Has the US beat Inflation? ??

8/12-8/16 Headline: Retail Sales Puts a Question Mark on Future Inflation?

?

A rollercoaster week for rates. The week started off amazing more positive inflation reports gave the market confidence that lower rates were coming soon - but retail sales numbers put a little of uncertainty out there on what we can expect for future inflation reporting.

?

The bottom line is consumers just need to stop spending!

?

The average rate on a 30-year fixed rate conventional loan went to 6.48% (slightly down from the 6.51% reported last week).? Sign up for our weekly Friday rate texts to see our rates (details at the bottom of this email).

Has the US Beat Inflation?

?

According to President Biden, the answer is YES YES YES. Let's just hope he's right, and it's not a mission accomplished moment.

?

Last Wednesday, the consumer price index (CPI) for July was released, and for the first time since March2021, we saw year-over-year headline CPI fall below 3%. Headline CPI was 2.9% (vs. 3.0% expected) and core CPI, which excludes food and energy costs, was 3.2% (vs 3.2% expected).?

?

The Producer Price Index (PPI) also fell more than expected, increasing just 2.2% year over year (vs. 2.7% last month) - because the cost of services actually DECLINED for the first time this year.

?

The only thing that could have derailed the positive moment that we saw from CPI and PPI was hotter than expected retail sales....

?

Unfortunately, retail sales were on ??????. Don't these people know that we are at an all time high on credit card debt?! Regardless, retail sales came in at a 1% increase month over month (way higher than the 0.3% expected). Richard de Chazal, macro analyst at William Blair said “This was another solid report, and inconsistent with a consumer who is on the brink of collapse.”?

?

The problem is that a consumer who is willing to spend spend spend, is also probably not very price sensitive, allowing for the potential for prices to increase and inflation to reignite! Maybe this is more of a last gasp in spending for summer/back to school, before consumers take it easy for the next few months, but it's a trend to watch! If it continues, it could spell trouble for the war on inflation (and put future rate cuts in doubt).

?

?

Jobless Claims Fall AGAIN

?

Weekly initial jobless claims fell again last week to 227,000 for the week (down 7,000 week over week and less than the 233,000 expected). Continuing claims also fell slightly to 1.86M.

?

Bloomberg economist Eliza Winger said “The latest initial jobless claims data will ease concerns about swift deterioration in the labor market. However, assessing labor-market conditions solely on the basis of jobless claims could be misleading.”

?

And she's right! We see how the market continues to unfolds before making any claims on how the August Employment Report will look (report currently scheduled for release 9/6),

?

Housing Starts DROP

?

Housing starts declined 6.8% in July to a seasonally adjusted 1.238 million - that's 16% lower than they were last year. The data also shows that homebuilders are shifting focus from single family homes to multifamily projects. A large reason for the drop may have been due to a delay caused by the impact of Hurricane Beryl in major markets around the southeast.

?

The drop in starts is also because? high mortgage rates continue to hamper demand (causing builders to stop trying to start building more supply). It's a good sign for homebuyers as negative housing market data is one of the key pieces that's been missing from the recovery from inflation.

?

Keep in mind that shelter costs have been the most stubborn piece of the puzzle for the Fed. Shelter costs were still "the most disappoint part" of the July CPI report. Some positive news that 2+ years of record high interest rates is finally causing a slowdown in the housing market for builders is exactly what the Fed wants to hear before cutting rates.

?

More rate cut talk from the Fed

?

Austen Goolsbee, the chattiest member of the Fed Reserve, said on Thursday (after CPI) is growing "more concerned about the employment side [than the inflation side] of the mandate", which makes sense given inflation just notched the four month in a row of declines while unemployment seems to have just started to heat up. He's one member of the Fed we can always count on to vote in favor of rate cuts.

?

Atlanta Federal Reserve President Raphael Bostic on Tuesday (before CPI) said recent economic data has made him "more confident" the U.S. central bank can get inflation back to its 2% target, but he wants to see "a little more data" before he's ready to support lowering interest rates. I wonder if the CPI report changed his mind.

?

St. Louis Fed President Alberto Musalem?spoke Thursday and seems read to start cutting rates in September.

?

RATE CUT WATCH:

?

There's a 100% chance of seeing a rate cut on September 18th!?75.5% believe we'll see a 25bp cut and 24.5% believe we'll see a 50bp cut.?

?

If anything unexpected pops up that affects interest rates, you'll want to be sure to follow us?on Instagram for immediate reactions!?

Source: Bureau of Labor Statistics

Key reporting dates this week:?

Mon, 8/19: U.S. leading economic indicators

Tues, 8/20: Fed presidents speaking

Wed, 8/21: Minutes of Fed's July FOMC meeting

Thurs, 8/22: Initial jobless claims, Existing home sales

Fri, 8/23: Fed Chair Jerome Powell speech at Jackson Hole retreat, New home sales

Don't forget - the average rate we quote DOES NOT EQUAL your rate. I'm always available to chat and always here for you! Call or text me at 512-701-1819 or send me an email.

?

Talk soon!

Eric