Economy

Bostic, speaking at an event in Atlanta, noted that the balance of risks between inflation and the job market are closer to level, but he wants to be sure the Fed avoids cutting rates too soon, only to have to raise rates later if inflation reaccelerates. Still, if the economy evolves as he expects, rates would be lower by the end of this year. “I am willing to wait, but it’s coming … It is coming,” Bostic said.Financial markets broadly expect the Fed to cut interest rates at its Sept. 17-18 meeting, which would mark its first such move in this policy cycle. The central bank began raising its benchmark overnight lending rate in March 2022, pushing it from the near-zero level to the current 5.25%-5.50% range. It has remained at that level since July 2023.Inflation began this year stronger than expected and spurred policymakers like Bostic to shift their expectations for how soon rate cuts could begin. Inflation data has improved in the last few months, however, and employment data has softened somewhat, with job creation slowing and the unemployment rate rising to a post-pandemic high of 4.3% last month.The weaker-than-expected jobs data for July has prompted investors in interest rate futures contracts to boost bets the Fed will start cutting borrowing costs next month with a bigger-than-usual 50-basis-point reduction to about an even odds probability.Other Fed officials, like Bostic, have pushed back against the notion that the economy is coming off the rails, but also warned that the central bank will need to cut rates to avoid such an outcome.Bostic’s remarks about a rate cut coming later this year was less definitive than his most recent comments in June on the timing for a first rate cut. At that time he said he expected a single quarter-percentage-point cut in the fourth quarter.While the balance of risks between inflation and employment are evening out, Bostic said although the job market remains strong, the Fed wants to be sure a hot job market doesn’t turn suddenly to a “freezing cold” one. More

Economists surveyed by Dow Jones expect the consumer price index, to be released Wednesday at 8:30 a.m. ET, to show 0.2% increases on both the all-items reading and the core measurement.
A positive CPI reading could mean the Federal Reserve is able to turn its gaze to other economic challenges, such as the slowing labor market.
“Inflation is almost a nonissue at this point. There’s this broad expectation that the worst is easily behind us,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

Product prices as seen at Walmart. 
Courtesy: Walmart

The news Tuesday was good for inflation, and investors hope it will get even better Wednesday when the Labor Department releases the July consumer price index report.
With the score being one down, one to go on confirming that the early-year jump in prices either was a fluke or the last gasp of inflation, a positive CPI reading could mean the Federal Reserve is able to turn its gaze to other economic challenges, such as the slowing labor market.

“At this point, the inflationary pressure that we saw build has really been dissipated significantly,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Inflation is almost a nonissue at this point. There’s this broad expectation that the worst is easily behind us.”
Like others on Wall Street, Baird expects the Fed in September to shift its focus from tight policy to tackle inflation to a somewhat easier stance to head off a potential weakening in the jobs picture.
While consumers and business owners continue to express concern over high prices, the trend indeed has shifted. Tuesday’s producer price index, or PPI, report for July helped confirm optimism that the elevated inflation numbers that began in 2021 and spiked again in early 2024 are in the rearview mirror.

The PPI report, seen as a gauge of wholesale inflation, showed prices up just 0.2% in July and about 2.2% from a year ago. That number is now very close to the Fed’s 2% goal and indicative that the market’s impulse for the central bank to start cutting rates is about on target.
Economists surveyed by Dow Jones expect the CPI similarly to show 0.2% increases on both the all-items reading and the core measurement that excludes food and energy. However, that is projected to show respective 12-month rates of 3% and 3.2% — well below their mid-2022 highs but still a good distance from the Fed’s 2% target.

Still, investors are looking for the Fed at its September meeting to start cutting interest rates, considering that inflation is weakening and so is the labor market. The unemployment rate has now risen to 4.3%, a 0.8 percentage point increase over the past year that has triggered a time-tested recession flag known as the Sahm Rule.
“Given the focus on the relative weakening in the labor market, given the fact inflation is coming down pretty rapidly, and I expect it will continue over the next few months, it would be a surprise if the Fed didn’t start moving towards easing very quickly, presumably at the September meeting,” Baird said. “If they don’t at the September meeting, the market is not going to take kindly to that.”

