC) are not as convinced by the data they’re seeing.
This means the FOMC’s attention may be forced back to the maximum employment side of its mandate, forcing it to relinquish some of its grip over stable pricing and inflation at 2%.
This morning 92% of analysts were banking on a cut of 25 basis points, while 8% were banking on 50 basis points; a hold is priced at 0.0%.
He added: “Taking the PPI categories that feed into core PCE [personal consumption expenditures]—airfares, portfolio investment, and medical care services—our U.S. economists see August core PCE inflation tracking at +0.32%, in line with their pre-PPI expectations. But the market focus was very much on the downside surprise in the headline number, as that was seen as giving the Fed more space to cut rates in the months ahead.”
At UBS, chief economist Paul Donovan remarked similarly that while the devil is in the details, markets (and indeed politicians) will use the data to hammer home their opinion that the base rate is too restrictive.
“There were extremely high increases in the price of U.S.-assembled computers, electronic components, vehicle parts, tires, household textiles, and so on,” Donovan remarked. “Profit margins, which are loosely hinted at in the data, seem to be increasing in areas like furniture and clothing wholesalers, and clothing retail.
“The pattern in the detail is not, perhaps, entirely unexpected: Higher prices where costs are rising and higher margins where retailers can create a story that blames a cause which is not ‘more profit for us.’
“With today’s official U.S. consumer price inflation data released for August, the same problems arise. It’s the details more than the headline that is going to matter, although politicians will rely on point-scoring from the main number.”
Here’s a snapshot of the markets globally this morning:
