Analyzing Incremental Inflation Progress | Episode 139 | 05-31-24

Can incremental progress in inflation finally give the Fed the green light to cut rates? Join Megan as she breaks down the latest economic data released on May 31st. Discover how the PCE core deflator's slight month-over-month improvement is influencing market sentiment, despite the year-over-year rise still clocking in at 2.8%. She also explains the implications of weak personal spending and income data on bond yields and why the market is optimistic about potential rate cuts by the Fed as early as September.

As we look ahead to the first week of the month, Megan shares keen insights on the upcoming economic data releases, including ISM manufacturing, the service sector, and the highly anticipated non-farm payroll report. These data points could be crucial in shaping market expectations and guiding Fed policy decisions. Don't miss this episode.

Baby steps. That's what the market's celebrating today. This is Megan Horniman, the Chief Investment Officer for Verdant's Capital Advisors. It's Friday, may 31st, and the baby steps we saw in economic data today was a very small incremental improvement in inflation. We got the Fed's preferred inflation indicator today, the PCE core deflator, and what we saw was, on a month over month basis, it went from rising 0.3% to just up two tenths of a percent. On a year over year basis, it's still rising 2.8%. So we're not necessarily where the Fed wants it to be, but these are the tiny baby steps the Fed's looking for Now.

Also, with this report, we get personal income and spending and the reason why we're seeing bond yields down today, not only because there was no major surprises in the inflation data, but because some of the economic data we got with this report on spending and income was weak. We saw that personal spending went from rising 0.7% in March to only up two-tenths of a percent in April and when you strip out inflation with that, real personal spending is actually now negative. These are the first indications that we were getting for second quarter GDP. So this is important, especially since the second reading on first quarter was a bit weaker than anticipated. So that's why the bond markets liking this. They're thinking this opens the door for the Fed to be able to cut rates as early as September. We're not there yet.

Again, the inflation it was a baby step. It went from rising three-tenths to two-tenths, but at 2.8% it still is not where the Fed needs to be, and they're making it clear that they want to see several months of good inflation data before they can even consider cutting interest rates. That's all we have today. We'll be back next week because it's the first week of the month and there is a lot of economic data that always comes out the first week of the month. We're going to start it off with ISM manufacturing, the service report, and then we'll round the week out with the non-farm payroll report as well. If you have any questions or comments, please feel free to reach out to podcasts at Verdence. com. Thank you.