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Lots of FED speak today and into next week. Bauman barking, Kashgari speaking on Monday. Then you get data next week as well. USCPI on Tuesday, PPI next Friday. Bloomberg survey expecting core CPI year over year to tick down to three point seven percent from three point nine data. Peterson of the Conference Board, seeing risk to those numbers. Evidence
of sustained disinflation is needed for comfort. Then return to target and staying there is possible risks of a pickup in inflation are present, especially from a tight labor market and elevated wages. Then one please to say, join us now for more. Can we go straight to those revisions or lack thereof your response to the in the last couple of minutes.
Sure, I agree, it certainly is a nothing burger, and that is good news. But again, as Mike McKee mentioned, the FED is focused on PCE inflation, and it's good to know that we don't have lingering concerns about whether the CPI is breaking away from what we've seen in the PCE and certainly when we look at the PCEE deflator, it's flowing. It's above two percent target, but it's headed in the right direction.
As you know, the Federal Reserve wants more confidence. They want more data, not better data, just maybe more of the same. Now, Danna, I wonder from your perspective, the risk of stabilizing above target on inflation? Is that a concern that you share? Sorry our last audio, can you hear us now or we've still got a problem. I think we've lost audio there with Dani Peterson of the conference board. If we can re establish that, we'll come back to her. We can go back to those concerns.
On Wednesday, you heard it in the news conference. The chairman just not quite comfortable yet to say that he's got complete confidence that this is going to be the trend through the rest of this year. What are the one off factors that we've seen that have led to this disinflationary trend that has emerged over the last twelve months. What are they exactly?
Well, the things that they're worried about. They still don't understand why house prices or the home price index part of all of this is not going down fast than it has. They're watching use cars because they've been very volatile airfares, hotel hotel costs. Those are the things that have been bouncing around a lot, so they're waiting for them to sort of steady out and we get I think the term that was used was a broad drop
in the inflation data. One of the things that they can't control, obviously is energy, and they have to worry about what's going to happen with the Middle East, but they'll look beyond that. They're looking for these other internal things to continue going down enough that they feel that it's not going to be something that will turn the whole thing over.
There is concern about the Atlanta Fed wagechecker. It's something that I've seen in a host of notes coming out. Yes, it's come down dramatically, but it's still as well above what you would expect to get back to two percent. What do they need to see there, given that it's running about five percent or north of five percent, still above pre pandemic norms.
Well, that's one indicator on way pages, and in general, we're seeing wages rise at a faster pace than the Fed is looking for. We saw wages in the ECI going up at about half a percent, and that is a concern. If it continues. They want to see it come down. They think three and a half percent, three to three and a half percent is consistent with stable inflation. So we've still got a ways to go with wages.
But they don't seem to think at this point that the Fed has got a problem because CEOs are telling them they're slowing the rate of pay increases.
Now, Dana Peterson, I believe we've reestablished our audio.
We apologize for.
Any technical difficulties data your take on just what you're looking for to understand whether the inflation geniees truly been slater the inflation dragon. I assume people don't want to slay genies, but how much are you seeing this actually as a done deal versus still concerned about a couple areas.
I think much of the FED speak in terms of wanting to see sustained disinflation in order to get back to the two percent target. Sustainably is important when we look at some of the details of inflation. Yes, home prices have ease, and that's showing up in rents and the shelter costs. But when you look further out, they picked up, and so that poses some risk later this year and even into next year. But more importantly, wages
are still elevated. We're seeing them rise, especially in those sectors like manufactory construction where there's a lot of demand and you have to show up for work. So I think wages are continued will continue to be upward pressure that the Fed's going to have to watch. So it's important to have more readings and maybe getting into the springtime to feel confident such that the FED can start cutting rates maybe around June.
Can you give us a sentence based on the increasing confidence that you track, given the fact among consumers, given the fact that you are concerned about some of these areas that are still elevated in terms of inflation, how many times you think the FED could cut rates this year versus where the markets at.
Sure, we think the FED could probably cut rates four or five times this year. That's roughly one hundred and twenty five basis points, and that would be reasonable, especially given the fact that the economy is doing better than expected. We still think there could be somewhat of a lull, maybe not a recession, but inflation should probably continue to slow.
But again, we have a number of risks out there, both to the upside and the downside, but I think that's certainly one hundred and twenty five basis points this year is possible.
Is that basically the idea that the neutral is back to two percent or something like that, the neutral rate, I mean, what is that based on. If you do see these risks to the upside for inflation still present in the market.
Well, I think that the neutral rate is probably higher now than it was before the pandemic. Here's why we've had a major structural change in terms of the labor market. We're losing workers, We're experiencing severe labor shorages, and that's putting upward pressure on wages. We also have a number of outside factors such as globalization, and also the fact that you have a number of geopolitical risks that are disrupting supply chains that can continue to put some upward
pressure on inflation. But those are all in the risk category. Our base case is still that we're going to see inflation get back to two percent and remain there, but that the Fed's going to have to keep rates higher than expected and not see as much in terms of cutting as the market probably is pricing in right now.
Daniel, I'd love your views on the pickup and consumer confidence we've seen more recently. Likewise for CEO confidence as well, how do you read that at the moment you read that as temporary, Could that be the trend and ultimately what does that mean for the forward look the outlook for the rest of this year.
I think they're both positive frends. But to res back to consumer confidence, we've seen a few months of improvements. Consumers are complaining a little less about inflation. They still think prices are high, but they're not rising as quit quickly. They're looking forward to interest rates being lower, and they think the stock market is going to continue to rise.
They also feel that they're going to continue to work, and certainly that's showing up in our CEO confidence measure, where CEOs are still worried about labor and they want to hold on to their workers. So if you're a consumer, you're working, you have a credit card you can spend, then you're probably going to feel better about life.
Interesting, Dennis, Thank you. Danni Pitterson, the of the Conference Board,