How does CPI inflation vary as the Fed Funds rate changes? That is the next question in our investigation of possible cause-and-effect relationships for changes in inflation.
Marriner S. Eccles Federal Reserve Board Building, Wikipedia,
Creative Commons Attribution-Share Alike 3.0 Unported license.
Short Range Forecast Discussion
NWS Weather Prediction Center College Park MD
Sun Oct 13 2024
Valid 12Z Sun Oct 13 2024 – 12Z Tue Oct 15 2024…Unsettled weather forecast from the Great Lakes and Ohio Valley to the
Northeast over the next few days……Record-breaking heat continues across parts of the Southwest and much
of the south-central U.S. today……Locally heavy rain possible across southeast Florida…
A deepening low pressure system progressing from the Lower Great Lakes
today towards southern New England by Monday morning along with a trailing
upper-level trough will bring unsettled weather to much of the Great
Lakes, Ohio Valley, and Northeast. Showers and thunderstorms are likely to
dampen outdoor activities along and north of a sharp warm front extending
from northern Pennsylvania to southern New England today. Meanwhile, an
attached cold front will sweep across the Ohio and Tennessee valleys by
this evening, with a few thunderstorms potentially turning severe and
containing damaging wind gusts from central Tennessee to eastern West
Virginia. The Storm Prediction Center has issued a Marginal Risk (level
1/5) of severe thunderstorms in order to highlight this potential. As the
area of low pressure strengthens further on Monday and Tuesday while
lifting northward into eastern Canada, cold air surging southward on the
backside of the system will allow for high elevation snow in the
Adirondacks and northern New England mountain ranges. Lake effect rain and
snow showers will also be evident as cold northerly flow persists through
midweek. An autumn chill will spread over much of the Midwest and eastern
U.S. following the passage of the aforementioned cold front this week as
high temperatures only reach the 50s and 60s, with widespread lows in the
30s and 40s.One more day of record-breaking heat is expected across the south-central
and southwestern U.S. today as mild air lingers south of the advancing
cold front. Highs into the 90s are anticipated throughout much of the Lone
Star State and Lower Mississippi Valley, with triple digits possible in
central Texas. 100s are also possible once again in Arizona before a
long-awaited gradual cooldown commences by Monday. Well above average
temperatures reorient early this week and are most apparent over the
western Gulf Coast, northern Rockies, and High Plains.Outside of the Northeast and Pacific Northwest, much of the Nation will be
void of notable precipitation over the next few days. However, another
localized area of heavy rain potential exists over southeast Florida today
before thunderstorm activity pushes east away from the Sunshine State on
Monday. A few thunderstorms may exhibit slow forward motion while
containing intense rainfall rates over the sensitive urban corridor of
southeast Florida, which may lead to localized flash flooding. A Marginal
Risk (level 1/4) of Excessive Rainfall is in effect to further highlight
this heavy rainfall threat.
Short Range Forecast Discussion
NWS Weather Prediction Center College Park MD
Sat Oct 12 2024
Valid 12Z Sat Oct 12 2024 – 12Z Mon Oct 14 2024…Record-breaking heat forecast this weekend from parts of the Southwest
eastward into the central and south-central United States……Developing storm system to bring unsettled weather to the Ohio Valley,
Great Lakes, and Northeast through early next week……Locally heavy rain possible over southeast Florida…
An expansive ridge of high pressure stretching from the Southwest to the
central and southern Plains will result in continued record-breaking heat
across portions of the Desert Southwest this weekend. High temperatures
are forecast to reach into the upper 90s and triple digits, which is well
above normal for this time of year. Meanwhile, anomalous late-season heat
will also span into the central and south-central U.S. today with highs
ranging from the upper 80s to upper 90s. Numerous daily record high
temperatures are possible. By Sunday, a cold front will squash the most
searing heat southward, bringing some quick relief to the central Plains.
