Latest / Markets with Megan: A Quick Financial Markets Update / May Consumer Price Index Effect on Consumer Spending | Episode 143 | 06-12-24

Transcript

May Consumer Price Index Effect on Consumer Spending | Episode 143 | 06-12-24 · Markets with Megan: A Quick Financial Markets Update

• 0:01
  Megan Horneman: It's going to be a double dose of Markets with Megan today.
• 0:03
  Megan Horneman: It is Wednesday, june the 12th, and we have two big marketing movie events today.
• 0:08
  Megan Horneman: I'm going to start this morning and then we'll be back later this afternoon with another podcast, but this morning we got the monthly Consumer Price Index report.
• 0:16
  Megan Horneman: So this is the inflation report.
• 0:18
  Megan Horneman: Why is it important today?
• 0:20
  Megan Horneman: Because this afternoon the Federal Reserve meets and it's going to set interest rate policy and also give us updated dot plots is going to set interest rate policy and also give us updated dot plots on where they see interest rate policy going the remainder of this year and in 2025.
• 0:31
  Megan Horneman: But let's break down first of all the CPI report, because the markets are definitely moving on this today.
• 0:37
  Megan Horneman: The report came in a little bit better than expected, so it was the lowest level on a month over month basis that our headline consumer prices were basically flat.
• 0:46
  Megan Horneman: It was the lowest level since July of 2022.
• 0:49
  Megan Horneman: If you look at the core level so this is going to exclude food and energy that was up two tenths.
• 0:56
  Megan Horneman: The expectation was for it to be up three tenths and that was the lowest in seven months On a year-over-year basis.
• 1:02
  Megan Horneman: We're still running above the Fed's target.
• 1:04
  Megan Horneman: The headline is up 3.3% and the core is up 3.4%.
• 1:10
  Megan Horneman: So let's dig into the details within that report.
• 1:14
  Megan Horneman: Big drop in gasoline prices for the month.
• 1:20
  Megan Horneman: That was the biggest month we've seen in gasoline price decline in five months.
• 1:22
  Megan Horneman: So that had a lot to do with the headline being flat and when you exclude that out, the core was slightly higher.
• 1:29
  Megan Horneman: And that was driven by the fact that we're still having sticky shelter prices, that's housing inflation that remains relatively elevated, rising for 5.4 percent over the past year, where we saw some other declines though apparel vehicles and then airline fares.
• 1:48
  Megan Horneman: So again you're seeing some deflation or disinflation in some areas that are very discretionary.
• 1:55
  Megan Horneman: So that is things like apparel, it's things like travel.
• 1:58
  Megan Horneman: This is a good sign for the Fed.
• 2:00
  Megan Horneman: It shows us the consumer is strained and that they are reducing the spending and that's why these prices are dropping.
• 2:06
  Megan Horneman: What does it mean for the markets?
• 2:09
  Megan Horneman: And we'll see what the Fed says today.
• 2:11
  Megan Horneman: So the equity markets are up on this.
• 2:12
  Megan Horneman: They were up very big when this was first announced.
• 2:16
  Megan Horneman: We've seen bond yields actually plunge on this report as well.
• 2:19
  Megan Horneman: The two-year yield is down 17 basis points just today thus far alone, and the 10-year is down 13 basis points.
• 2:27
  Megan Horneman: The futures market has pulled the chance for a Fed rate cut to be in September.
• 2:32
  Megan Horneman: It's now 75% chance that they'll cut rates in September.
• 2:36
  Megan Horneman: It'll be very interesting to see what the Fed has to say this afternoon, so we'll come back with another podcast.
• 2:41
  Megan Horneman: This is good news.
• 2:42
  Megan Horneman: Inflation is moving in the right direction.
• 2:45
  Megan Horneman: The bigger question is is it moving fast enough for the Fed that they can cut rates?
• 2:50
  Megan Horneman: We're not so sure about that yet.
• 2:52
  Megan Horneman: And what will they say about these sticky prices that we're seeing specifically in, like I mentioned, housing?
• 2:59
  Megan Horneman: This is one of those areas the Fed has been concerned about.
• 3:02
  Megan Horneman: So we'll be back this afternoon with some more information from what the Fed has to say about this and where we see interest rates going from here.
• 3:08
  Megan Horneman: Thanks again.
• 3:09
  Megan Horneman: If you have any questions or comments, please feel free to reach out to podcasts at Verdence.
• 3:12
  Megan Horneman: com.
• 3:13
  Megan Horneman: Thank you.