Latest / Markets with Megan: A Quick Financial Markets Update / The Federal Reserve's Dilemma Amid Rising Inflation | Episode 146 | 06-14-24

Transcript

The Federal Reserve's Dilemma Amid Rising Inflation | Episode 146 | 06-14-24 · Markets with Megan: A Quick Financial Markets Update

• 0:01
  Megan Horneman: Consumers are definitely feeling the inflation pinch, as we saw this morning with the University of Michigan Consumer Sentiment Survey for June.
• 0:09
  Megan Horneman: This is Friday, june 14th, and your regular segment of Markets with Megan.
• 0:13
  Megan Horneman: This morning we received the preliminary consumer confidence report from the University of Michigan.
• 0:19
  Megan Horneman: The way that this is reported is it comes out to give first part of the month, it comes out to give the consumer confidence for the first half of the month and then we'll get a revision on this report.
• 0:30
  Megan Horneman: But let's dig into what happened and why the equity markets are a bit off today.
• 0:34
  Megan Horneman: On this, the preliminary reading was a big miss.
• 0:37
  Megan Horneman: They were expecting that we would see a bit of an uptick in consumer confidence.
• 0:41
  Megan Horneman: Instead we got a pretty big deterioration across all the different metrics that we look at.
• 0:46
  Megan Horneman: So the headline sentiment index was down the lowest we've seen in seven months.
• 0:52
  Megan Horneman: When you look at the sentiment on current economic conditions, that was the lowest since December of 2022.
• 1:00
  Megan Horneman: And then when you look at the sentiment on future expectations, that was the lowest in about six months.
• 1:06
  Megan Horneman: They also survey inflation expectations from consumers.
• 1:11
  Megan Horneman: Again, this was a miss.
• 1:12
  Megan Horneman: Inflation expectations on the one-year time frame are a bit higher than was anticipated at 3.3%.
• 1:19
  Megan Horneman: And then the five to 10-year expectation was also a bit higher, at 3.1%, and that's the highest that we've seen in seven months.
• 1:27
  Megan Horneman: The reason why they survey consumers and why we look at inflation expectations how consumers see it is because if consumers think that prices are going to be higher in the future, that can actually exacerbate inflation, because they'll go out and spend now and then you're just driving prices higher and higher.
• 1:45
  Megan Horneman: It becomes a vicious circle.
• 1:46
  Megan Horneman: So this is something the Fed will look at.
• 1:48
  Megan Horneman: This is something that we like to look at as well.
• 1:50
  Megan Horneman: Now, why did confidence deteriorate?
• 1:52
  Megan Horneman: They go through and ask a lot of questions and, to sum it up, basically the majority of households feel much worse about their household finances than they did a year ago and it's driven by the fact that there's higher prices and actually lower income.
• 2:08
  Megan Horneman: So if you have higher prices and you have less discretionary income, this is not a necessary economic friendly report.
• 2:15
  Megan Horneman: We got some good inflation reports this week that it is trending lower, but consumers really aren't feeling it, and the reason of that being is the reports that we saw this week.
• 2:26
  Megan Horneman: If you look at things that are non-discretionary spending so things that we have to purchase insurance services these are things that are not going down and still running well above wages, so this is a concern that consumers are feeling.
• 2:42
  Megan Horneman: We think this is going to continue to put a strain on consumer spending.
• 2:46
  Megan Horneman: This is why we've been a little bit cautious about the economic environment this year, because A the Fed can't cut rates as fast as everyone had expected.
• 2:54
  Megan Horneman: Inflation is improving, but it's not improving as fast as I think some had expected, so this is a threat that we see to this perfect soft landing scenario that people have for the economy.
• 3:05
  Megan Horneman: That's all we have this week.
• 3:07
  Megan Horneman: We'll be back next week with some more economic data and market comments, and if you have any questions or comments, please feel free to reach out to podcasts at Verdence.
• 3:14
  Megan Horneman: com.
• 3:14
  Megan Horneman: Have a great weekend, thank you.