As indicators roll in, more and more signs seem to be pointing towards the fact that the Federal Reserve Bank seems to have managed an elusive “soft landing” in its campaign against inflation–which reached a 40-year high in June 2022.
The latest Consumer Price Index (CPI) released by the Bureau of Labor and Statistics indicates that prices for goods and services rose by 3.2% in July compared to the year prior, up from 3.0% in June, but below the 3.3% predicted by economists. The so-called core CPI, which excludes the more volatile prices of food and energy, rose by 4.7% in July from a year earlier, a slight cooling from June’s 4.8% increase. Most of the monthly inflation increase came from shelter costs, which account for about a third of the CPI weighting and rose 0.4%, up 7.7% from a year ago.
The labor market, an ongoing concern for the Fed, also shows signs of softening. There were 9.6 million job openings in June, roughly the same as a month earlier, according to the Job Openings and Labor Turnover Survey (JOLTS). However, hires declined to 5.9 million in June, down from 6.2 million in May. In addition, the “quits rate”, a measure of workers’ confidence in the job market and bargaining power, decreased to 2.4%, from 2.6% in May and down from a record of 3% in April 2022. “This is a really strong labor market that is staying strong but slowing down,” said Preston Mui, a senior economist at Employ America.
A separate report released by the Labor Department indicates that the unemployment rate was 3.5% in July, placing it just above the lowest level since late 1969. Average hourly earnings, a key figure for the Fed, rose 0.4% for the month, good for a 4.4% annual pace. “The labor market seems to be humming along rather well at this point in the business cycle. A 3.5% unemployment rate, you can’t complain about that,” said Satyam Panday, U.S. chief economist at S&P Global Ratings. “It’s a nice glide path down. We would have liked to see wage growth come down a little, but the purchasing power of the consumer seems to be holding up well.”
Possible Headwinds
Nevertheless, some Americans are feeling financial pain. A report by the Federal Reserve Bank of New York shows that credit-card balances surpassed $1 trillion for the first time last quarter, showing how even more widespread credit has become among American consumers. Delinquency rates have now returned to pre-Covid levels. However, according to the New York Fed economists, “Despite the many headwinds American consumers have faced over the last year—higher interest rates, post-pandemic inflationary pressures, and the recent banking failures—there is little evidence of widespread financial distress for consumers.”
The latest data increases the likelihood that the Fed will keep interest rates unchanged at its next meeting in September. Nevertheless, it is unlikely that it will mark the end of the Fed’s hiking policy. “While inflation is moving in the right direction, the still-elevated level suggests that the Fed is some distance from cutting rates,” said Seema Shah, chief global strategist at Principal Asset Management. “Indeed, disinflation is unlikely to be smooth and will require some additional economic pain before the 2% target comes sustainably into view.”
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
