Latest / Markets with Megan: A Quick Financial Markets Update / Analyzing Persistent Core Inflation Report | Episode 127 | 04-26-2024
Transcript
- 0:02Megan Horneman: Well, it's been another disappointing day from an inflation perspective.
- 0:05Megan Horneman: This is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors.
- 0:09Megan Horneman: It's Friday, April 26th, and this morning we received the monthly PCE core reading.
- 0:15Megan Horneman: This is a reading on inflation that it's the Fed's preferred inflation indicator.
- 0:20Megan Horneman: It has less noise in it than the headline CPI data that is also we referenced.
- 0:25Megan Horneman: But let's talk about what we received this morning.
- 0:28Megan Horneman: The numbers came in basically as expected, except on the year over year level.
- 0:34Megan Horneman: So this is the core PCE rose 2.8%.
- 0:39Megan Horneman: The expectation was for 2.7.
- 0:41Megan Horneman: It matched last month's reading at 2.8 as well.
- 0:45Megan Horneman: The problem is it's just kind of stuck and this is something the Fed's going to look at.
- 0:51Megan Horneman: This is followed by the disappointing report we got on the GDP price reading as well.
- 0:57Megan Horneman: So again, not good news from an inflation standpoint.
- 1:00Megan Horneman: What also comes along with this report is personal income and spending, and what we saw was personal income rose about 0.5%.
- 1:07Megan Horneman: Spending outpaced that by a significant amount.
- 1:10Megan Horneman: That was a 0.8%.
- 1:12Megan Horneman: So when you take those two into account, we can calculate the personal savings rate and unfortunately that dropped again 3.2%.
- 1:21Megan Horneman: For the personal savings rate, this is historically low, well below the historical average, and this is troublesome when we look at this, especially from the spending levels, because we dug a little deeper and looked where this spending is coming from and if you look, it's a big jump in non-durable goods.
- 1:37Megan Horneman: That's what really led this spending level higher, and non-durable goods are things like energy, gas, food, eating out at restaurants.
- 1:47Megan Horneman: These are some of the things that are in this reading, and we know that we've had high energy prices now for some time.
- 1:53Megan Horneman: So this is filtering into the inflation data and this is not what the Fed wants to see.
- 1:58Megan Horneman: The market has really not done much today.
- 2:01Megan Horneman: It's up slightly from the equity perspective, but the expectation for Fed rate cuts are now being priced out with the potential of one rate cut and not coming until the fourth quarter.
- 2:12Megan Horneman: So expectations are following in line with our view.
- 2:16Megan Horneman: We will continue to follow this inflation data.
- 2:19Megan Horneman: It is a troublesome data that we've gotten the past couple of weeks.
- 2:23Megan Horneman: We will make adjustments to our forecast for the Fed funds rate.
- 2:27Megan Horneman: We're still looking that there may be flexibility in the fourth quarter to cut one time for the Fed, but we will and we're not ready to say that their rate hikes yet on the table.
- 2:36Megan Horneman: But again, if this continues this way and trends higher.
- 2:39Megan Horneman: That's where you're going to see rate hikes come back on the table and that's going to create a lot of volatility in the equity market.
- 2:49Megan Horneman: That's all we have today.
- 2:50Megan Horneman: We'll be back next week with a lot of information from the economic side of things, as well as the quarterly treasury refunding announcement.
- 2:54Megan Horneman: That has been something that's created a lot of volatility in both bonds and stocks over the past few refunding announcements that we've gotten.
- 3:01Megan Horneman: If you have any questions or comments, please feel free to reach out to podcast at verdence dot com.
- 3:06Megan Horneman: Thank you.