{"id":12564,"date":"2023-07-17T16:11:23","date_gmt":"2023-07-17T16:11:23","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12564"},"modified":"2023-07-17T16:11:23","modified_gmt":"2023-07-17T16:11:23","slug":"inflation-falls-but-low-unemployment-keeps-pressure-on-the-fed","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/inflation-falls-but-low-unemployment-keeps-pressure-on-the-fed\/","title":{"rendered":"Inflation Falls But Low Unemployment Keeps Pressure on the Fed"},"content":{"rendered":"\n<p>In this week&#8217;s edition of Steady Investor, we dive into recent market dynamics influenced by significant events, including:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Core inflation falls to 4.8%<\/li>\n\n\n\n<li>Low unemployment keeps pressure on the Fed<\/li>\n<\/ul>\n\n\n\n<p><strong>Core Inflation Falls to 4.8% in June, Still Some Distance from Fed Target \u2013 <\/strong>The Labor Department reported some welcome news on inflation last week. The consumer-price index (CPI) measure of inflation rose by 3% in June from a year earlier, a drastic improvement from the 9.1% peak recorded in June 2022. Core CPI, which strips out volatile food and energy Tcategories, rose by 4.8% year-over-year in June, which also registered as a solid improvement from May\u2019s 5.3% print. The headlines largely tout the 3% figure, which makes it seem like the U.S. economy is within striking distance of the Fed\u2019s 2% target. But core CPI matters more to the Fed, since they view food and energy\u2019s contributions as highly volatile and also because they view the core measure as a better predictor of future inflation. As seen in the chart below, for instance, Energy was an outsized driver of the 3% headline figure, which could change considerably from month to month.<sup>1<\/sup><\/p>\n\n\n\n<p><strong><u><a href=\"https:\/\/go.steadyinvestor.com\/how-much-do-you-need-to-retire?source=zim&amp;medium=blog&amp;term=steadyinvestor_zim_2023_07_17&amp;content=how_much_to_retire\">Looking to Retire Soon?<\/a><\/u><\/strong><\/p>\n\n\n\n<p>Are you planning for retirement, but questioning the process? It\u2019s not easy, especially if you haven\u2019t established your goals and determined your financial needs.<\/p>\n\n\n\n<p>However, if you spend some time focusing on what you want your retirement to look like, you can formulate a plan that works for you!<\/p>\n\n\n\n<p>We are offering our exclusive guide that looks at important questions that we believe investors should consider when defining their financial needs in retirement, such as:<\/p>\n\n\n\n<p>If you have $500,000 or more to invest, get our free guide, \u201c<strong><em><u><a href=\"https:\/\/go.steadyinvestor.com\/how-much-do-you-need-to-retire?source=zim&amp;medium=blog&amp;term=steadyinvestor_zim_2023_07_17&amp;content=how_much_to_retire\">How Much Exactly Do You Need to Retire<sup>2<\/sup><\/a><\/u><\/em><\/strong><em>\u201d <\/em>today!<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"704\" height=\"501\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic1-5.png\" alt=\"\" class=\"wp-image-12565\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic1-5.png 704w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic1-5-300x213.png 300w\" sizes=\"auto, (max-width: 704px) 100vw, 704px\" \/><\/figure>\n\n\n\n<p><strong><em>Source: U.S. Labor Department<sup>3<\/sup><\/em><\/strong><\/p>\n\n\n\n<p>Even still, Fed officials are likely happy with June\u2019s report, since core prices posted their smallest monthly increase (from May to June) in two years. There were many details of the latest inflation report to cheer \u2013 consumers paid less for used cars and airline tickets, growth in rent payments has slowed sharply, and the share of small businesses raising prices fell to 29%, the lowest level since March 2021. We have written many times in this space about the \u2018shelter component\u2019 of CPI, which measures rents and has a quirky component called owner\u2019s equivalent rent (OER). This component is what homeowners would hypothetically pay to rent their own houses, and it continues to place upward pressure on the headline figure as seen in the chart below:<\/p>\n\n\n\n<p><strong><em>The Shelter Component of CPI (purple line) Lags the Headline CPI figure (red line)<\/em><\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"676\" height=\"299\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic2-2.png\" alt=\"\" class=\"wp-image-12566\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic2-2.png 676w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic2-2-300x133.png 300w\" sizes=\"auto, (max-width: 676px) 100vw, 676px\" \/><\/figure>\n\n\n\n<p><strong><em>Source: U.S. Labor Department<sup>4<\/sup><\/em><\/strong><strong><em><sup><\/sup><\/em><\/strong><\/p>\n\n\n\n<p>The upshot is that OER tends to lag national home prices, which are no longer being pressured higher (see chart below). If the OER follows national home prices, we should expect its impact on CPI to weaken as well.