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Reading the economic teas leaves and Powell's comments
What We’re Contemplating with This Week’s Data Deluge
Today puts the spotlight back on Fed Chair Powell for the first time since the June FOMC press conference. Recent data has shown further inflation progress, but gnawing in the back of our mind is the upward revisions to April’s core PCE figure that kept it unchanged at 0.3% for the third consecutive month. Our thinking is Powell will recognize the dip to 0.1% in the May core PCE figure and other improvements. However, concerns about being head faked by the data like many were last fall’s core CPI figures, Powell will reiterate the need to see more “good data”. He’ll most likely stick to the Fed dot plot as well, repeating that the Fed sees one rate cut late this year ahead of the central bank's next policy meeting that concludes on July 31.
What we’ll be looking for in the coming months is not only further movement in the hard and soft inflation data but also a shift in the Fed language. Because Powell and crew have been careful with their words and as best they can have telegraphed their actions, we expect to see them adopt a more dovish language ahead of the first rate cut. This means the market will continue to dissect upcoming Fed head appearances, especially those that will follow data-filled weeks like the one ahead of us.
Today we have the May JOLTs Job Openings and Quits report, and tomorrow brings the June Service PMIs from ISM and S&P Global (SPGI). Alongside those two reports and what they reveal about activity, inflation, and job creation in that part of the economy, ADP will publish its June Employment Change Report and its lesser-followed monthly Pay Insights report. Bookending those reports will be the June Challenger Job Cuts reports, which for those who read it to the very end know it also provides a look at hiring plans.
Late morning tomorrow, the Atlanta Fed’s GDPNow model will publish an update that includes data out today and tomorrow morning. The rolling forecast for the June quarter has steadily fallen to 1.7% as of yesterday from its mid-June high of 3.2%. While some may be ready to sound the alarm, what we learn in tomorrow’s data could buoy that estimate. If not, it could fan economic growth concerns with some using it to argue for the Fed needing to cut rates before the December quarter.
While US equity markets will close early tomorrow at 1 PM ET ahead of the Independence Day holiday that has those markets closed on Thursday, the Fed will publish its most recent policy meeting minutes at 2 PM ET. Because of recent data, to some extent this will be a rear-view report but recalling Fed Chair Powell’s press conference comment that many Fed officials did not update their dot plot forecasts to reflect the May CPI report, we’ll be interested in what they did say about that data.
The data filled week culminates with the June Employment Report. Expectations as of today call for slower job and wage growth compared to May, but the data published today and tomorrow could result in some changes to that line of thinking. While the market will no doubt close out the week based on what that report shows, we’ll be as interested in the subsequent update to the Atlanta Fed’s GDPNow model, one that will provide an even clearer picture of June quarter GDP.
Related: What Grade Would You Give the Fed?