The July Preliminary Report from the University of Michigan on consumer confidence showed an unexpected and modest rebound in the main index. Wells Fargo analysts point out that the main conclusion is that inflation expectations have cooled. They explain that this represents good news for Fed policymakers “and makes the pressure to ‘go big’ at the next meeting less intense after this week’s blistering CPI report.”
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“At 2.8%, consumer inflation expectations for the next 5-10 years are well within the range of the last few decades, or what is considered well anchored. This is good news after expectations rose as high as the upper end of its recent range in the June preview release and raised concerns that expectations were getting unhinged.”
“It also takes some iron off the fire for the Fed to raise rates by 100 basis points at its next policy meeting on July 27 and suggests that the Fed could opt for a 75 basis point hike again, which remains great”. St. Louis Fed President James Bullard and Federal Reserve Governor Christopher Waller, in separate public appearances on Thursday, supported raising rates by 75 basis points this month, and we expect this new data to support that. opinion”.
“The anchoring of expectations is good news for the Fed, no doubt about it. But more importantly, they need to remain anchored, and with prices only going down slowly, the Fed will continue to keep a close eye on expectations.”
Source: Fx Street
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