Latest / Markets with Megan: A Quick Financial Markets Update / This Inflation Report Puts Pressure on the Fed | S3 E162 | 08-26-26

Transcript

This Inflation Report Puts Pressure on the Fed | S3 E162 | 08-26-26 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: Whatever you read in the newspapers or in those headlines, today's data from the inflation perspective was not good news.
• 0:07
  Megan Horneman: It's Wednesday, August the 26th, and this is Markets with Megan.
• 0:10
  Megan Horneman: If you like this podcast, subscribe, hit the alarm bell, share it with your friends, family, colleagues, anybody who's interested in the economic data that we get on a regular basis and what it means for the markets.
• 0:22
  Megan Horneman: Today we're gonna focus on the inflation data that we received.
• 0:25
  Megan Horneman: We did get some information on durable goods, which were relatively strong, much better than expected, but we're gonna focus on that personal income and spending report that also includes the inflation data.
• 0:36
  Megan Horneman: So let's dig in.
• 0:37
  Megan Horneman: For the month of July, personal spending did slow a little bit.
• 0:42
  Megan Horneman: And that this could be attributed to what we also saw with retail sales where Prime Day was actually pushed into the month of June as opposed to July.
• 0:51
  Megan Horneman: Because income rose a little bit more than spending, we did see that the savings rate actually increased to 3%.
• 0:59
  Megan Horneman: We were running very, very low, below 3% for the prior three months.
• 1:03
  Megan Horneman: And even though it got to 3%, I just want to put that in perspective.
• 1:10
  Megan Horneman: And that created a big dis a big discrepancy in the average rate over time because the savings rate jumped up so much.
• 1:19
  Megan Horneman: But the average savings rate before COVID was typically between 7 and 8%.
• 1:23
  Megan Horneman: We're looking at a 3% savings rate.
• 1:26
  Megan Horneman: This is showing just that inflation continues to have and to be a problem for consumers.
• 1:31
  Megan Horneman: They're digging into their savings and they're also using credit cards.
• 1:35
  Megan Horneman: So when we look at the actual inflation data that came out of this report, this is the PCE inflation data, and this is the Fed's preferred inflation gauge.
• 1:45
  Megan Horneman: At least it has historically.
• 1:46
  Megan Horneman: We know that the new Fed chairman is looking at some other measures, but this has really been what chairmans have uh focused on.
• 1:53
  Megan Horneman: We saw that at the headline level on a month-over-month basis, the expectation was for it to only rise 0.1% after it declined in the prior month.
• 2:02
  Megan Horneman: It actually rose 0.2%.
• 2:05
  Megan Horneman: It rose 0.2% as well at the core level, and that's after just a one-tenth increase the prior month.
• 2:11
  Megan Horneman: So it may seem tame, and that's what you might read in the headlines.
• 2:16
  Megan Horneman: But we have to remember that we are this inflation situation is not going away.
• 2:21
  Megan Horneman: On a year-over-year basis, that core PCE data that's supposed to be around that 2% target is now 3.3%.
• 2:29
  Megan Horneman: Didn't get any worse than the prior month, but the point is it's not getting any better.
• 2:33
  Megan Horneman: There is a job the Fed needs to do, and it's not getting done.
• 2:37
  Megan Horneman: Um, this week we will get that the Federal Reserve Chairman will speak at Jackson Hole.
• 2:43
  Megan Horneman: So the market's gonna be paying a lot of attention to that because of this inflation data.
• 2:47
  Megan Horneman: There's some other indicators in this inflation that we like to look at that just really highlight um the problem that we have with inflation.
• 2:55
  Megan Horneman: We look at this what's called the super core, and that takes services where the where the amount of money that Americans spend is typically in the service sector.
• 3:04
  Megan Horneman: But you strip out things like energy and housing that can be very volatile.
• 3:09
  Megan Horneman: That super core is rising 3.9% on a year-over-year basis, and it's been hovering around this 3.9% level for quite some time.
• 3:18
  Megan Horneman: So this is not good news for the Fed.
• 3:20
  Megan Horneman: I don't care what any news articles uh say about this.
• 3:24
  Megan Horneman: This is not good news.
• 3:25
  Megan Horneman: The Fed has to do their job.
• 3:27
  Megan Horneman: Right now, it's a 40% chance that the Fed will raise interest rates in September.
• 3:31
  Megan Horneman: I think that's crazy after the data that we've seen.
• 3:33
  Megan Horneman: Um, it's a 55% chance in October, but I think we'll have to just wait and see what the chairman says on Friday.
• 3:40
  Megan Horneman: They cannot take any dovish tone in any of the rhetoric going forward.
• 3:44
  Megan Horneman: Um, the market's gonna lose that um long end of the curve because the the concern that the market has is that we don't have our handle on inflation.
• 3:53
  Megan Horneman: That's all we have today.
• 3:55
  Megan Horneman: Um, tomorrow there is uh some more information that we'll get on advanced goods and retail inventories, but really Friday we'll be back with um some additional information on consumer confidence.
• 4:05
  Megan Horneman: That's all we have today.
• 4:06
  Megan Horneman: If you have any uh if you want to see a history of our podcast, go to marketswithmegan.fm.
• 4:10
  Megan Horneman: Thank you.