US Fed's Cautious Stance Amid Inflation Eases as CPI Falls, PPI Rises, and Mortgage Refinance Demand Drops: Portafolio Capital Markets Recap for Week Ending 7/12/2024
In June 2024, the U.S. Consumer Price Index (CPI) fell 0.1% from the previous month, marking the first monthly decline since May 2020. The annual inflation rate eased to 3%, with core inflation, excluding food and energy, rising just 0.1% for the month and 3.3% year-over-year. This data indicates a reduction in inflationary pressures, which has increased expectations for the Federal Reserve to potentially cut interest rates in September. Factors contributing to the cooling inflation include lower prices for energy, vehicles, and a modest rise in rents. The report also highlights that household consumption, construction spending, and services sector inflation were below analysts' expectations. Despite the positive report, the Fed remains cautious, closely monitoring economic conditions before making definitive policy changes. The favorable CPI report could help change the Fed's perspective, potentially leading to rate cuts later in the year. This data supports the disinflation trend and suggests the possibility of a more dovish Fed stance in upcoming meetings.
The full CPI report by the US Bureau of Labor Statistics can be found here.
In June 2024, U.S. wholesale prices increased by 0.2%, surpassing the expected 0.1% rise, according to the Producer Price Index (PPI). This follows a period of no change in May and a 0.5% increase in April. The Bureau of Labor Statistics attributed the rise mainly to a 0.6% increase in prices for final demand services, while final demand goods prices fell by 0.5%, driven by a notable 2.6% decline in energy prices. Despite the higher wholesale prices, broader economic indicators show inflation cooling, complicating the Federal Reserve's decision on potential interest rate cuts. For the 12 months ending in June, the PPI increased by 2.6%, marking the largest rise since March 2023. The latest PPI data contrasts with the Consumer Price Index (CPI), which showed a 0.1% decline in June and a 3% annual inflation rate, indicating some relief in consumer prices.
The full press release by the BLS can be found here.
Mortgage refinance demand dropped by 2% despite homeowners holding a record $17 trillion in equity. This marks the fourth consecutive week of declining refinance applications, attributed to persistently high mortgage rates, which remain near a two-decade high. The average rate for a 30-year fixed mortgage decreased slightly to 7% but remains significantly higher than the pandemic-era lows of around 3%. High mortgage rates have created a "golden handcuff" effect, where homeowners with low rates are reluctant to sell, limiting housing supply.
Homeowners' significant equity gains, about $28,000 per borrower since the start of 2023, have not been enough to incentivize refinancing at current rates. Most borrowers find little incentive to refinance due to the high rates, even though refinancing could offer benefits like lower monthly payments or a shorter loan life. Economists predict mortgage rates will stay elevated throughout 2024, potentially only decreasing when the Federal Reserve begins cutting rates.
The full survey by the MBA (Mortgage Bankers Association) can be found here.
-
Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee on July 9, 2024, highlighting the central bank's cautious approach to interest rate adjustments amidst ongoing inflation concerns. Powell emphasized that while inflation has eased over the past two years due to increased interest rates, it remains above the Fed's 2% target. The Fed is holding its benchmark interest rate at its highest level in more than two decades, awaiting more definitive signs that inflation is continuing to cool before making further rate changes.
During his testimony, Powell noted that consumer prices have shown signs of easing, with expectations for June's inflation rate to decrease to 3.1% from 3.3% in May. He also mentioned that a strong job market and robust consumer spending have supported economic growth, although the pace of this growth has slowed. Powell's remarks set the stage for the upcoming government reports on inflation and the Fed's policy meeting later this month, where further decisions on interest rates will be made.
The testimony was part of Powell's semiannual Monetary Policy Report to Congress, with additional testimony scheduled before the House Financial Services Committee. Wall Street is closely watching these developments, with hopes for rate cuts later this year to alleviate pressure on consumers and investors.
You can watch the testimony in its entirety here.
www.portafoliocapital.com/subscribe
Portafolio Capital Management is an independent wealth and capital management firm based in San Antonio, Texas. With over 12 years of combined investment and macro-economic analysis experience, our goal is to instill confidence in our investors through how we view markets and our investment approach. As a Registered Investment Advisor (RIA) and fiduciary, we are held to the highest standard when it comes to managing your money and are bound by law to act solely in your best interest.
Learn more about our strategy and management style by scheduling a 15-minute warm meeting at: https://calendly.com/portafoliocapital/15min.
All content is not to be received as financial advice and is for informational purposes only. Each individual should consult with their dedicated financial advisor, tax preparer, estate attorney, etc. before making any financial or investment decisions. Portafolio Capital does not recommend (nor does it make recommendations of) the buying or selling of any securities through any of our published content mediums. We expressly disclaim and do not assume any liability in connection with any inaccuracies in any of the information provided or in connection with information stated. While we do our best to vet thoroughly and provide you with information from reputable resources, not limited to: FRED, Yahoo Finance, CNBC, and company specific investor websites, unfortunately we cannot guarantee the accuracies of such and ask that you do your own due diligence when researching any finance, economics, and earnings information. Furthermore, we do not undertake an obligation to update or revise publicly any information as it changes. Please read our entire legal disclaimer page at portafoliocapital.com/disclosures-and-documents
Chief Investment Officer
