Factory inflation ticks higher in July, adding to complex Fed rate picture
The Fed's effort to tame inflation pressures remains on track, but uneven progress has traders bracing for 'higher-for-longer' rates.
U.S. factory gate inflation figures came in modestly higher than forecast last month, data indicated Friday, complicating the Federal Reserve's effort to tame price pressures in a red-hot U.S. economy.
The Bureau of Labor Statistics said its headline producer price index for July rose 2.7% from last year, and 0.3% on the month, with both tallies coming in ahead of economists' forecasts. The closely-tracked core reading, which strips out volatile food and energy prices, was also modestly hotter, rising 2.4% and 0.3% on a monthly and annualized basis respectively.
The data followed a softer-than-expected reading from the BLS yesterday, which showed core consumer prices rising 4.7% and headline inflation quickening to 3.2% over the month of July.
Both sets of figures, however, indicate that while progress has been made in bringing inflation down from its 40-year peak of 9.1% in the summer of last year, the Fed remains unconvinced the price pressures have fully abated.
The Atlanta Fed's GDPNow tool, a real time indicator of U.S. growth, suggests the economy is growing at a 4.1% clip, up from its 3.9% estimate earlier in the month. Weekly jobless claims data, meanwhile, suggest a labor market that remains historically tight, adding to concerns that wage pressures will re-accelerate into the final months of the year.
"Whether we raise another time, or hold rates steady for a longer period - those things are yet to be determined," San Francisco Fed President Mary Daly told Yahoo Finance. "It would be premature to project what I think would happen because there's a lot of inform."
U.S. stocks were trending lower following the data release with futures tied to the S&P 500 priced for a 10-point opening bell decline and those linked to the Dow Jones Industrial Average suggesting a 50 point pullback. The tech-focused Nasdaq was down 70 points.
Benchmark 10-year Treasury note yields were marked 4 basis points higher at 4.131% while 2-year notes were pegged at 4.861%, around 4 basis points lower from prior to the data release.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.12% higher at 102.650
The Fed lifted its benchmark lending rate to between 5.25% and 5.5% in July, the 12th hike in 16 months, and warned that stubborn inflation pressures would likely require more increases between now and the end of the year.
CME Group's FedWatch is now pricing in only a 9.5% chance that the Fed will lift the benchmark federal-funds rate by a quarter-point, to between 5.5% and 5.75%, when it meets next month in Washington. The odds of a hike in November were trimmed to around 27.9%.
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