These are very strong recessionary pointers. We also saw inventories remaining flat and used car prices continuing to plummet. This, with the risk that headline and expectations could bounce on any significant shift higher in the gasoline prices, leaves the assessment here that rates are still even from current levels going higher for longer. The problem is that the far more likely course for the core rate remains stability at what are extreme levels. With these factors retreating however, any sharp sudden drop in core inflation would indeed allow the Fed to take a longer pause. It is nice that these series have been falling, but they need to still be lower. Headline inflation and expectations remain above the Fed’s comfort zone. Perhaps of most concern though remains that core inflation level. ![]() Stability in that area is improving and at manageable cost levels, but with the oil price having steadily straightened in recent weeks, the Fed would be a little watchful on this front. Overall consumer expectations do tend to quickly react to any change in gasoline prices. ![]() The Fed is also all too aware that this improvement in expectations runs the risk of re-accelerating while core inflation remains as stubbornly high as it is. It is true that expectations matter to the US Federal Reserve and often do lead the headline inflation number. Expectations for the year ahead fell from 4.1% to 3.8% in June. Markets consolidated on the back of an improvement in Inflation expectations, which was expected.
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