The FOMC Minutes and Consumer Sentiment report were the most impactful calendar items last week, further reinforcing the Federal Reserve’s resolve to bring inflation down to its 2% target rate.
The FOMC Minutes and Consumer Sentiment report were the most impactful calendar items last week, further reinforcing the Federal Reserve’s resolve to bring inflation down to its 2% target rate.
While the Core PCE Index came in at 3.0%, below the expected 3.3%, overall inflation remains well above the Federal Reserve’s 2% target.
With inflation still running above the Federal Reserve’s target, there remains room for rates to stay elevated or potentially increase over the next several rate decisions if the Fed remains focused on restraining inflation.
With a light week the previous week, only a few data reports will have any far reaching impact, with the M2 money supply and the Federal Reserve Balance sheet giving the most insight.
Expectations that the Federal Reserve would raise rates to combat significant inflation have come to pass, with a modest 0.25% increase in the rate. The Federal Reserve has stated that it remains committed to restoring inflation to its 2.0% target, which will likely include further rate increases in the future. The rest of the week featured a light economic calendar with very few impactful releases, leaving the Federal Reserve’s rate decision as the primary driver of market activity.
While CPI data has come in within expectations for current inflation, inflation remains much higher than in previous years. The rate is holding steady at 2.4%, which is above the Federal Reserve’s 2.0% target.
The Non-farm Payroll figures are a strong indicator of the job market and showed a notable increase this quarter. However, this doesn’t necessarily indicate a significant shift in the job market as a whole, as certain sectors have experienced outsized impacts compared to others. JOLTs job openings data does support the increase in openings seen over the last quarter, though it is not among the largest indicators on the broader economic scale.
The PCE Index has remained above the Federal Reserve’s target and continues to be the Federal Reserve’s preferred measure for tracking inflation. Although the latest reading was not significantly above expectations, when considered alongside a number of other factors, it could contribute to the potential for a rate increase, particularly as the PCE Index has repeatedly come in higher than expected in recent months.
The latest FOMC minutes reinforced the Federal Reserve’s continued focus on price stability, with policymakers voting to maintain the current federal funds rate for the time being. However, the path forward remains uncertain, particularly as persistent inflation continues to complicate the case for additional rate cuts. In fact, several policymakers have indicated greater concern about inflation and favored tighter monetary policy at the most recent meeting.
Both the Consumer Price Index (CPI) and Producer Price Index (PPI) reported figures that were either entirely in line with expectations or just slightly below them. This does not set any new precedent for the potential of a rate increase from the Federal Reserve, as inflation is still rising, just at a largely expected rate.
While unemployment rates have fallen to their lowest levels since 2025, they have not fallen for the right reasons. Many people who have dropped out of the labor force have also stopped looking for work, which can skew the unemployment numbers. This has been followed by a smaller-than-expected increase in hourly pay, which has continued to lag behind inflation, especially in the current environment.
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