🔉Case Study: The Fed's Battle Against Inflation: Are We Winning?
Fed's Inflation Fight Progress
In the ever-evolving economic landscape, July's inflation numbers have turned heads.
After a 13-month lull, inflation rose to a 3.2% headline number. But here's the twist: underlying data hints at the Federal Reserve's strategies bearing fruit in the battle against inflation.
While fuel prices did play their part in the July spike, the core story is more nuanced.
Core Inflation: The Real Story
Stripping away the volatile sectors of food and energy, core inflation stood at 4.7% YoY in July.
That's a dip from June's 4.8% and a significant drop from July 2022's 5.9%.
Month-to-month, we've seen a consistent 0.2% rise in core CPI for two straight months - a rhythm we haven't danced to since February 2021.
What the Experts Are Saying
Lydia Boussour from EY-Parthenon sees the July CPI report as a sign of waning inflationary pressures.
On the other hand, Stephen Juneau from Bank of America is optimistic about August, expecting the positive trend to continue. It's not just about numbers; it's about reading between the lines.
Beyond the Obvious: Other Indicators
The Fed's been keeping an eagle eye on core services prices, especially when you take shelter costs out of the equation.
This measure saw a modest 0.2% month-to-month rise, a slowdown from the 0.4%-0.5% hikes at 2023's outset.
The Fed's likely patting itself on the back for this disinflation progress. But the FOMC might still tilt hawkish, given that inflation's still playing hard to get with its 2% target.
Labor Market: A Slow Dance
The labor market's been dragging its feet.
With just 187,000 jobs added in July, it's the slowest pace since December 2020.
And if early August data is anything to
Where Does the Federal Reserve Stand?
Jerome Powell, after the Fed policy decision in June, played it cool with no rate changes.
And if the grapevine (and data) is to be believed, September's meeting might follow suit. Market whispers, accordingly to the CME FedWatch Tool, suggest a whopping 90.5% chance that rates will stay nestled between 5.25%-5.50%.
Thomas Simons from Jefferies believes the Fed's going to play the waiting game, holding off on more rate hikes and patiently steering inflation back on track.
📈Market Cycle Analysis of US INFLATION
The beauty of the Market Cycle Analysis is that it can be applied to any asset or index.
Of course we don’t buy and sell inflation, but understand the Cycle and Its consequences helps to position our Portfolio accordingly.
So, in what phase the US Inflation is now?
As seen above, the US Inflation is on Phase 6 Downtrend, since September/22.
It may suggest that Interest Rates should be in downtrend and consequently the Bond market in uptrend.
But the market has an infinite numbers of variables, what is happening now is the opposite, so we are still short on Bonds for now.
See the Monthly Market Cycle Analysis in our Update. And the Bond Cycle analysis here.
In what time of the Market Cycle are we now?
Every business day we update the evolution of the Alfa Hedge Portfolio II.
In a nutshell, the Fed's inflation fight is a marathon, not a sprint.
With each data release, we get a clearer picture of the road ahead. And for now, it seems the Federal Reserve's strategy is holding its ground.
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📊Case Study: The Fed's Battle Against Inflation: Are We Winning?