<\/p>\n\n\n\n<p><strong><em>S&amp;P Case-Shiller U.S. National Home Price Index<\/em><\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"350\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic3-1024x350.png\" alt=\"\" class=\"wp-image-12567\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic3-1024x350.png 1024w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic3-300x102.png 300w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic3-768x262.png 768w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2023\/07\/pic3.png 1318w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p><strong><em>Source: Federal Reserve Bank of St. Louis<sup>5<\/sup><\/em><\/strong><strong><em><sup><\/sup><\/em><\/strong><\/p>\n\n\n\n<p><strong>Last Friday\u2019s Jobs Reports Complicates Inflation Optimism \u2013 <\/strong>Just days before this week\u2019s inflation announcement, the Labor Department released another report that likely complicates any Fed optimism about falling inflation. It was the June jobs report. While hiring technically slowed from May, U.S. employers are still adding to payrolls at a strong pace. Private employers added 209,000 new workers in June, down from May\u2019s 306,000 but still high by historical standards. The Fed continues to believe that too much strength in the economy and labor markets will cause inflation to be \u2018sticky,\u2019 basically complicating the last mile they need to travel to their 2% target. Indeed, employers raised hourly wages by 4.4% year-over-year in June, which is well above the pre-pandemic pace and only adds to inflationary pressures. It\u2019s for this reason that the Fed seems almost certain to raise rates once again at their July 25-56 meeting, even as CPI measures are clearly in a downtrend.<sup>6<\/sup><sup><\/sup><\/p>\n\n\n\n<p><strong>Planning For Retirement?<\/strong> Planning for retirement in a volatile market can be complicated, but the key is to envision and plan a retirement that aligns with your financial needs.<\/p>\n\n\n\n<p>To help, we are offering our exclusive guide, <em><strong><a href=\"https:\/\/go.steadyinvestor.com\/how-much-do-you-need-to-retire?source=zim&amp;medium=blog&amp;term=steadyinvestor_zim_2023_07_17&amp;content=how_much_to_retire\">How Much Exactly Do You Need to Retire<\/a><\/strong><sup>7<\/sup>,<\/em> which takes a look at important factors that we believe investors should consider when defining their goals, such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>What will be your retirement lifestyle? Will you travel or stay home?<\/li>\n\n\n\n<li>At what age do you plan to retire?<\/li>\n\n\n\n<li>What essential expenses will you have?<\/li>\n\n\n\n<li>What part will Social Security benefits play in your financial picture?<\/li>\n\n\n\n<li><strong>Plus, many more factors you may want to consider to help you plan for a secure retirement<\/strong><\/li>\n<\/ul>\n\n\n\n<p>If you have $500,000 or more to invest, download this free guide today by clicking on the link below.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Core inflation fell to 4.8% in June\u2014but the latest jobs report shows U.S. employers are still hiring at a strong pace, which could mean \u2018sticky\u2019 inflation.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71,73],"tags":[],"class_list":["post-12564","post","type-post","status-publish","format-standard","hentry","category-private-client-group","category-steady-investors-week"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12564","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12564"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12564\/revisions"}],"predecessor-version":[{"id":12569,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12564\/revisions\/12569"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12564"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12564"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12564"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}