A jump in wholesale prices probably reinforces concerns among the monetary policy of the Federal Reserve that the increasing inflation remains a risk, intensifying the debate on the justification of a cut of interest rates next month and leaving unsolved the tension between the Central Bank of the USA. UU. And the White House.
The producer’s price index increased 0.9% in July compared to the previous month, well above the expectations of economists, according to Thursday a report from the Labor Statistics Office of the Department of Labor. Inflation in commercial services, a measure of retail and wholesale margins, rose 2%, the fastest pace in a couple of years and a possible sign that the highest prices are moving to consumers instead of absorbing through lower profits.
The analysts said that the increase could be an indication of higher prices for the consumer, which so far have shown a more limited impact than expected by the highest tariffs of the Trump administration.
Commercial Producer Price Indexs (IPP)
A measure of retail and wholesale margins: the increase in July was the largest in a couple of years.
The data practically eliminated, in the minds of investors, the possibility of a greater cut than the usual percentage point at the Federal Reserve (Fed) meeting of September 16-17, leaving those responsible for the monetary policy with the task of justifying and frameting an expected cut of a quarter cord next month, while the inflation remains well above the objective of 2% of the US Central Bank.
Investors could have a preview of how the president of the FED, Jerome Powell, see the situation next Friday, when he is scheduled to speak at the annual Fed Conference of Kansas City in Jackson Hole, Wyoming. In July, Powell gave few clues about a possible rate cut.
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After the PPI report, the analysts indicated that they expected the Personal Consumer Expenses Price Index (PCE) to exclude volatile food and energy, an indicator that the Fed considers key to its inflation target, would have uploaded 2.9% year -on -year in July. The next PCE report will be published on August 29.
Alberto Musalem, president of the Fed of St. Louis, said in an interview with CNBC that recent weaknesses in the labor market have caused a reevaluation of economic risks, with slow growth threatening employment and possibly justifying a cut if the weakness continues. However, Musalem indicated that, with inflation approaching 3%, he needs more data before deciding what to do in September, since the economy is still adapting to the highest import tariffs.
“I hope … that most of the impact of tariffs on inflation disappears after two to three quarters … but there is a reasonable probability that they can be more persistent,” said Musalem, a voting member of the Fed Committee in charge of setting the rates this year.
In comments to the National Association of Business Economics, Thomas Barkin, president of the Richmond Fed, indicated that it is not yet clear if Fed’s employment or inflation objectives are currently more at risk. “High unemployment is, in fact, uninflationary. Or inflation is high enough or sustained to put inflation expectations at risk? I think this is the balance that is tried to manage,” said Barkin.
The Fed will receive the employment report and the August consumer prices data before its September meeting, publications that could be decisive for both the decision about cutting fees and to determine whether any reduction is interpreted as the beginning of a cycle of cuts to move monetary policy at a “neutral” level or as an isolated adjustment that could or may not be followed by new movements.
Two governors of the Fed, Christopher Waller and the supervision vice president Michelle Bowman, disincted the decision to keep the fees without changes in the meeting last month, favoring a cut of a quarter quarter.
Investors still consider a regular 25 -dotted cutting cut next month, but the probabilities decreased from almost 100% to about 90% after the publication of the PPI data.
“Cuts series”
The secretary of the Treasury, Scott Besent, said this week that a series of cuts could be justified to carry the reference rate of the Fed of the current range of 4.25%-4.50%to about 3%, a level considered neutral for economic activity. “There is space for a series of cuts … A neutral rate model is approximately 150 lower base points,” Besent said in Fox Business. He clarified that he was not giving advice to the Fed, whose trial on rates policy must be independent of the White House, but simply pointing to his analysis.
His comments, however, preceded the publication of the new PPI data, which will probably complicate the reading of the situation by the Fed.
Musalem, without prejudging the result of the September meeting, indicated that a clipping greater than half a point, raised as a possibility by Besent, “is not backed” by the current economic conditions, an opinion shared by Mary Daly, president of the Fed of San Francisco.
An increase in inflation of services, evident under relatively moderate consumer prices data published on Tuesday, could also worry those responsible for monetary policy, who had that the weakest services prices compensate for any increase related to tariffs in imported goods.
Austan Goolsbee, president of the Chicago Fed and also voter this year, said Wednesday that he is open to a cut in September despite inflation concerns, although he would be worried if the prices of goods outside those taxed by tariffs began to accelerate.
With Reuters information
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