FedScope, Vol. 24 No. 7
By: Thomas Rizzo
US Economy:
- Inflation
- The Consumer Price Index (CPI), a key inflation gauge, rose 3.0% year over year in June, down from 3.3% in May.
- Economic Growth:
- Real Gross Domestic Product (GDP), increased at a 2.8% annual rate in the second quarter of 2024, which was greater than the 2.1% expected.
- Labor Market:
Monthly job growth remains strong, unemployment has increased to 4.1% in June, and job openings have fallen slightly to 8.2 million.
Looking at market data presented above, as indicated by Fed futures, market participants are pricing in a 100% probability of the first rate cut occurring in September. With rate cuts beginning in September, the door opens for the possibility of 2 rate cuts this year. Overall, in comparison to after the June 2024 Fed Meeting, market participants have been pricing in higher probabilities across the board (with exception to July) for rate cuts this year. Commentary later today for the July 31th Fed Meeting will clarify how many rate cuts we should expect for the rest of the year.
Key Takeaways:
- Headline inflation has cooled down to 3.0% after a hot start to the year.
- Economic growth has remained strong, exceeding expectations.
- The labor market is strong but showing signs of potentially slowing down.
- Market participants are pricing in initial rate cuts to begin in September.
- Additional Fed commentary will clarify whether we should expect only 1 or 2 rate cuts this year.