In A Nutshell: Every CPI inflation print has the potential to send rates up or down, and this Wednesday’s is no exception. There’s still an open question as to how many more hikes there will be from the Fed.
Last Week’s Highlights
Rates fell slightly last week as numerous Fed speakers reiterated the same point—more hikes are coming, but not necessarily right away. The minutes for the September FOMC meeting were also released. The vote to hike was unanimous, but the reasoning was not. Everyone had their own justification, from risk management to worries that inflation would broaden out. Herding everyone together for another hike in October seems unlikely unless the next CPI print shatters expectations. But a December hike is still very much on the table.
The New York Fed’s Survey of Consumer Expectations and the University of Michigan’s consumer sentiment survey both showed one-year-ahead inflation expectations from consumers increasing. This appears to mostly be a reaction to recent increases in energy prices. But if the increase proves durable, the Fed, which is always worried about an “unanchoring” on inflation expectations, would take this as a reason to hike more.
Upcoming Attractions
The main economic news this week will be Wednesday’s CPI and Thursday’s PPI inflation reports. The first tracks consumer prices and the second tracks producer prices. Combined, the two should provide a fairly accurate picture of how the Fed’s inflation metric, core PCE inflation, will shake out later this month. Given the Fed’s messaging last week, CPI and PPI would need to imply that core PCE inflation is above 0.3% month over month to make a rate hike at the October 28 meeting viable again.
Thursday also brings the September retail sales report, which tends to be a volatile metric but gives some insight into how consumer spending is holding up in the face of higher energy prices. Economists are expecting retail sales to fall into Q4 as tax stimulus from earlier in the year fades.
Finally, Fed speakers will continue to be out in force all week. The events after Wednesday’s CPI data from Chairman Warsh and Cleveland Fed President Hammack could be especially interesting.
Latest Housing Market Reports
- Redfin’s September Housing Market Update: U.S. Pending Home Sales Sink Near 12-Year Low
- U.S. Housing Costs Could Return to “Normal” Within 5 Years. Here’s What It Would Take.
