Surprise! Core Inflation Keeps Dropping Below Fed Target of 2 Percent, Economic Surprise Index Negative

The annual Federal Reserve retreat in Jackson Hole is underway and the theme of the conference is Inflation Dynamics and Monetary Policy.

I wonder if any of the participants noticed that Core Inflation for July was released this morning and it shows that it has been dropping since 2012 … and is only 1.235% YoY?

The core PCE deflator — the Fed’s preferred metric of core inflation — rose 0.1 percent in July (0.07221 unrounded). This was sufficiently weak to allow the year-on-year growth rate to slip to 1.2 percent from 1.3 percent previously. While a one-tenth deceleration is certainly not dramatic, it is unusual given that this metric has held steady at 1.3 percent in every month of the first half of 2015. It has not been below 1.3 percent since March 2011. It is hard to see how the July income and spending report will reinforce policy makers’ confidence in a rebound in inflation toward their target.


And the economic surprise index is painfully negative.


So will The Fed raise the Fed Funds rate in September? The futures data says no. The implied probability of a hate hike is 30%.


Finally, Q3 GDP according to the Atlanta Fed’s GDP NOW tracker has fallen to a measly 1.2%.

gdpnow-forecast-evolution q3

I wonder if any of the participants at Jackson Hole are looking out the windows for Jackalopes? Here is a photo of Fed Chair Janet Yellen riding one.


wtf 2

Gov’t Revises Q2 GDP Growth By 61 Percent To 3.7 Percent (But Q3 Is Forecast To Be Only 1.4 Percent)

The preliminary US Q2 GDP read was 2.3%. This matched the Atlanta Fed’s NOW estimate of 2.3%.


Suddenly, the US government revises Q2 GDP by 61% to 3.7%.


All 4 major categories were increased.


The problem is that the Atlanta Fed’s GDP Forecast for Q3 is down at 1.4%.

gdpnow-forecast-evolution (q3

Talk about volatility! But not in wage growth.


And gross domestic INCOME is falling.


Tpday’s GDP revision is known as an alley-oop.


Rollcoaster: Dow Up 619 Points, Treasury 10Y Yield Up 10.4 Basis Point (Prob of Sept Rate Hike Is 24 Percent)

The Financial Market Rollercoaster is on the upswing today!

The Dow Jones Industrial Average is up 619 points today.


And since January 1st, you can see the rollercoaster.


The 10 year Treasury yield is up 10.4 basis points.


The US is the biggest mover in Treasuries after the NY Fed’s Dudley sounded particularly dovish.


The probability of a September rate hike has fallen to 24%, according to futures data.


Graphically, here is the probabilities of a rate increase.




Case-Shiller Home Price Index Falls -0.12 Percent (SA) For June (Home Price Growth Remains 2x Wage Growth)

The S&P Case-Shiller Home Price index fell 0.12% in June on a seasonally adjusted basis.


On a non seasonally adjusted basis, the Case-Shiller index rose by 0.09% MoM and 4.49% YoY.


Home Price Growth remains >2x average wage growth.



The Dude must find his rent skyrocketing in Venice, California.


Pumping Air Into A Flat Tire? China Lowers Rates, Shanghai Composite Drops 7.63 Percent

China’s Central Bank, The Peoples’ Bank of China, is trying to fight the dramatic drop in their stock market but lowering rates.


The one-year lending rate will drop by 25 basis points to 4.6 percent effective Wednesday, the Beijing-based People’s Bank of China said on its website Tuesday, while the one-year deposit rate will fall a quarter of a percentage point to 1.75 percent. The required reserve ratio will be lowered by 50 basis points for all banks to cover funding gaps, it said.

The reaction of the Shanghai Composite stock market? The Shanghai Composite index fell 7.63%.0

shangco p

This is sort of like pumping air into a flat tire. Lots of work, few results.


From China With Love: Dow Opens Down Over 1,000, Oil Keeps Falling

From China With Love!

China’s economy is contracting thanks to declining manufacturing.


And despite China’s devaluation of their currency.


The US Dow Jones Industrial Average is down over 1,000 points at opening, but is down only” 460 points as of 10:14am EST.


Crude oil futures are down 7% to under $40.


Big trouble in Big China is a problem.


Fed Minutes Released 30 Minutes Ahead Of Embargo – 10 Yr Treasury Yield Falls, WTI Oil Falls To $40.67

Oops, they did it again. The Fed’s minutes were released prior the embargo time of 2pm EST.

(Bloomberg) — Federal Reserve officials said last month that while conditions for raising interest rates were approaching, they need more confidence inflation is moving toward their goal, according to meeting minutes that prompted investors to reduce bets for a September liftoff.

Most meeting participants “judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” according to minutes of the July 28-29 Federal Open Market Committee session, released Wednesday in Washington.

A headline on the minutes was inadvertently released by Bloomberg 24 minutes before a 2 p.m. embargo set by the Fed.

Key line: The risks to the forecast for real GDP and inflation were seen as tilted to the downside.

Here are the minutes. FOMC-Minutes

The result? Turbulence prior to 2pm and a decline in the 10 year Treasury yield.


Even the West Texas Crude Oil Futures price rallied a bit after the release, but now has fallen to $40.67.


The implied probability of a September rate hike has fallen to 36%.


Their not that innocent.