Latest Inflation Numbers and Discussion

[DCdave]

Chuckanut got washed away by that last wave.

But, yeah. Employment one week: no rate drop! A decent inflation report: rate drop! Back and forth.

I think there will be a rate drop for other undiscussable reasons.

If the fed had a “nefarious” reason to cut rates you really think they would be waiting to make one single .25 cut? Many thought they would cut 5-6 times this year but they have dutifully followed the data.

 

[DCdave]

My neighborhood has been a good barometer these past few years. Right now (and for weeks) there are zero homes for sale, and the last ones went 2x+ the pre-2020 price.
There is only one for rent, at $5500 for a SFH, and that's because it's priced too high.

In normal times there are 3-8 active sale listings, and about the same rentals.

Yes, I have friends that live in nice, large developments in good school districts without a single home for sale (partially because people don’t want to give up their 3% loans). When one does come on the market it leads to an instant bidding war.
Normally lower rates can lead to higher home prices but in this environment I think lower rates will increase inventory which will hopefully help stabilize prices.

 

[JoeWras]

If the fed had a “nefarious” reason to cut rates you really think they would be waiting to make one single .25 cut? Many thought they would cut 5-6 times this year but they have dutifully followed the data.

Not nefarious.

Just to create good feelings at the right time. Nothing more simple than that.

 

[MichaelB]

Not nefarious.

Just to create good feelings at the right time. Nothing more simple than that.

Of course, that’s something that can never be proven one way or the other, so any accusation will find receptive ears and believers somewhere. Believing something doesn’t make it true.

I’m deeply skeptical the Fed will take an action for any reason other than achieving its mandate or protecting the banking system.

 

[JoeWras]

I'm not. These are appointed positions.

 

[Gumby]

I'm not. These are appointed positions.

And if we go any further down this line of discussion, the thread will be locked. So let's avoid that.

 

[MichaelB]

May PCE as released yesterday and the numbers continue to moderate, For the month of May PCE was 0 (slightly negative) and core PCE was 0.1%, both month over month. Year over year PCE and core PCE were both 2.6%. See here Personal Income and Outlays, May 2024 | U.S. Bureau of Economic Analysis (BEA)
Spending also recovered and was 0.3% (real) MoM.

The trend here on inflation is very encouraging. The PCE inflation rate at 2.6% is within the target range and, despite the rhetoric, the Fed can consider the inflation goal as met and focus more of its attention to now to the economy and financial sector solvency.

 

[CaptTom]

The trend out in the real world looks encouraging, too. It seems like retail pricing has largely stabilized, and some of the opportunistic increases have been backed down a bit. The news is full of stories about businesses which got burned by customer push-back when they raised prices more than average.

McDonalds is a good example. My prediction is that their $5 "meal deal" pricing is too little, too late. Even when you throw in a 10-cent drink and 25 cents worth of potatoes, that's not a good price for their sad little burgers. I expect them to get more aggressive with discounting, probably through their app, and maybe other special promotions.

 

[Chuckanut]

The trend out in the real world looks encouraging, too. It seems like retail pricing has largely stabilized, and some of the opportunistic increases have been backed down a bit. The news is full of stories about businesses which got burned by customer push-back when they raised prices more than average.

McDonalds is a good example. My prediction is that their $5 "meal deal" pricing is too little, too late. Even when you throw in a 10-cent drink and 25 cents worth of potatoes, that's not a good price for their sad little burgers. I expect them to get more aggressive with discounting, probably through their app, and maybe other special promotions.

But, you also get chicken nuggets. We are seeing what Clark Howard calls a “Buyers Strike”.

 

[Sunset]

The trend out in the real world looks encouraging, too. It seems like retail pricing has largely stabilized, and some of the opportunistic increases have been backed down a bit. The news is full of stories about businesses which got burned by customer push-back when they raised prices more than average.

McDonalds is a good example. My prediction is that their $5 "meal deal" pricing is too little, too late. Even when you throw in a 10-cent drink and 25 cents worth of potatoes, that's not a good price for their sad little burgers. I expect them to get more aggressive with discounting, probably through their app, and maybe other special promotions.

We were out at a course at supper time, so stopped at a Burger King for a quick supper.
Took us a while to order as hadn't been to a Burger King in 3 years.
Hate those LED menus that change while reading them
They had a $5 meal and it was junior whopper, drink, fries, and 4 nuggets.. Actually quite filling for $5.

Guess the chains are competing.

 

[SecondCor521]

The trend here on inflation is very encouraging. The PCE inflation rate at 2.6% is within the target range and, despite the rhetoric, the Fed can consider the inflation goal as met and focus more of its attention to now to the economy and financial sector solvency.

I agree the trend is encouraging.

Has the Fed changed from their 2% symmetric target on inflation and changed to a range instead? That would be news to me.

I know that people have argued for a higher target as well, but I haven't heard that the Fed has changed their policy goal.

If they haven't changed their goal, I expect them to continue rates higher for longer and possibly be a little too late to cut rates. I think Chair Powell will be more tenacious than a bulldog on achieving 2% and will keep at it as long as necessary, which is pretty much what he's been saying for the past year or two.

 

[MichaelB]

I agree the trend is encouraging.

Has the Fed changed from their 2% symmetric target on inflation and changed to a range instead? That would be news to me.

I know that people have argued for a higher target as well, but I haven't heard that the Fed has changed their policy goal.

If they haven't changed their goal, I expect them to continue rates higher for longer and possibly be a little too late to cut rates. I think Chair Powell will be more tenacious than a bulldog on achieving 2% and will keep at it as long as necessary, which is pretty much what he's been saying for the past year or two.

No, a target range is my assumption, only because it makes more sense than an absolute number. I’ve never heard or read any reference by the Fed to anything other than 2%.

I agree with you the odds are they will be later rather than sooner, because the risk is unbalanced. The consequences of cutting too early (resurgence of inflation) are greater than if they wait too long (recession).

Nonetheless, as inflation falls and the nominal interest rate remains the same, the real interest rate is rising. We may soon reach a point where the Fed cuts just to keep the real rate steady. This is entirely my speculation.

 

[Chuckanut]

Hate those LED menus that change while reading them

+1. I don’t eat fast food often, usually only when on the long drive part of a road trip. But, when I do I use the app as much as possible. That’s where the deals are. And they don’t change what you are looking at when you are trying to decide between an ordinary double cheeseburger and the Big MacWhopper.