South of the front, yet another day of record heat is likely from Arizona
eastward through central Texas into the Lower Mississippi Valley where
highs will once again soar well into the 90s. Elsewhere, unseasonable
warmth presses eastward into the Ohio Valley, Mid-Atlantic, and Southeast
this weekend, with the only cooler than normal spots largely confined to
the northern Plains, Great Lakes, and Northeast. However, below average
temperatures will expand on Monday into much of the Midwest and East as a
strong cold front ushers in the next crisp autumn airmass.The aforementioned cold front is forecast to march eastward across the
Northeast today before stalling over the Ohio Valley and Mid-Atlantic on
Sunday. An area of low pressure is then expected to develop along the
front, strengthening as it moves eastward into Pennsylvania by Sunday
night. This storm system will bring scattered to widespread showers and
thunderstorms to the larger region on Sunday, which may dampen outdoor
activities at times. A few isolated strong to severe thunderstorms are
possible too, especially ahead of the advancing cold front from eastern
Kentucky to West Virginia. In fact, the Storm Prediction Center has issued
a Marginal Risk (level 1 of 5) to highlight this risk on Sunday. As the
low pressure system moves along the New England coastline on Monday, cold
air aloft will allow for light high elevation snow throughout parts of
northern New England.Following in the wake of Hurricane Milton, strong northeasterly flow aided
by high pressure over the southern Appalachians and northeast of the
Bahamas will keep the threat of coastal hazards and locally heavy rain in
the forecast along the Atlantic Coast of Florida. In particular, showers
and thunderstorms along the southeast Florida coastline may remain
somewhat stationary due to weak flow aloft, while also containing intense
rainfall rates. As a result, a Marginal Risk (level 1/4) of Excessive
Rainfall remains in place for this area today and Sunday in order to bring
continued awareness to the threat of localized flash flooding.
*Stock data, cryptocurrency, and commodity prices at the market closing
JPMorgan Chase and other major U.S. banks kicked off the Q3 2024 earnings season on Friday, helping push the Dow Jones Industrial Average and S&P 500 to new record highs. The Dow rose to a new all-time high. The S&P 500 closed above 5,800 for the first time. All three major indexes finished the week with gains of over 1%. JPMorgan Chase reported better-than-expected Q3 results, with earnings of $4.37 per share beating estimates of $4.021. The bank’s revenue grew to $42.65 billion, surpassing analyst expectations of $40.85 billion. JPMorgan’s shares rose nearly 5% following the earnings release. Wells Fargo also reported strong Q3 results, contributing to the positive sentiment in the financial sector. Investors are weighing recent economic data and its potential impact on Federal Reserve policy: A hot inflation print earlier in the week raised questions about the Fed’s next moves. Wholesale inflation remained unchanged, adding to the complex economic picture. The market is closely watching for signs of how the Fed’s potential rate cuts might affect bank lending margins and profits. Earnings season will continue next week with reports from major companies like Citigroup, United Airlines, ASML, Netflix, and American Express. Investors will be focusing on company forecasts and any early indications of improvement given the lower rate environment.
The Producer Price Index (PPI) declined from 1.9% year-over-year to 1.8% year-over-year. The good news is that there is now disinflation in goods production but growing inflation in services. I cannot believe the spin on this data. Some say the Consumer Price Index (CPI) came in hot but the PPI came in supporting the notion that inflation was moderating. Folks, the opposite is true. To get a handle of the underlying pressures on an inflation index is to remove food and energy. For the CPI, if food and energy are excluded inflation remains little changed at 3.3% year-over-year. For the PPI, if food and energy are excluded inflation increased from 2.7% year-over-year to 2.8% (see red line on graph below). Everywhere I look – there are inflationary pressures present.
The University of Michigan’s consumer sentiment index decreased from 70.1 in September to 68.9 in October, a drop of 1.2 points. Despite the minor dip, consumer sentiment remains 8% higher than a year ago and nearly 40% above its lowest point in June 2022. This indicates a general trend of improvement in consumer outlook over the past year. Consumers continue to express frustration over high prices, even though inflation expectations have eased significantly since June 2022. The year-ahead inflation expectation rose slightly to 2.9% in October from 2.7% in September.
Here is a summary of headlines we are reading today:
Click on the “Read More” below to access these, other headlines, and the associated news summaries moving the markets today.
“Synopsis: La Niña is favored to emerge in September-November (60% chance) and is expected to persist through January-March 2025. ”
So we are really in ENSO Neutral but NOAA may not want to admit their forecast was wrong so they present it as waiting for La Nina. It is correct that we are in La Nina Watch but it is also correct that we currently remain in ENSO Neutral.
