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<\/p>\n(Kitco News) \u2013 Friday\u2019s CPI report will likely show that underlying inflation continues to move in the right direction \u2013 but even if it does, if the Fed is disappointed with the speed of progress, the committee could still hike rates at the September meeting, according to Christopher Hodge, Head Economist for the U.S. at Natixis.<\/p>\n
\u201cWe expect the August CPI report to show a 0.2% increase in the core component and 0.4% for the headline,\u201d Hodge wrote in Natixis\u2019 August CPI Preview. \u201cMore precisely, we see core CPI rising 0.19% and rounding to the second decimal point has rarely been more important. With Fed policymakers genuinely divided on the proper course of action, we think that something below 0.20% is likely needed to avoid a hike in the September meeting.\u201d<\/p>\n
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Hodge said the acceleration in headline inflation has been largely driven by energy and food prices rather than a broadening of underlying inflation. \u201cGasoline prices, which subtracted nearly 12 basis points from headline CPI in July, are expected to add roughly 2.5 basis points in August,\u201d he said. \u201cFood at home should also reverse its July decline, while food away from home remains firm. Taken together, food and energy account for much of the difference between July\u2019s unusually soft headline reading and our August forecast.\u201d<\/p>\n
Hodge pointed out that the major development since the July CPI report was Fed Chair Kevin Warsh\u2019s declaration that despite the better-than-expected inflation readings over the summer, \u201cunderlying trends have [not] meaningfully improved.\u201d<\/p>\n
\u201cWe can quibble about the definition of \u2018meaningful,\u2019 but the pace of inflation appears to have slowed, albeit choppily, in the past few years,\u201d he said. \u201cThe question for policymakers is whether or not that progress has been sufficient enough at the current policy rate.\u201d<\/p>\n
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\u201cAnalysis from the San Francisco Federal Reserve suggests that current inflation is being driven by acyclical factors – residual impacts from tariffs previously and more recently higher energy prices,\u201d he noted. \u201cWarsh has also mentioned other metrics, such as the median and trimmed mean measures of inflation. Those metrics too have shown a downward trend.\u201d<\/p>\n
As for the implications of August\u2019s CPI on the Fed\u2019s next rate decision, Natixis does not see a reacceleration in inflation, and they expect price growth to slow over the coming quarters.<\/p>\n
\u201cOur assessment of the inflation path has not changed, but our assessment of the reaction function of the Fed has,\u201d he said. \u201cPolicymakers increasing look skeptical that the trajectory of inflation is declining at a rapid enough pace to keep rates on hold. We think Governor Waller is a bellwether of the Committee, and he has been clear about his stance. He has said he wants to \u201cgive disinflation a chance,\u201d and if incoming data proves to be encouraging, we think he would be inclined to keep rates on hold. We also don\u2019t think Waller would be hesitant to hike if that is not the case.\u201d<\/p>\n
\u201cWe think that policymakers feel that monetary policy is at a crossroads and that the time for attributing excess inflation to exogenous factors (i.e. tariffs or higher energy prices) is over,\u201d Hodge concluded. \u201cTherefore, a print on core CPI at our forecast of 19bps or below would likely tip Waller, and in our view the entire FOMC, towards a hold stance. Admittedly, this presents a narrow path. Should Friday\u2019s core CPI exceed that, we think the Fed will likely lift its policy rate next week.\u201d<\/p>\n
\u201cIf policymakers are not satisfied with the speed of disinflation, a nudge (one or two hikes) could be all that is needed to push inflation lower.\u201d<\/p>\n
Disclaimer:\u00a0The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and\/ or damages arising from the use of this publication.<\/p>\n","protected":false},"excerpt":{"rendered":"(Kitco News) \u2013 Friday\u2019s CPI report will likely show that underlying inflation continues to move in the right…\n","protected":false},"author":2,"featured_media":1195937,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[3090],"tags":[13964,13957,51,6725,494,13956,3378,13959,1700,13958,13960,3055,327,13963,466,13948,13965,330,13966,13955,13951,13952,13950,13953,285,13954,13962,13967,13949,13961,16,15,3383],"class_list":["post-1195936","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-bank-forecasts","tag-bitcoin-news","tag-business","tag-central-banks","tag-charts","tag-crypto-news","tag-currency","tag-economic-reports","tag-economy","tag-ethereum-news","tag-forecasts","tag-global-economy","tag-gold","tag-international-policy","tag-interviews","tag-kitco-news","tag-market-nugget","tag-metals","tag-mining-minutes","tag-mining-news","tag-palladium","tag-pgm","tag-platinum","tag-platinum-group-metals","tag-politics","tag-precious-metals","tag-rare-earth-metals","tag-roundups","tag-silver","tag-tech-metals","tag-uk","tag-united-kingdom","tag-us-dollar"],"share_on_mastodon":{"url":"","error":"Validation failed: Text character limit of 500 exceeded"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/1195936","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=1195936"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/1195936\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/1195937"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=1195936"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=1195936"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=1195936"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}