US Inflation: Stocks Set for Choppy Session as Consumer Prices Fall but Jobs Market Remains Sticky

Written by: Susannah Streeter | Hargreaves Lansdown

  • Expected fall in US consumer prices of 0.1% month on month, bringing annual rise in prices to 6.5%.
  • Unemployment filings fell to 205,000, lower than 215,000 expected, showing tight labour market.
  • The Federal Reserve still faces a tricky balancing act managing the lag effect of rate rises.

“A session of choppy trading lies ahead on Wall Street as conflicting data cast doubts on how quickly the Federal Reserve might press pause on rate hikes.

Consumer prices fell 0.1% month on month, a reading which added fresh dashes of colour to the picture of slowing inflation, but unemployment data blurred the snapshot, indicating that the labour market remained tight. The number of people filing unemployment benefit claims dropped to 205,000, significantly lower than the 215,000 expected. 

Expectations remain that the Fed will opt for a 0.25% hike at the next meeting, but a steeper 0.5% jump still can’t be ruled out as core inflation which strips out volatile energy and food prices is still proving a much tougher nut to crack. 

Fed officials still face a super-tricky balancing act. They know there is a lag between rate hikes and the impact on the economy, but they are still worried that by not tightening enough, demand could race upwards again, causing lingering price pain. 

With CPI inflation now at 6.5%, it’s a welcome fall from June’s 9.1% peak but warnings have come thick and fast that the hiking cycle is far from over and that the Fed Funds rate will need to rise above 5% to bring the price spiral down to less risky levels. It’s a worrying prospect for companies and consumers given that borrowing costs are already at the highest level since 2007, with more squeezes set to limit spending power even further.’’

Related: Lower Stock Prices are the Fed’s Goal