On the second Thursday of every month, NOAA (really their Climate Prediction Center CPC) issues its analysis of the status of ENSO. This includes determining the Alert System Status. NOAA now describes their conclusion as “ENSO Alert System Status: La Nino Watch”
The exact timing of the transition is now perhaps more clear which should increase the reliability of the Seasonal Outlook to be issued next Thursday.
We have included an ENSO Blog article by Emily Becker.
| The second paragraph is what is important:
“The IRI plume predicts a weak and a short duration La Niña, as indicated by the Niño-3.4 index values less than -0.5°C. The latest North American Multi-Model Ensemble (NMME) forecasts were warmer this month, but still predict a weak La Niña. As a result of the warmer predictions and the recent weakening of equatorial trade winds, the team still favors a weak event, but has lowered the chances of La Niña. A weaker La Niña implies that it would be less likely to result in conventional winter impacts, though predictable signals could still influence the forecast guidance (e.g., CPC’s seasonal outlooks). In summary, La Niña is favored to emerge in September-November (60% chance) and is expected to persist through January-March 2025).” Below is the middle paragraph from the discussion last month. “The IRI plume predicts a weak and a short duration La Niña, as indicated by the Niño-3.4 index values less than -0.5°C (Fig. 6). This month, the team relies more on the latest North American Multi-Model Ensemble (NMME) guidance, which predicts La Niña to emerge in the next couple of months and continue through the Northern Hemisphere winter. The continuation of negative subsurface temperatures and enhanced low-level easterly wind anomalies supports the formation of a weak La Niña. A weaker La Niña implies that it would be less likely to result in conventional winter impacts, though predictable signals could still influence the forecast guidance (e.g., CPC’s seasonal outlooks). In summary, La Niña is favored to emerge in September-November (71% chance) and is expected to persist through January-March 2025 (Fig. 7).” |
Here are the new forecast probabilities. The probabilities are for three-month periods e.g. ASO stands for August/September/October.
| The analysis this month and last month are a bit different with again the transition to La Nina being slightly slower than thought last month. Also the probabilities of a La Nina are lower than estimated last month. This seems to be a trend. The chart is clearer than the discussion in the summary report above. The La Nina is a bit slower to arrive. I am not sure that we will actually have a La Nina. |
| We have been waiting for this La Nina a long time. |
Short Range Forecast Discussion
NWS Weather Prediction Center College Park MD
Fri Oct 11 2024
Valid 12Z Fri Oct 11 2024 – 12Z Sun Oct 13 2024…Record-breaking heat forecast across parts of the Southwest and
south-central United States……Developing storm system to bring unsettled weather to the Ohio Valley,
Great Lakes, and Northeast this weekend……Locally heavy rain possible over southeast Florida…
Predominant upper-level ridging stretching from the Southwest to the
southern High Plains will allow for another day of record-breaking heat
across parts of Nevada and Arizona today. High temperatures are forecast
to reach into the upper 90s and triple digits, with temperatures only
expected to be a few degrees cooler this weekend. Meanwhile, heat is
anticipated to expand across the south-central U.S. by Saturday as highs
into the mid-90s engulf the southern Plains. Well above average
temperatures should span into the central Plains and mid-Mississippi
Valley as well, with numerous daily record high temperatures possible.
Cooler and more fall-like temperatures will be found across the East
today, with areas of frost likely from the central Appalachians to the
Northeast early this morning.The next autumn cold front to impact the Nation is forecast to cross the
Great Lakes and Northeast by Saturday before stalling over the
Mid-Atlantic on Sunday. An area of low pressure developing along this
frontal boundary is expected to deepen and move eastward over the Ohio
Valley and Lower Great Lakes. Areas of showers and thunderstorms
surrounding the system may dampen outdoor activities, with a few isolated
strong thunderstorms possible between eastern Kentucky and West Virginia.Following in the wake of Hurricane Milton, strong northeasterly flow aided
by a high pressure system over the southern Appalachians will provide the
potential for continued coastal hazards as well as locally heavy rain
along the Atlantic Coast of Florida. Developing thunderstorms along the
southeast Florida coastline in particular may remain somewhat stationary
due to opposing flow aloft, while also containing intense rainfall rates.