Worries over slow Fed response

A brief pickup in weekly initial unemployment claims, combined with other weakening economic metrics, briefly had some in the market looking for an emergency rate cut.
While that sentiment has dissipated, there’s still worry about the Fed being slow to ease, just as it was slow to tighten when inflation began to escalate.
Another benign inflation report “makes the Fed completely comfortable that they can shift their focus away from inflation and toward labor,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. “They could have shifted their attention from inflation to labor … months ago. There are cracks forming in the labor market backdrop.”
Amid the twin realities of declining inflation and rising unemployment, markets are pricing in the absolutely certainty of a rate cut at the Sept. 17-18 Fed meeting, with the only question left being how much. Futures pricing is roughly split between a quarter- or half-point reduction, and leaning heavily to the likelihood of a full percentage point reduction by the end of the year, according to CME Group calculations.
However, futures pricing has been well off the mark for most of the year. Traders started the year anticipating a rapid pace of cuts, then pulled back into expecting only one or two before the latest swing in the other direction.
“I’m as curious about [Wednesday’s] inflation report as anyone else, but I think it would take a real outlier to change the Fed’s tune from 1) shifting to labor as its focus, and 2) seriously thinking about cutting in September,” Porcelli said. “They should start off aggressively. I can easily make the argument for the Fed to cut 50 basis points just to kick things off because I think they should have been cutting already. I don’t think that’s what they will do. They’ll start it off modestly.” More

“If economy evolves as I expect, there would be a rate cut by the end of the year,” Bostic said, adding that the Fed needs “see a little more data,” to ensure that the inflation trend is real.”It would be really bad if we cut rates and then had to raise them again,” the Atlanta Fed president said.Bostic remarks come on the heels of producer inflation slowing more than expected in July, with focus now on the consumer price index data due Wednesday. Data released earlier Tuesday showed the producer price index rose 0.1% on a monthly basis in July, compared with the 0.2% rise expected by economists. Annually, it rose to 2.2%, versus an estimate of a 2.3%.”A cooler-than-expected PPI report offers welcome support for those in favor of a near-term rate reduction,” Stifel said in a recent note just a day head of fresh inflation data with the release of the consumer price index. Bostic downplayed recession fears, and signaled little incentive to rush rate cuts, saying that labor market was “solid” and can slow but “without considerable concern.” More

(Reuters) – Commonwealth Bank of Australia (OTC:CMWAY), the country’s biggest lender, is expected to unveil a small decline in annual earnings on Wednesday, with investors focused on whether rising deposit payouts and bad loans will outweigh gains in mortgage revenue.The earnings will be closely watched to see if the lender’s share price surge of one-third since late 2023 is justified, especially considering the broader banking sector in July posted its strongest rally in nearly two years.”Aussie banks have been seen by investors in the region as a safe place to park, whilst China is experiencing softness and within the sector. I think CBA is seen as the most defensive bank out of all the majors,” said Azib Khan, who leads banking sector research at E&P Financial.Although strong, Australian banks face a market where borrowers are increasingly struggling to make loan payments as interest rates are at a 12-year high, while depositors are shifting funds into savings accounts paying attractive rates.CBA’s lending growth likely improved in the second half, matching the broader market in housing loans, but underperformed in other non-housing sectors, Goldman Sachs analysts said.CBA is projected to report a 3.5% decline in its annual cash earnings for the year to June to A$9.68 billion ($6.37 billion) from a record A$10.16 billion last year, according to LSEG estimates. By comparison, annual cash earnings for National Australia Bank (OTC:NABZY), Westpac, and ANZ are expected to fall between 5% and 9% when they report annual results for the year to September, according to Visible Alpha estimates. CBA is expected to benefit from the growing spread between new variable-rate mortgages and older fixed-rate loans. This advantage stems from the bank’s 25% share of Australia’s $2.2 trillion mortgage market.Australia’s central bank has held rates steady at 4.35% since November after hiking by 425 basis points from May 2022. Markets expect an easing by year-end, although the Reserve Bank of Australia has left the door open to further tightening.Analysts at Citi, with a sell rating on the sector, warn that if the RBA tightens further, banks’ asset quality could suffer.”Like past cycles, this would see negative earnings revisions, and certainly put inflated multiples at risk,” Citi analysts said.National Australia Bank is due to give a limited third-quarter trading update on Friday, followed by Westpac on Aug. 19 and ANZ on Aug. 20.($1 = 1.5188 Australian dollars) More

