Payden & Rygel: Soft shelter inflation offsetting the upward pressure
By Jeffrey Cleveland, Chief Economist, Payden & Rygel
Core CPI printed a little softer than expected in June (0.2% versus 0.3% consensus). We see some evidence of tariff-driven price pressure as core goods boosted the monthly change in core PCE by 0.05%, particularly in the household furnishings sector, but overall, we’re seeing less tariff impact that the hawks have been forecasting
Will we see a bigger jump in goods in July? TBD but the clock is ticking on the inflationistas. However, shelter prices continue to slowly cool, up just 0.2% in June and adding 0.08% to core CPI’s monthly change of 0.2%--the softest contribution since February 2021!
Our inflation view is largely playing out: softer shelter inflation is offsetting the upward pressure generated by goods prices, keeping overall core CPI in check. Once the tariff price pressures fade, core CPI will resume its march toward the 2% target and perhaps end up even a bit belowtarget.
Is the Fed once again “too late”? With the unemployment rate at 4.1%, policymakers have the luxury of waiting until September to make any changes to the policy rate (although they’ll likely continue to face a barrage of insults from 1600 Pennsylvania Ave), but we suspect that the FOMC will be late to the party once again. We expect rate cuts in September, November, and December, bringing the policy rate 75 bps lower by year end.
