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- 25 or 50?
25 or 50?
How today's inflation data compares to its historical distribution and a closer look at today's rate cut bets.
Mobius Intel Brief:
With one week until the Fed’s September 18 meeting, markets no longer question “if” the Fed will lower its policy rate. Instead, market bets are split between an inflation-focused 25 bps rate cut or a labor-focused 50 bps cut, making Wednesday’s consumer price index (CPI) inflation data a closely watched directional cue.
According to the Bureau of Labor Statistics (BLS), August’s all-item CPI gained 0.2% M/M and 2.5% Y/Y as easing energy prices lowered overall price growth rates for the fifth consecutive month.
At 2.53%, August’s 12M overall CPI growth fell below the 50YR seasonally adjusted median (See Chart)
Meanwhile, the Fed’s preferred “core” CPI gauge (stripped of food and energy) increased 0.3% from July and 3.2% Y/Y, beating median expectations and posting the highest M/M gain in four months.
At 3.2%, August’s 12M core inflation rate remained 14.3% higher (0.4% absolute) than the 50YR seasonally adjusted median inflation rate of 2.8% (See Chart)
Nine “core” inflation measures grew by more than 3% Y/Y in August, led by factors like vehicle insurance (+16.5% Y/Y) and shelter (+5.0% Y/Y). (See Table)
August’s higher-than-expected CPI result reverberated through Fed Funds futures markets, cutting traders’ 50 bps rate cut odds from 34% yesterday to just 13% this afternoon — the balance shifting in favor of a 25 bps cut (87%). (See Chart)
However, we offer a different perspective than speculators’ highly volatile policy rate bets.
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