Sticker Shock – Halyard’s Weekly Wrap – 9/15/23
We wrote last week that the release of the consumer and producer price indices, retail sales and the Michigan surveys would be a litmus test for the Fed’s rate decision later this month. Unfortunately, the releases had a little something for everyone and didn’t offer definitive visibility on the outcome of next week’s FOMC meeting.
As expected, consumer prices rose in August, rising more than consensus expectation. The year-over-year measure of CPI registered 3.7%, up from 3.2% last month, but the core CPI for the same period fell from 4.7% to 4.3%. That’s far from the Fed’s 2% target but the anecdotal slowing in the economy is likely enough to keep the Fed on the sidelines at the September 20th FOMC meeting, but not enough call the current monetary policy the peak.
Muddying the outlook somewhat was the retail sales report for August. For the month retail sales were up 0.6% versus the 0.1% expectation, but the July measure was revised 0.3% lower. Taken together, retail sales paints a picture of a more cautious consumer but not one cautious enough to pull back on spending.
The University of Michigan surveys only further confused the matter. Consumer expectations, which had been improving recently, reversed course and fell as did the consumers’ inflation expectations. The one-year inflation outlook came in at 3.1% and the longer-term outlook fell to 2.7%, both of which bode well against a fear of inflation becoming entrenched. At least for the time being! WTI crude oil is closing the week above $91 a barrel, nearly 35% above the price at which it traded in June. Coincidently, the first cool air of the season has chilled the northeast United States which is likely to remind homeowners that they’ll soon need to fill their oil tanks. We’ll be watching for the impact that “sticker shock” will have on inflation expectations next month.
Looking forward to the coming week all eyes will be on the Fed, both in terms of what they do with the overnight rate and in terms of whether they define current policy as being at the peak. We think the likelihood is 50/50 on another rate hike and that it’s highly unlikely they say that the rate has peaked. This week’s data points were too mixed to signal the “all clear.”
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