11 July 2024
If you are covering the latest inflation data from the US, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“This has been one of the most hotly anticipated inflation prints for some time in the US as markets eye up a rate cut in September. The good news is inflation has moderated more than expected to 3.0%, down from 3.3% reported in May, although the market would have liked to have seen core inflation fall similarly rather than from 3.4% to 3.3%. Nevertheless, this should, all other data providing, give the Fed enough of a pathway to cut rates in a couple of months’ time and start the US on a similar trajectory to Europe and, if they cut too, the UK. Like in other developed markets, services inflation continues to run a little hotter than many would like, but we are seeing goods inflation coming back down enough to offset this and bring the overall level of inflation down.
“In his Congressional testimony this week, Fed Chair Jerome Powell did try to pour cold water on the idea of rate cuts coming sooner rather than later, but also acknowledged the risk of labour markets weakening sharply due to the Fed leaving rates too high for too long. The employment picture in the US is beginning to weaken and economic growth is definitely now being impacted. Clearly, there is a Presidential election to consider, and given the volatility this may produce, it may be better to get the first rate cut in well before that feverishly ramps up.
“This year has been a volatile one to date in terms of market predictions of rate cuts and their timing. For the US, that first one seems so close, yet there have already been many false dawns in the last six to nine months. Whilst being an important signal for investors, it’s impact on the US economy will however initially be quite limited, with most mortgages and corporate debt costs ultimately linked to longer term rates.”