Grocery prices are no longer rising as rapidly, but food inflation remains a top issue for voters, polls show.A central issue has plagued the Biden administration for most of its term: the steep rise in grocery prices.Polls have consistently found that inflation remains a top concern for voters, who have seen their budgets squeezed. A YouGov poll published last month found that 64 percent of Americans said inflation was a “very serious problem.” And when it comes to inflation, several surveys suggested that Americans were most concerned about grocery prices.Despite the gloom about grocery costs, food price increases have generally been cooling for months. On Wednesday, new data on inflation for July will show if the trend has continued.Economists in a Bloomberg survey think that inflation overall probably climbed by 3 percent from a year earlier, in line with a 3 percent rise in June. That sort of reading would probably keep officials at the Federal Reserve on track to cut interest rates in September. Investors, who were recently rattled by signs of an economic slowdown, have looked to rate cuts as a support for markets.Some voters have blamed President Biden for rising prices, pointing out that food costs have soared over the past four years. Former President Donald J. Trump, when accepting the Republican nomination last month, highlighted grocery costs and said that he would “make America affordable again.”In the year through June, grocery prices rose 1.1 percent, a significant slowdown from a recent peak of 13.5 percent in August 2022. Many consumers might not be feeling relief, though, because food prices overall have not fallen but have continued to increase, albeit at a slower rate. Compared with four years ago, grocery prices are up about 20 percent.

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Annual change in grocery prices for U.S. consumers
Year-over-year change in average for “food at home” index, not seasonally adjusted.Source: Bureau of Labor StatisticsBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

“For obvious reasons, we are thinking about withdrawing this sauce,” the fast-food chain said on Instagram, over a picture of a mini-pot of “classic curry” sauce and a headline saying “for at least four years”.Keeping up the online banter, the global X account of the U.S. fast food giant replied: “Oui’ll take the curry sauce if u don’t want it @McDonaldsFrance,” in a play on the French word for yes, which sounds like we.”It’s a joke and a wink in reference to Stephen Curry’s extraordinary game last Saturday against France,” a McDonald’s France spokesman said. More

The producer price index, a measure of wholesale inflation, increased 0.1% on the month, less than 0.2% forecast. PPI excluding food and energy was flat.
On a year-over-year basis, headline PPI rose 2.2%, a sharp drop from the 2.7% reading in June.

A key measure of wholesale inflation rose less than expected in July, opening the door further for the Federal Reserve to start lowering interest rates.
The producer price index, which measures selling prices that producers get for goods and services, increased 0.1% on the month, the Labor Department’s Bureau of Labor Statistics reported Tuesday. Excluding volatile food and energy components, the core PPI was flat.

Economists surveyed by Dow Jones had been looking for an increase of 0.2% on both the all-items and the core readings.
A further core measure that also excludes trade services showed a rise of 0.3%.
On a year-over-year basis, the headline PPI increased 2.2%, a sharp drop from the 2.7% reading in June.
Stock market futures rose following the news while Treasury yields moved lower.
The wholesale inflation reading was relatively tame despite a 0.6% jump in final demand goods prices, the biggest move higher since February and due primarily to a 1.9% surge in energy, including a 2.8% increase in gasoline.

