Following the weak jobs report that left many on Wall Street questioning the prospects of a “soft landing,” we’ve seen a bit of unrest in markets over the last few weeks. Remember, a soft landing includes cooling inflation back to the Fed’s 2% target while maintaining a healthy labor market. With a slight crack showing in labor markets following recent labor market data, and inflation cooling of late, the Federal Reserve’s focus on higher prices seems to have shifted to the other side of its dual mandate: keeping Americans employed. Chair of the Federal Reserve, Jerome Powell, addressed this at a meeting of The Economic Club of Washington, D.C., “For a long time, since inflation arrived, it’s been right to mainly focus on inflation. But now that inflation has come down and the labor market has indeed cooled off, we’re going to be looking at both mandates.”
Inflation has now slowed for five consecutive months and is the lowest since March 2021. The June report showed an increase in the Core Consumer Price Index (CPI), excluding food and energy, of 0.17% month over month, while the year-over-year print showed an increase of 3.17%, both in line with expectations. The three-month annualized Core CPI of 1.57% is the slowest since February 2021. This report, along with signs of labor market weakness, has teed up a 25 basis point rate cut at the September meeting. The recent Fed speech has shifted from wanting to see more data on inflation cooling before cutting rates to the risks to labor markets if waiting too long. Futures are now pricing in nearly a 100% chance of a September rate cut, and a total of 100 bps of easing by the end of this year.
With the first rate cut in over four years on the horizon, we will be keeping a close eye on the two reports that the Fed’s decision will likely depend on, the August payroll (Sep. 6) and August CPI (Sep. 11). If these two data points continue their recent trends, there is little doubt we’ll see the Fed begin easing monetary policy in hopes of a soft landing for the U.S. economy.
Disclosure
Ballast, Inc. is a registered investment adviser with the SEC. Registration with the SEC does not indicate that the adviser has achieved a particular level of skill or ability, nor is it an endorsement by the SEC. All investment strategies have the potential for profit and loss. Ballast, Inc. is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation.
