"Powell The Great" Conquers Inflation, Economists Say Rate Cuts Are Certain...

We’ve all heard it, we’ve all seen it, and clearly the market is absolutely lovin’ it: Inflation in the U.S. has finally decided to chill the f**k out. 

(Source: Giphy) 

Now of course, while we’ve briefly mentioned the significance of this good news in some of our previous articles, we haven’t really talked about it in depth and what it all means. Especially considering the Fed’s decision in September could spark a massive rally that rivals the glory days of 2020, and last year.

(Source: Giphy) 

For starters, the Fed’s PPI (the measure of wholesale prices), came in at only a 0.1% increase in July. Which was 0.1% less than what economists were expecting. This fanned the initial flame of this week's rally as David Russell, global head of market strategy at TradeStation stated “[The] PPI data gives further evidence that the tide has turned on inflation, especially in services”. Translation: Investors who panic sold are punching air right now as all three indexes roared +1.0%, +1.6%, and +2.4% (Dow, S&P 500, and Nasdaq). 

(Source: Business Insider) 

However, while that was definitely a nice dose of market confidence, the CPI reading yesterday morning hit the real homerun as the data dipped below 3%, registering a year-over-year increase of 2.9% as of July (Far better than economists predicted).  Obviously, this one-two punch on inflation came at a pivotal time as most investors have suffered trauma over the latest global meltdown earlier this month. 

(Source: Wall Street Journal) 

But now, according to Economists like Bharat Ramamurti and Jeffrey Roach, the recent data has officially given Jerome Powell the green light to do us all a solid: Cut those mother friggin rates my guy. This had Ramamurti boldly stating (knock on wood) that "We’ve won the battle against inflation," while Roach noted, “As inflation decelerates, the Fed can legitimately cut rates yet keep policy restrictive overall.” 

(Source: Yahoo Finance) 

With that said though, while the perspective suggests that inflation is trending down, the labor market and housing costs are still having their own rebellious fits. For instance, Housing costs, particularly, are still playing hard to get. 

(Source: Giphy) 

In July, rents rose by 0.5%, surpassing the 0.3% increase observed in June, contributing significantly to the overall price index. Despite some sectors showing a decline—most notably used cars and trucks, which fell by 10.9% over the past year—housing remains a tough road to hoe, with shelter costs rising by 5.1% annually. 

On the other hand, while rents rise and mortgage rates fall for their second week in a row, parent basement dwellers are starting to eye the home-buying process - with current homeowners jumping on lower rates faster than a hot knife through butter as refinances soar 117%. 

(Source: Market Watch) 

So clearly all good signs (despite unemployment rising to 4.3%) are ahead for the economy and the market going forward. Which is why Biden and his administration are practically doing victory laps in a similar way that I got an A+ on a group project that I barely did anything with. 

(Source: New York Times) 

For this reason, the Fed meeting in September is circled on every investor’s calendar in America, because just as we stated this morning, the only question now is whether we’ll get a 25 pointer or a cool 50 pointer. Either one is highly likely to take place. And when that happens, well, buckle up buttercup, because the market might just get hotter than a stolen tamale my friends. 

(Source: Giphy)