If July Core CPI comes in higher than the 5.9% figure reported for June we believe there will be a 50% probability that the Fed could raise the Fed Funds Rate in August rather than wait for the September 20-21 FOMC meeting.
- The Fed is nowhere near a neutral rate (as we wrote earlier this week), and needs to further cool the economy to bring inflation down.
- Today’s jobs report suggests a resilient economy, even if labor participation was fairly weak. The jobs and unemployment figures need to soften in order to cool the economy and inflation. That won’t happen until the unemployment rate reaches 5% or more in our view.
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