Latest / Markets with Megan: A Quick Financial Markets Update / Did Latest PCE Data Shift the Fed’s Path? | S2 E103 | 12-05-12

Transcript

Did Latest PCE Data Shift the Fed’s Path? | S2 E103 | 12-05-12 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: Well, there was good news today for those that are worried about inflation.
• 0:03
  Megan Horneman: It's Friday, December the 5th, and this is Markets with Megan.
• 0:06
  Megan Horneman: If you like this podcast, subscribe, hit the alarm bell, share it with your colleagues, your friends, your family, anybody who's interesting about interested about what's going on in the economy and how it's relating to the equity and bond markets.
• 0:19
  Megan Horneman: So this morning we received the much delayed uh core PCE reading, and this is the Fed's preferred inflation reading.
• 0:27
  Megan Horneman: And we got this for the month of September.
• 0:29
  Megan Horneman: So, as I mentioned, very delayed because of the disruptions with the government shutdown.
• 0:34
  Megan Horneman: But it was good news.
• 0:36
  Megan Horneman: Uh, core PC and PCE came in as expected.
• 0:40
  Megan Horneman: So core PCE will exclude volatile items like food and energy.
• 0:44
  Megan Horneman: It rose two-tenths of a percent in the month of September.
• 0:48
  Megan Horneman: And on a year-over-year basis, so this is when the Fed's talking about their 2% target.
• 0:53
  Megan Horneman: This is what they're looking at.
• 0:55
  Megan Horneman: It's annual year-over-year change in this indicator.
• 0:58
  Megan Horneman: It was 2.9% annually on in August, and it did dip modestly lower to 2.8% in September.
• 1:07
  Megan Horneman: So that's good news for the Fed ahead of their meeting next week.
• 1:11
  Megan Horneman: The preliminary reading of University of Michigan Consumer Confidence also came out today, but that's for the month of December.
• 1:18
  Megan Horneman: And there was good news there on the inflation front as well.
• 1:22
  Megan Horneman: So the one year expectation for inflation from consumers dipped from 4.5% to 4.1%.
• 1:30
  Megan Horneman: And then the five to 10 year expectations fell from 3.4% to 3.2%.
• 1:37
  Megan Horneman: Now, why is this good news?
• 1:39
  Megan Horneman: Because consumers can sometimes feed inflation without realizing it.
• 1:43
  Megan Horneman: If consumers think that inflation is going to be high in a year from now or five to 10 years from now, they'll speed up spending.
• 1:50
  Megan Horneman: And what happens when they speed up spending, that can just fuel inflation inadvertently.
• 1:56
  Megan Horneman: Now, it also helped consumer confidence, the main reading of that report, rise for the first time in five months.
• 2:03
  Megan Horneman: And that's because lower inflation expectations means that consumers got a little bit more optimistic about their finances.
• 2:10
  Megan Horneman: And consumer confidence has been something that's just been very, very, very weak in all of the different indicators that we look at.
• 2:17
  Megan Horneman: So any improvement is good news for the economy.
• 2:20
  Megan Horneman: Now, what does this mean for the markets and for the Fed?
• 2:22
  Megan Horneman: First of all, the Fed meets next week, and this does pretty much solidify a rate cut in their meeting next week.
• 2:29
  Megan Horneman: They're the futures market is pricing in about a 95% chance.
• 2:33
  Megan Horneman: So that's about as good as it gets.
• 2:34
  Megan Horneman: They're likely going to cut 25 basis points.
• 2:37
  Megan Horneman: Remember, the statement is what's important, and that's what tends to move the markets.
• 2:41
  Megan Horneman: Now, for today, the equities are modestly higher on this news.
• 2:45
  Megan Horneman: They came out very strong this morning after we got these reports.
• 2:49
  Megan Horneman: We did intraday the SP 500 uh did trade above the recent high to hit a new record high at 68.95, but we have pulled back from that.
• 2:59
  Megan Horneman: So unless we see some big improvement turnaround here this afternoon, it's going to be a close call to say we end at a record high today that looks like it's kind of stuck here, slightly lower, uh slightly lower than that intraday high we saw.
• 3:13
  Megan Horneman: That's all we have this week for Markets with Megan.
• 3:16
  Megan Horneman: We'll be back next week with a packed week of economic data as the government's slowly releasing these reports and a Fed meeting.
• 3:23
  Megan Horneman: Thank you.
• 3:24
  Megan Horneman: And if you want a history of the podcast, you can go to marketswithmegan.fm.