As we wait for Powell’s Jackson Hole speech, let’s take a look at what some of the nowcast indicators show for growth and inflation.
Starting with growth, we have the Atlanta Fed GDPNow tracket at 2.3% for Q3.
Moving on to inflation, and looking at the Cleveland Fed CPI nowcast, Core CPI YY is currently tracking at 3.05%, with Core PCE sitting at 2.96% (let’s just call it 3.0%).
Now I’m no rocket scientist, but it’s really tough to argue for cuts (don’t even get me started on recession) when growth is above 2.0% and Core inflation is sitting at or just above 3.0%.
I can already feel my ears burning as some reading this might be shouting out ‘It’s the labour market!’. I totally agree that the main focus for cuts is solely focused on the labour market. With those ugly revisions we got that makes sense.
However, among labour market data, apart from the prior month’s revisions, other more timely indicators are not showing stress. Looking at the 1Y change in claims data, we can see that a rise of between 20%-30% per year usually suggest a recession is on the way or in most cases already happening.
Currently, this is sitting at 3.1%. So, some labour data is looking scary, while others like this and the Unemployment Rate is still looking fine.
The bottom-line is that the current aggregate of the data makes for a difficult argument for aggressive cuts from the Fed.
The US can’t have ‘the best economy in the world’, and require 200 basis points of cuts at the same time.
This article was written by Arno V Venter at investinglive.com.