Countering the move was a 0.2% slide in services, the biggest move lower since March 2023, according to the BLS. Trade services prices fell 1.3% while margins for machinery and vehicles wholesaling tumbled 4.1%. An increase of 2.3% in portfolio management offset some of the decline in services prices.
The PPI is considered a leading indicator for inflation as it gauges pipeline inflation from the perspective of manufacturers and suppliers of goods and services. Its counterpart, to be released Wednesday, is the consumer price index, which measures the actual prices consumers pay in the marketplace. Economists also expect 0.2% monthly increases for both headline and core CPI.
Both measures are watched closely for inflation signs. Though the Fed more closely focuses on the Commerce Department’s personal consumption expenditures price index, the CPI and PPI both feed into that calculation.
The latest inflation data comes with markets fully pricing in an interest rate cut at the September meeting of the Fed’s open market committee. The main question now is whether the central bank will cut by a quarter or a half percentage point. The futures market currently rates it a toss-up.
Fed officials have vowed to keep up the inflation fight until they have reached their 2% goal, and the latest data for the most part has been cooperating.
A survey the New York Fed released Monday showed that consumers’ view of inflation three years from now fell to 2.3%, the lowest in the 11-year history of the survey.
Moreover, the survey also showed consumers, particularly at the lower end of the income scale, are beginning to suffer more from inflation. For instance, the perceived likelihood of missing a minimum debt payment in the next three months jumped to 13.3%, the highest since April 2020, with the biggest part of the 1 percentage point monthly increase coming from households with annual income below $50,000.
Expectations for credit access also declined, and household spending expectations over the next year fell to their lowest level since April 2021.

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BENGALURU (Reuters) – The European Central Bank will cut its deposit rate twice more this year, in September and December, according to an over-80% majority of economists polled by Reuters, fewer reductions than markets currently expect.Since April, economists in Reuters surveys have remained consistent in predicting a total of three cuts this year including the one already delivered in June. By contrast, interest rate futures are pricing a total of four cuts by end-year. An unexpected rise in euro zone inflation in July, near record-low unemployment and still-steady economic activity in the common currency bloc give ECB policymakers cause to be cautious.Over 80% of economists, 66 of 81, in a Aug. 8-13 Reuters poll predicted the ECB’s Governing Council will deliver two more 25 basis point rate cuts this year, in September and December, taking the deposit rate to 3.25%. That majority view was broadly in line with the last two Reuters surveys. Five respondents expected just one more reduction this year while eight predicted three.     “The latest developments, particularly on the inflation front, are relatively hawkish,” said Fabio Balboni, senior European economist at HSBC. “We don’t think the ECB will necessarily feel the urgency to rush towards cutting faster.” The majority of forecasters looking for two more ECB rate cuts this year has held steady despite financial market volatility earlier this month. Following a weaker-than-expected July U.S. jobs report and inflation trending towards the Federal Reserve’s 2% target, U.S. rate futures markets priced in as much as 120 basis points of Fed rate reductions in 2024 last week compared with 50 beforehand. It is roughly 100 now.Although many banks, including some primary dealers to the Fed, have changed their Fed outlook, most of those same banks haven’t changed their ECB rate view. The Fed is widely expected to start cutting rates at its September meeting, just days after the ECB next meets.Euro zone inflation, which unexpectedly rose to 2.6% last month from 2.5% in June, will average 2.4% this year, the poll showed, and not reach the ECB’s 2% target until the second half of 2025.That outlook was slightly more optimistic than projections the ECB made in June, but some are bracing for the central bank’s staff projections to worsen in September.”I expect the ECB to slightly revise upward its inflation projections and it’s strange then to continue cutting rates,” said Carsten Brzeski, chief euro zone economist at ING.”Without the market turmoil it would not have been clear the ECB is really going to cut in September.”The central bank is expected to reduce the deposit rate four times next year, according to poll medians, reaching 2.25% by end-2025.The euro zone economy, which was expected to have grown 0.3% last quarter, will average 0.7% growth this year, the poll showed, before expanding by 1.3% in 2025 and 1.4% in 2026.(Other stories from the Reuters global economic poll) More