Once again, the portfolio wrecking crew know as "Team One & Done" have suckered investors for the umpteenth time (we have lost count) into believing that there is little inflation, the economy is slowing, and therefore the Fed is done.
This morning’s core PCE price index, which excludes food and energy, grew 2.4% in June, the fastest monthly growth since September 2002. On a year-over-year basis, this was the largest gain in 11 years (April 1995). This reflects the costs of commodities (as discussed earlier today in the WSJ) and especially energy pushing its way into the core.
Sarcasm alert: I guess this mean that the Fed is ready to pause . . .
As we noted on July 21:
"One and Done crowd may have finally gotten their wish. This Ship of
Fools have been behind nearly every failed rally of recent vintage … as
history has shown us more often that not, when the Fed finally stops it
is because growth has slowed to the point where inflation has been
tamed, but at a cost of setting the economy to the point of
The silver lining in today’s report is that personal incomes rose 0.6% in June, outpacing the 0.4% increase in consumer spending. Incomes got a boost from higher hourly wages. Compensation of employees increased 0.6% in June, with wages also up 0.6%.
Also of note: the personal savings rate improved to negative 1.5% from negative 1.6%, the 15th consecutive month of negative savings. (negative savings = spending previous savings, or by borrowing or selling assets to support consumption).
Marketwatch noted that "after adjusting for inflation, real consumer spending rose 0.2%, the fourth straight month of tepid spending. After inflation, real take-home pay rose 0.4%, the biggest increase in disposable income since December."
While the Fed looks at that as inflationary, I also see it as allowing consumers to continue their spending.
Let’s see if the Fed Fund Futures maintains that 30% chance of a 1/4 point hike in the August meeting.
Core inflation rising at 11-year high in June
Real consumer spending tepid for fourth straight month
By Rex Nutting, MarketWatch
Last Update: 8:30 AM ET Aug 1, 2006