As the Federal Reserve evaluates its next move on short-term interest rates, it's essential to consider the recent shift in wage growth and inflation.
Outlook
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The Federal Reserve's aggressive monetary policy tightening is slowly helping to moderate inflation, but it has more work to do to tame price increases in the sticky services components which will likely require further slowing in the labor market. Wage pressures remain strong driven by a tight labor market and consumption is slowing while GDP growth is easing.
The market's recent bounce may be a sign that the recession narrative has been put on hold, at least for now.
The idea that stocks go up more often than not should not be surprising, but the fact that August tends to be a down month in the S&P 500 is a well-known phenomenon.
The economy appears to have missed the Federal Reserve Bank memo telling it to slow down, with today's GDP and durable goods data exceeding expectations while initial unemployment claims point to persistent labor market tightness.
The Fed's recent rate hike has pushed the target range to 5.25%-5.50%, the highest level since early 2001, leaving investors to ponder if Powell & Co. are finished with this rate hike cycle or if there is another move waiting in the wings.
The recent drop in inflation was a significant event, with the core CPI rising just 0.16 percent, the lowest reading in more than two years.
Extreme weather events are having a significant impact on consumers, with 81% of respondents feeling they are correlated with economic strain.
The Fed's recent actions have led to a reevaluation of what it means to 'fight the Fed,' and it's crucial for investors to understand the difference between a trading opportunity and an investable rally.
The recent softness in residential construction is largely due to mortgage interest rates of nearly 7%, making homes less affordable for buyers, with permits for new home construction falling 3.7% from the previous period.
The economy is slipping into an expansion rather than moving toward a recession, with the first quarter gross domestic product expanding at a 2% rate and the job market appearing in good shape.
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