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CNN
—
Last week would have been an ideal week to go on vacation if you’re an economist or, er, economic reporter.
That’s because a spate of new data was released that brought much more clarity to the state of the US economy. The new data, along with other updated metrics, is likely to dominate discussions Federal Reserve officials will have when they meet for their monetary policy meeting later this month.
Speaking of which, we heard from several of them last week.
A common message was the need to raise interest rates further to bring inflation closer to the central bank’s 2 percent target. The Fed’s favorite indicator of inflation, the Personal Consumption Spending Index, showed inflation was twice the target in May (more on inflation in a bit).
Oh, and don’t wait for rate cuts. For Fed officials, it’s like buying winter clothes in the summer. Of course it’s great to plan ahead, but it’s so hard to think about wearing a winter coat when the temperature is over 30 degrees.
Here’s what else we learned about the economy last week:
To quote Michael Scott in a favorite scene from The Office: “Oh my god! OK, it’s happening! Everyone keep calm.”
According to two sets of data released last week, inflation is indeed cooling.
Wednesday’s consumer price index showed annual inflation slowed to 3% in June from 4%, the lowest level since March 2021.
Then on Thursday came data for the Producer Price Index, which measures the average price change companies pay their suppliers. This data showed that annual wholesale inflation cooled last month to its lowest level in almost three years.
But Fed officials are taking the data with caution.
“There is no doubt that the good news about inflation is actually good news,” San Francisco Federal Reserve Bank President Mary Daly said Thursday. But she warned: “It’s really too early to announce victory on inflation.”
As my fellow business reporter Alicia Wallace wrote, “The devil is in the details.”
“The annual CPI rate benefits in part from base effects when making year-on-year comparisons. And last June was monumental: annual inflation rose to 9.1%, the highest level in more than 40 years, largely due to record-high energy costs,” she wrote.
Even taking these base effects into account, inflation is still high in several cities across the country.
And some prices don’t move as much as others. For example, gas prices are down nearly 30% year over year, but services like tax preparation and discounts, which are big contributors to headline inflation, are up 5.6% year over year.
For a while, it looked like mortgage rates would hit their highest level since November at 7.08%.
However, average interest rates on 30-year fixed-rate mortgages gradually increased to 6.96% in the week ended July 13, according to data from Freddie Mac released on Thursday.
Traditionally, higher mortgage rates have caused house prices to fall. But that hasn’t happened yet for a variety of reasons.
The slowdown in price increases means that consumers are much more optimistic about the economy.
The University of Michigan consumer sentiment data posted its biggest monthly rise since 2006 in July. The index is now at its highest level since September 2021.
So it doesn’t exactly sound like people think a recession is brewing. However, people were far more optimistic about the economic outlook before the pandemic began and have not come anywhere close to those levels since.
All in all, it’s a confusing time for the economy. Self Jamie Dimon, CEO of the country’s largest bank, JPMorgan Chase, has no idea what’s in store.
Asked by CNN if cooling inflation has made him more optimistic about avoiding a recession, Dimon said, “I don’t know if it’s going to be a soft landing, a mild recession, or a hard recession.”
— CNN’s Bryan Mena and Matt Egan contributed to this report.
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