Wealth Bytes: The Fed Takes a Pause, but Inflation Remains Elevated

Wealth Bytes: The Fed Takes a Pause, but Inflation Remains Elevated

June 19, 2023

Consumer Price Index Declines at Headline Level; Core CPI Remains High

We begin with the Consumer Price Index (CPI) chart, which at the headline level declined to a year-over-year rate of 4.05%, but the Core CPI remained near recent levels of 5.33%. Core CPI is watched more closely because it removes the more volatile food and energy prices, and while Core CPI is down from its recent high in 2022, it is still well above the 2% target of the Federal Reserve.

Producer Price Index Shows Deeper Declines

The Producer Price Index (PPI) has had deeper declines as the headline PPI came in at 1.09% and the Core PPI declined to 2.81%.

These results are not overly surprising given the general weakness in manufacturing versus services as we saw last week in the ISM numbers.

Manufacturing Shows Another Sign of Weakness

In another sign of weakness in the manufacturing area, industrial production was essentially flat in a year-over-year perspective while capacity utilization was flat at 78.41%. The month-over-month reading was negative. Those numbers do not indicate an expansion of manufacturing.

Adjusting for Inflation, Retail Sales Are Almost Flat

One of the biggest releases last week was retail sales. The headline number showed growth, but when we adjusted for inflation, the month-over-month real numbers were almost flat, while it was negative for year-over-year numbers. US households continue to “tread water” in terms of expanded spending in retail sales, but it’s not true wealth growth once inflation is taken into account.

Fed Pauses Rate Hike, but Inflation Remains a Concern

The biggest news was the meeting of the Fed’s Federal Open Market Committee (FOMC), in which they took a pause in their rate-hiking cycle, but their general view is that they will raise rates twice more before the end of the year. So the Fed is recognizing that they still have work to do in order to bring inflation under control.

We continue to hold that we will experience a recession, likely in the second half of 2023, or early 2024. On page 5, we see the federal funds rate over time with the grey areas being recessions. As we can see when the Fed’s Funds rate is as high as it is, generally, a recession coincided with that higher rate.

Building Permits and Housing Indicate Some Bottoming

Looking ahead in the week of June 19th, the main economic releases will center on building permits and housing. Recent releases indicate some bottoming in housing, but the unknown is when will expansion and growth return.

New call-to-action

© 2023 REDW Wealth LLC. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice. Information and instruction shared in the article above do not guarantee outcomes, performance, or quality of services provided to REDW Wealth Management clients by REDW Wealth Management or its employees. Adherence to our fiduciary duty is not a guarantee of client satisfaction or any particular outcome. Advisory, Assurance, and Tax is offered through REDW LLC. Wealth Management is offered through REDW Wealth LLC.

Recent Posts