PPI

✅Producer Price Index (PPI) Growth: PPI increased by 0.1% in July, lower than the expected 0.2% rise, and a decrease from the 0.2% gain in June.

✅Year-over-Year PPI: The year-over-year increase in PPI was 2.2% in July, down from 2.6% in June.

✅Core PPI: Core PPI, excluding food and energy prices, was unchanged in July, below the expected 0.2% increase, and down from a revised 0.3% gain in June.

✅Goods vs. Services Prices: Goods prices in the PPI rose by 0.6% in July, driven by a 1.9% increase in energy prices. In contrast, services prices fell by 0.2%, the largest decline since March 2023, due to a drop in trade services.

✅Volatility in PPI: PPI has been more volatile than consumer inflation, with monthly changes ranging from a 0.6% increase to a 0.3% decline over the past year.

🤷‍♂️Impact on Federal Reserve Policy: Cooler-than-expected producer inflation adds to arguments for potential Federal Reserve interest-rate cuts starting in September.

✅Fed’s Inflation Gage is based on the Personal Consumption Expenditures (PCE) Price Index, which includes components from both the PPI and CPI.

✅Target Rate Probability: are divided, with a 50/50 chance that the Fed will cut rates by a quarter-point or a half-point at its September meeting.

Claudia Sahm & Sahm Rule

✅Claudia Sahm, chief economist at New Century Advisors, recently published an article on Bloomberg and has been on a press tour arguing that Sahm rule although broken doesn’t indicate that the US is in a recession.

✅According to the National Bureau of Economic Research, the economy is growing and there strong economic data to support this.

✅The Sahm rule triggers when the three-month average unemployment rate rises 0.50 percentage points above its 12-month low.

✅Current unemployment trends align with early recession patterns, though they may reflect labor force growth rather than declining demand.

✅The U.S. Federal Reserve does not need to make an emergency rate cut, despite recent weaker-than-expected economic data, according to Claudia Sahm.

✅She said, however, there is a good case for a 50 basis point cut, adding that the Fed needs to “back off” its restrictive monetary policy.

✅Sahm warned “The best case is they start easing gradually, ahead of time. So what I talk about is the risk, and I still feel very strongly that this risk is there,” she said.

Target Rate Probabilities

✅69.5% probability of a 50bps rate cut in Sept.

✅58.3% probability of a 25bps rate cut in Nov.

✅47.3% probability of 25bps rate cut in Dec.