Market Movers
The key release today is the US CPI for July. Core CPI inflation has shown signs of bottoming lately and we expect another solid print. We look for a 0.2% m/m increase which would take annual core inflation to 1.9%. Despite the drop in oil prices, we estimate that headline inflation increased 0.3% m/m and 0.3% y/y as gasoline prices have not yet reacted to the drop in oil prices. In a recent speech, vice FOMC Chair Stanley Fischer stated his concern over the low level of inflation, but if core inflation remains solid m/m these worries should ease.
We should find out more on the general thinking on inflation within the FOMC as the minutes from the July FOMC meeting are released later today. The FOMC added the word 'some' to the phrase 'further improvement in the labour market' in relation to what is needed to trigger a first rate hike. Our interpretation of this change is that labour market data would have to worsen for the Fed to take its finger off the trigger while a continuation of the recent trend would be enough for the Fed to pull. We continue to see the first Fed funds rate hike coming in September, but the risk is that it comes later.
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