June CPI 9.1% - 75 or 100 bps in July?
The June CPI of 9.1% was below the 10% released on Twitter, but above analysts' expectations of 8.8%. $S&P 500(.SPX)$ $DJIA(.DJI)$
US stocks declined since opening, but the $NASDAQ(.IXIC)$ rebounded and U.S. stocks did not plunge much by the close. Is the market going to take a few days to digest the results as it has done on previous occasions? We'll have to wait and see.
1. Let's look at the key factors of the CPI:
1. Energy overall rose 41.6% year-over-year and 7.6% month-over-month, with prices for oil-related commodities jumping 60% year-over-year.
2. Food prices rose 10.4% year-over-year and 1% month-on-month.
3. Housing costs rose 5.6 % year-over-year and 0.7% from a year earlier. In particular, June rental costs increasing again by 0.8% from the previous month, the largest one-month increase since April 1986.
2. What does 9% mean for the Fed?
9% will put enormous pressure on the Fed to raise rates by at least 75 bps at the rate meeting in two weeks. If the inflation expectations released this Friday is also high, a 100 bps rate hike is also possible.
The probability of the Fed ushering in a "Volcker moment" has become increasingly high, at the cost of recession in exchange for price stability.
The Volcker moment refers to
Fed Chairman Paul Volcker crushed inflation with a series of historic rate increases. But US economy fell into recession twice in two years.
Powell has emphasized several times that
the Fed must see evidence of inflation retreats before it may adjust its current hawkish stance.
The CME's forecast for a 100 bps rate hike has risen to 82.1%:
photo from https://www.cmegroup.com/
https://www.cmegroup.com/
What do you think of Fed's move in July?
75 or 100 bps?
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In Q4, Fed can increase more if needed.
The FED mentioned that's what they will set in July?
June CPI at 9.1% is the highest inflation in more than 40 years! Inflation means that the intrinsic value of money is being eroded by rising prices. High inflation will dampen consumer spending as the ordinary people have will have to pay more for their day to day living.
The culprit to this high inflation can be traced to oil prices rising to unprecedented levels due to the Ukrainian war and the ban on Russian oil by US and its allies only exacerbated the situation.
It is almost a certainity that the Feds will raise interest rate at the next meeting. The Big question is whether it is 75 or 100 bps. I believe it will be 75 bps as raising it to 100 bps may spike recession. The Feds is certainly walking on a tightrope right now. Let's see how the situation will unfold.
Let's brace ourselves for more market turbulence but stay invested in a diversified portfolio to combat against inflation.
@Tiger_chat @TigerStars @CaptainTiger
The Federal Reserve on June 15, 2022, lifted interest rates by 75 bps, the third hike this year and the largest since 1994. The move is aimed at countering the fastest pace of inflation in over 40 years.
Even after 3 times increase in interest rate, the CPI is still keep on increasing. To avoid further increase of CPI (which is affected by Energy, Food & Housing prices) beyond 9.1%, I think Fed has no other choice but to usher “Volcker moment” to adopt 100 bps rate hike in exchange for price stability.
The Volcker moment refers to Fed Chairman Paul Volcker crushed inflation with a series of historic rate increases.
The Federal Reserve board led by Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981. The prime rate rose to 21.5% in 1981 as well, which helped lead to the 1980–1982 recession, in which the national unemployment rate rose to over 10%.