Market Minutes for May 20, 2024

This past week, the headline Consumer Price Index (CPI) saw a modest increase of 0.3% month-over-month and 3.4% year-over-year. Additionally, the Producer Price Index (PPI) rose by a higher-than-expected 0.5% month-over-month, indicating potential inflationary pressures. Meanwhile, retail sales remained flat in April, falling short of market expectations and suggesting a cautious consumer outlook.

Looking ahead, we anticipate significant economic indicators, including the Federal Open Market Committee (FOMC) minutes and Purchasing Managers’ Indices (PMIs), which will provide further insights into the economic landscape and inform future policy decisions.

A key point of interest is the Federal Reserve’s evolving stance on monetary policy. In the latter half of 2023, declining inflation led to a more accommodative approach from Fed officials. However, the first quarter of 2024 has presented a different scenario, with higher-than-expected CPI readings increasing inflation uncertainty. This shift has prompted Fed officials to adopt a more hawkish tone. Recent data underscores this change, with the PPI rising by 0.5% in April, despite downward revisions to previous months. Fed Chair Powell viewed the report as mixed but noted that recent data has somewhat diminished his confidence in the economic outlook.

The April CPI report indicated a slight slowdown in inflation, with both headline and core figures rising by 3.4% and 3.6% year-over-year, respectively. While this report met expectations, it ended a streak of inflation surprises. Moreover, import prices increased by a firm 1.1% year-over-year, suggesting that disinflationary effects from imported goods may be fading.

Chair Powell’s comments last week highlighted a cautious perspective. He expressed that recent data has eroded his confidence in the current economic trajectory, although his baseline forecast still anticipates falling inflation and a prolonged pause in Fed rate hikes. The latest data provides limited reasons for the Fed to significantly alter its messaging. Persistent inflation warrants a hawkish bias, but the broader downtrend in inflation justifies a preference for potential rate cuts over hikes. Should inflationary pressures ease through the summer, there could be room for policy easing as early as September.

In conclusion, the economic data for the week presents a complex picture of inflation dynamics and Fed policy responses. Modern Wealth is committed to navigating these market conditions with a balanced and informed approach, ensuring our clients are well-positioned to achieve their financial goals. Stay tuned for further updates and expert analysis as we continue to monitor these developments.

Source: Weekly Market Recap, May 20, 2024, provided by J.P. Morgan Asset Management​