The recent Consumer Price Index (CPI) and Producer Price Index (PPI) data indicate a significant easing in inflationary pressures, setting the stage for potential rate cuts by the Federal Reserve and an optimistic outlook for the markets.
Key Insights:
- CPI Data: June showed an annual increase of 3.0%, and core CPI (excluding food and energy) increased by 3.3% year-over-year, reflecting contained inflationary pressures.
- Federal Reserve Outlook: In the June Summary of Economic Projections (SEP), the Fed’s median forecast for core Personal Core Expenditures (PCE) inflation in Q4 2024 was 2.8%. With recent data tracking below this forecast, there is a strong case for the Fed to lower their projections in the September SEP, potentially setting the stage for rate cuts.
- Market Implications: We anticipate a series of rate cuts, starting with a 25-basis point reduction as soon as September. The Russell 2000 recently surged by over 3%, indicating a positive shift in investor sentiment towards smaller and mid-cap stocks.
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