The latest Consumer Price Index (CPI) reading came in line with economist expectations for August, with prices rising 0.2% month-over-month and 2.5% year-over-year. Core CPI — which excludes food and energy costs — rose by 0.3% month-over-month, slightly above estimates.
This inflation print comes ahead of the Federal Reserve’s September FOMC meeting next week, where it is widely anticipated the central bank will begin to cut interest rates.
To talk more about the data and what it tells about the Fed’s rate cut plans, BMO Capital Markets senior economist Jennifer Lee and Yardeni Research chief markets strategist Eric Wallerstein sit down with the Morning Brief team.
Both Lee and Wallerstein agreed that a 50-basis-point rate cut was never “in the cards” for the Fed, Wallerstein commented.
“This report, this would be the fifth decent report in a row for the Fed, giving them the comfort and the confidence to cut again or to start cutting,” Lee tells Yahoo Finance. “And I think 25 basis points is a good place to start.”
Regarding a stock market (^DJI, ^IXIC, ^GSPC) response to rate cuts, “I think if they [the Fed] went 50, equity markets would fall and bond markets (^TYX, ^TNX, ^FVX) would rise. I think it would signal the economy is, heading in the wrong direction. You know, we’re behind the curve and then it would… kind of unleash the volatility (^VIX) that we saw with some of the carry trade unwind, as Japanese rates and US rates come closer together,” Wallerstein says.
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