Data on jobless claims and producer inflation came in lower than forecast on Thursday, giving mixed signals on the Federal Reserve’s rate trajectory.
The Fed is heading toward a pivotal period when disinflation and a still-resilient economy are giving more hope on the probability of a soft landing.
To be sure, there is no reason to put too much emphasis on one week of falling jobless claims data. But with only 237,000 new claims added last week, the long-term trend—the 13-week moving average—has flattened out in the past four weeks, according to data from the Bureau of Labor Statistics.
It is too early to say that new filings for jobless benefits are rolling over from the peak, and while we certainly do not think that will be the case, Thursday’s data on jobless claims should bolster the case for another hike this month.
Producer inflation, on the other hand, increased by 0.1% in June, and by 0.4% from a year ago—the lowest since 2020. The figures confirmed the rapid disinflation observed in the consumer price index data that was released on Wednesday.
Read more perspectives on economic headwinds facing the middle market.
The core components, which exclude food, energy and trade, also rose by 0.1% on the month, but stayed at a 2.6% increase on a year-ago basis, which is starting to approach the Fed’s 2% target.
Trade services—a proxy for retail and wholesale margins—rose by 0.2% on the month, continuing the rebound since May after falling sharply since the beginning of the year.
Price gains inside the production pipelines continued to decline. Prices for processed and unprocessed goods for intermediate demand dropped by 0.6% and 2.1%, respectively. Services for intermediate demand were unchanged in June.
The takeaway
A rate hike this month is pretty much a done deal by now, according to the market’s pricing and the Fed’s board communications in recent weeks. Thursday’s data did not change the calculation because of its mixed signals.
For producer inflation, we might very well get a negative print for the year-ago data when July comes around; that would be the first time since the start of the pandemic.
We expect the job market to slow further, adding more reasons to believe that we will see the peak of the policy rate in July as the Fed pauses for the rest of the year.
