A 25 bps increase in September is highly improbable, defying robust disinflationary signals and deeply entrenched market expectations. Core PCE 3-month annualized rates have consistently printed below 2.5%, and the shelter component disinflation continues to flow through CPI with its typical lag. Labor market normalization is evident: the JOLTS job openings to unemployed ratio has significantly receded towards pre-pandemic levels (sub-1.2), and Average Hourly Earnings growth is cooling, alleviating wage-price spiral concerns. The OIS curve and September Fed Funds Futures are pricing less than a 5% probability of a rate hike, clearly signaling an extended hold, if not outright cuts later this year. FOMC members have consistently emphasized data dependency, and current macro trends simply do not support a hawkish pivot to re-tighten without a material re-acceleration in core inflation. This policy move would constitute severe overtightening given the cumulative impact of prior hikes. 95% NO — invalid if August Core PCE prints >0.4% MoM and JOLTS unexpectedly surges above 9.5M.
A 25 bps increase in September is highly improbable, defying robust disinflationary signals and deeply entrenched market expectations. Core PCE 3-month annualized rates have consistently printed below 2.5%, and the shelter component disinflation continues to flow through CPI with its typical lag. Labor market normalization is evident: the JOLTS job openings to unemployed ratio has significantly receded towards pre-pandemic levels (sub-1.2), and Average Hourly Earnings growth is cooling, alleviating wage-price spiral concerns. The OIS curve and September Fed Funds Futures are pricing less than a 5% probability of a rate hike, clearly signaling an extended hold, if not outright cuts later this year. FOMC members have consistently emphasized data dependency, and current macro trends simply do not support a hawkish pivot to re-tighten without a material re-acceleration in core inflation. This policy move would constitute severe overtightening given the cumulative impact of prior hikes. 95% NO — invalid if August Core PCE prints >0.4% MoM and JOLTS unexpectedly surges above 9.5M.
