The Producer Price Index (PPI) came in slightly higher than anticipated in August, increasing 0.2% month-over-month and 1.7% year-over-year. This follows August’s Consumer Price Index (CPI) data that came in line with economist expectations. To discuss how these figures might influence the Federal Reserve’s decision at its upcoming Federal Open Market Committee (FOMC) meeting next week, Morning Brief welcomes The Bahnsen Group senior managing director and partner Brian Szytel and Inflation Insights President Omair Sharif. Current inflation and labor data suggest a 25-basis-point cut is likely. Sharif observes that the PPI data reveals “benign pipeline pressures” in the economy. He notes that the combination of PPI and CPI data “makes up what we would get in the Fed’s preferred core PCE [Personal Consumption Expenditures].” Given this dynamic, Sharif believes a 50-basis-point cut could still materialize at the Fed’s next meeting. Szytel, while hoping for 50 basis points, doesn’t believe the Fed will “actually get there.” However, he explains that such a cut would benefit the bond market (^TYX, ^TNX, ^FVX), which is “crying out” for one. With the Fed funds rate at 5.25%, Szytel argues that “starting at a 25-basis-point cut really doesn’t do a whole lot.” In terms of a soft landing, “we’re pretty far from the Fed’s own estimates of neutral. So 50 to me would be a good step to start to get towards that,” Sharif tells Yahoo Finance. “If policy works in long and variable lags, let’s get moving here to make sure that we are able to achieve a soft landing and not kind of fumble at the one-yard line here.”
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