by Calculated Threat on 6/19/2024 01:51:00 PM
Final week’s benign US inflation knowledge strengthened 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 may due to this fact push up the unemployment price extra considerably. We thus proceed to anticipate two Fed price cuts this yr (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 optimistic, and sluggish sufficient to not reignite inflation. My view is a gentle touchdown is achieved if development stays optimistic, inflation returns to focus on, and the yield curve flattens or reverts to regular (lengthy yields larger than quick yields).
The excellent news is development has stayed optimistic and inflation has moved nearer to the two% goal. Nonetheless, the yield curve remains to be inverted, and we’re not out of the woods but.
If Hatzius is appropriate that the reported pickup in Q1 inflation was an “aberration”, it looks like the FOMC will minimize charges quickly (most likely September).
Most market members anticipate 2 price cuts this yr, with the primary minimize in September.
