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Rate Cut Coming: Is "Data Dependent" Out the Window?

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Thursday, July 11, 2019

Yesterday, following a 100% likelihood in the Federal Reserve deciding to cut interest rates at the end of this month, Fed Chair Jay Powell did nothing to dispel this notion. In fact, to the extent there is a debate at all on this subject, it’s whether the Fed will decide to cut by 25 basis points or 50. (See Kevin Matras’ Profit from the Pros article from this morning: Stocks Make New All-Time Highs, Rate Cut Looking More Likely)

We will hear from Mr. Powell again today for his second straight day of economic testimony. But we do not expect him to contradict statements he made yesterday, even as new economic data coming out seems to indicate a 25-basis-point cut — let alone a 50-point cut — is exactly warranted at this time.

Initial Jobless Claims fell back to the lower part of the long-term 200-225K range, to 209K a week ago from 222K the previous week. Claims, as we’d seem some months ago, had appeared to be climbing to a higher threshold, which was giving an indication that the labor market was finally slowing. This morning’s headline effectively erases this notion, at least for now.

Continuing Claims ticked up to 1.723 million from 1.69 million reported last week. This is the first time we’ve seen long-term unemployment claims above 1.7 million in several months, though historically we are still within a continued robust domestic employment environment.

The Consumer Price Index (CPI) for June was also released this morning, with better-than-expected numbers on both headline and core. An overall print of +0.1% matched the May headline, and improved over the expected flat CPI growth. Ex-food & energy — a way of stripping out volatile short-term pricing — performed even better: +0.3% beat the +0.2% estimate and +0.1% for May.

Year-over-year CPI is +1.6%, year-over-year core reached +2.1%. These are by no means amazing growth numbers in terms of consumer prices, but still solidly pointed in a positive direction. Medical Care pricing has grown, as has Housing, though Gasoline in June fell. That said, we’ve already seen a rebound in prices at the pump over the past few weeks.

Prior to the next Fed meeting where interest rates will be decided, we will see a first look at Q2 GDP and Retail Sales for last month. But based on Powell’s statement yesterday, is an inevitable rate cut impervious to a continued narrative of relatively strong economic data? Meaning, is “Data Dependent” out the window for the Fed?

Mark Vickery
Senior Editor

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