Latest / Markets with Megan: A Quick Financial Markets Update / Fed Hike Odds Jump After CPI | S3 E167 | 09-11-26

Transcript

Fed Hike Odds Jump After CPI | S3 E167 | 09-11-26 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: The inflation report we got this morning pretty much solidified a rate hike at the Fed's meeting next week.
• 0:06
  Megan Horneman: It's Friday, September the 11th, and this is Markets with Megan.
• 0:09
  Megan Horneman: If you like this podcast, you can subscribe, hit the alarm bell, share it with your friends, family, colleagues, anybody who's interested in those economic headline reports that you see, what it means for the markets and what it means for the economy.
• 0:23
  Megan Horneman: This morning we got the last big inflation report that the Fed will get before they meet next week to make a decision on interest rate policy.
• 0:31
  Megan Horneman: And the odds for the Fed to raise interest rates have really fluctuated quite a bit in the past few weeks, specifically because we've had that increase in oil prices.
• 0:40
  Megan Horneman: Well, today we got an inflation report that you'll hear as I say a lot on this, that some of these things were as expected.
• 0:47
  Megan Horneman: Well, as expected is not good enough, especially when headline CPI is running 0.4% on a month-over-month basis, and it's now on a year-over-year basis up 3.4%.
• 0:59
  Megan Horneman: Now that headline includes energy, and we know that energy has played a big part in inflation data.
• 1:04
  Megan Horneman: We saw energy prices up 2% on the month in August.
• 1:09
  Megan Horneman: That's all of the energy.
• 1:10
  Megan Horneman: Energy commodities specifically were up 4%.
• 1:13
  Megan Horneman: And when you look at energy commodities, they're up 28% on a year-over-year basis.
• 1:18
  Megan Horneman: Let's dig into the core level because we do know that this is something that people like to look at because it does exclude the volatile items like food, energy.
• 1:28
  Megan Horneman: Um, the the the core level rose 0.3%.
• 1:31
  Megan Horneman: The expectation was for an increase of 0.2%, and that is a bit hotter than was expected.
• 1:37
  Megan Horneman: On a year-over-year basis, um, there was some base effects impacts on this.
• 1:41
  Megan Horneman: So it actually is running 2.4% on a year-over-year basis versus 2.5% in July.
• 1:48
  Megan Horneman: But again, there were some year-over-year base effects that resulted in that that will unwind likely in the coming months.
• 1:54
  Megan Horneman: What the markets have focused on is that 0.3%.
• 1:57
  Megan Horneman: And this does look like it's enough information for the Fed to act next week.
• 2:01
  Megan Horneman: When we look at some of the components of this, as I mentioned, energy was a big, um, a big part to do with this.
• 2:09
  Megan Horneman: When you look at shelter costs, they rose 0.3%.
• 2:12
  Megan Horneman: So shelter costs are running about 3% on a year-over-year basis.
• 2:17
  Megan Horneman: Apparel jump, apparel was flat for the month, but that still is rising 3.6% on an annual basis.
• 2:23
  Megan Horneman: Airline fares, again, keep rising.
• 2:26
  Megan Horneman: They were up 2.7% in the month of August compared to 2.2% in July.
• 2:32
  Megan Horneman: And on a year-over-year basis, they're up 23.5%.
• 2:36
  Megan Horneman: Um, this is one of the other things to comment on was education and communication services.
• 2:41
  Megan Horneman: They were up 2.1% from a year-over-year basis.
• 2:45
  Megan Horneman: This was also reflected in the University of Michigan Consumer Sentiment Report that we got today.
• 2:51
  Megan Horneman: That also releases the one year and five to 10 year inflation expectations for consumers.
• 2:57
  Megan Horneman: We saw that the one-year inflation expectation jumped to 4.6%.
• 3:01
  Megan Horneman: That's the highest in three months.
• 3:03
  Megan Horneman: And that was up from 4% in the prior month.
• 3:07
  Megan Horneman: Now, one of the other things that we've looked at is just a cumulative change from prior to COVID to now on some of the key items that Americans have to spend their money on.
• 3:17
  Megan Horneman: When you look at energy costs, they're up 70% since June of 2020.
• 3:22
  Megan Horneman: When you look at motor vehicle insurance, it's up 65% since 2020.
• 3:28
  Megan Horneman: Fuel and utilities up 45%.
• 3:32
  Megan Horneman: This is a massive burden on American households.
• 3:35
  Megan Horneman: And we can see this in the average hourly earnings and specifically on a year-over-year basis, the real average hourly earnings.
• 3:43
  Megan Horneman: They declined again, meaning negative territory.
• 3:46
  Megan Horneman: They're now negative for the past five months.
• 3:49
  Megan Horneman: And this is not good news for the consumer, especially if this inflation remains elevated.
• 3:54
  Megan Horneman: Now let's talk about what this means for the market today and what it means for the Fed next week.
• 3:59
  Megan Horneman: The market loved this.
• 4:00
  Megan Horneman: Equities are up big, bond yields have taken a reprieve from the recent increase that we've seen.
• 4:05
  Megan Horneman: But part of that is because there's now an 87% chance that the Fed will hike interest rate next week.
• 4:11
  Megan Horneman: So when that when the market is starting to price in the fact that the Fed will move act, mill will move because of the fact that inflation is a problem.
• 4:20
  Megan Horneman: You do tend to see some reprieve in the long end of the curve.
• 4:24
  Megan Horneman: Because, hey, if they do come in and um raise interest rates, they might be able to slow down inflation.
• 4:29
  Megan Horneman: And that's good for the long end of the curve.
• 4:31
  Megan Horneman: Equity markets are reacting to that move down in interest rates.
• 4:36
  Megan Horneman: It's been under a lot of pressure over the past couple weeks because we've seen this continual rise in sovereign rates.
• 4:42
  Megan Horneman: So it may seem a little counterintuitive, but markets can appreciate if the Fed finally realizes that what they've been doing over the past five years has not worked.
• 4:51
  Megan Horneman: And we may have someone in office that finally has the guts to actually raise interest rates.
• 4:56
  Megan Horneman: What he ends up doing in the meeting next week, we think they should raise interest rates.
• 5:00
  Megan Horneman: The markets are telling him it's okay to raise interest rates.
• 5:04
  Megan Horneman: It's the communication with that.
• 5:06
  Megan Horneman: Is it a one and done?
• 5:07
  Megan Horneman: Is it 25 basis points?
• 5:09
  Megan Horneman: Is it 50?
• 5:10
  Megan Horneman: We don't know at this point, but we'll definitely back to give you information as we get that.
• 5:14
  Megan Horneman: So that's all that we have today.
• 5:16
  Megan Horneman: We'll be back next week.
• 5:17
  Megan Horneman: It's not only a Fed meeting week, but we'll also get the retail sales report to get a little better indication on the health of the consumer.
• 5:24
  Megan Horneman: Thank you so much.
• 5:25
  Megan Horneman: And if you want to history of our podcast, you go to marketswithmegan.fm.
• 5:28
  Megan Horneman: Thank you.