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AmInvest Research Reports

Author: AmInvest   |   Latest post: Mon, 9 Dec 2019, 10:41 AM

 

US - Still looking at rate cut

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US inflation generally has remained tame despite the tariff battle between the US and China. Headline inflation was up 0.3% m/m from 0.1% m/m in June, beating expectations of a 0.3% gain. Excluding food and energy costs, it rose 0.3% m/m, unchanged from June.

Though the CPI numbers came in slightly better than expected, it is unlikely to deter a rate cut where both the US and the markets have been clamouring for. We are factoring in an 80% chance of a 25bps rate cut in September by the Fed and a 40% chance of a 50bps cut.

  • US inflation generally has remained tame despite the tariff battle between the US and China. Headline consumer prices rose slightly more quickly than expected in July as gasoline reversed a two-month decline and the cost for rent continued to climb.
  • Headline inflation was up 0.3% m/m from 0.1% m/m in June, beating expectations of a 0.3% gain. Excluding food and energy costs, it rose 0.3% m/m, unchanged from June but came in better than market expectations of 0.2%.
  • On an annualized basis, the headline inflation rose 1.8% y/y from 1.6% y/y in June, while core inflation increased by 2.2% y/y from 2.1% y/y in June.
  • The Federal Reserve targets inflation at 2%. However, it has maintained a symmetrical approach which means that it will be content if the inflation level was slightly above or below that level over the short term.
  • However, the Fed also prefers to use the personal consumption expenditures deflator as its inflation gauge, and that has been running closer to 1.5%.
  • Though the CPI numbers came in slightly better than expected, it is unlikely to deter a rate cut where both the US and the markets have been clamouring for. We are factoring in an 80% chance of a 25bps rate cut in September by the Fed and a 40% chance of a 50bps cut.

Source: AmInvest Research - 14 Aug 2019

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