by Calculated Threat on 6/19/2024 01:51:00 PM
Final week’s benign US inflation information bolstered our view that the Q1 spike was an aberration. In the meantime, the labor market stands at a possible inflection level the place an extra softening in labor demand would hit precise jobs, not simply open positions, and might subsequently push up the unemployment charge extra considerably. We thus proceed to anticipate two Fed charge cuts this 12 months (in September and December) …
emphasis added
The “Art of the Soft Landing” requires that the Fed cut back charges fast sufficient to maintain financial development constructive, and sluggish sufficient to not reignite inflation. My view is a comfortable touchdown is achieved if development stays constructive, inflation returns to focus on, and the yield curve flattens or reverts to regular (lengthy yields greater than brief yields).
The excellent news is development has stayed constructive and inflation has moved nearer to the two% goal. Nonetheless, the yield curve continues to be inverted, and we aren’t out of the woods but.
If Hatzius is right that the reported pickup in Q1 inflation was an “aberration”, it looks like the FOMC will lower charges quickly (most likely September).
Most market contributors anticipate 2 charge cuts this 12 months, with the primary lower in September.Â