A Marginal Risk (level 1/4) of Excessive Rainfall has been issued for this
region on Saturday and Sunday in order to highlight the threat of
localized flash flooding.
*Stock data, cryptocurrency, and commodity prices at the market closing
The latest consumer inflation report in the US came in higher than expected, causing stocks to decline on Thursday. The Consumer Price Index (CPI) rose 0.2% month-over-month in September, above the expected 0.1% increase. Core inflation, excluding food and energy, increased 0.3% month-over-month and 3.3% year-over-year. The hotter-than-expected inflation data has reduced expectations for interest rate cuts by the Federal Reserve. Traders now see a 17% chance of no rate cut in November, up from 0% a week ago. Initial unemployment claims rose unexpectedly to 258,000, the highest level since August 2023. The 10-year Treasury yield increased to 4.1%, its highest level since late July.
The Consumer Price Index declined from 2.6% to 2.4% year-over-year in September 2024. If food and energy are excluded inflation remains little changed at 3.3% year-over-year. The driving force in moderating inflation is energy but everywhere I look – there are inflationary pressures present.
In the week ending October 5, the advance figure for seasonally adjusted initial unemployment claims 4-week moving average was 231,000, an increase of 6,750 from the previous week’s unrevised average of 224,250. The increase this week is attributable was Hurricane Helene. Natural disasters like hurricanes often lead to temporary spikes in unemployment claims as businesses are forced to close or reduce operations in affected areas.. There is no recessionary trend in this data.
Here is a summary of headlines we are reading today:
Click on the “Read More” below to access these, other headlines, and the associated news summaries moving the markets today.
Short Range Forecast Discussion
NWS Weather Prediction Center College Park MD
Thu Oct 10 2024
Valid 12Z Thu Oct 10 2024 – 12Z Sat Oct 12 2024…Impacts from Milton will wind down through early Thursday as the
Hurricane departs the Florida Peninsula and moves into the open Atlantic……Unseasonably very warm temperatures continue over much of the western
and central U.S., some record-tying/breaking highs will be possible……Most of the country will see dry conditions through Friday…
Impacts related to Hurricane Milton will be winding down early Thursday as
the storm continues to weaken and departs the Florida Peninsula into the
open Atlantic. Water levels from ongoing flooding and storm surge will
remain elevated and dangerous until the water has receded. As attention
turns to recover efforts, be aware of areas that remain flooded and do not
drive through flooded roadways. Some gusty winds may linger for Florida
and along the southeast Atlantic Coast. More isolated thunderstorms will
remain possible for central and south Florida through early Friday
morning.Otherwise, the rest of the country will be mostly dry. Some isolated light
showers are possible in the Upper Great Lakes and interior Northeast on
Thursday, with some more moderate rainfall along coastal northern
California as a Pacific system approaches the area on Friday. The main
story will be continued very warm, well above average temperatures for
western and central portions of the country as a broad upper-level ridge
remains in place. Some of the greatest anomalies will be over the northern
Plains/Upper Midwest Thursday as highs soar into the mid-80s, upwards of
20-25 degrees above average. While temperatures have returned to less
dangerously hot levels compared to this past weekend, the Desert Southwest
still remains abnormally hot, with highs into the 100s. Elsewhere, highs
will be in the 80s in the Great Basin and lower elevations of the
central/southern Rockies, the mid- to upper 80s in the central Plains, and
into the mid-90s in Texas. Some record-tying/breaking highs will be
possible, especially in the Desert Southwest. A cold front moving through
the northern Rockies into the northern Plains/Upper Midwest will bring
cooler, more seasonable temperatures to in the 60s to these areas on
Friday. In contrast, much of the East Coast will be more seasonable and
even cool for northern locations. Forecast highs for the interior
Northeast and New England will only be in the 50s on Thursday, with 60s in
the Mid-Atlantic and 60s and 70s into the Southeast. Morning lows dipping
into the 30s for areas in the interior Northeast and within the
Appalachians could lead to some patchy frost Friday morning. Most of the
interior Northeast will see warmer temperatures Friday as highs climb back
into the 60s.
![[Image of WPC Flash Flooding/Excessive Rainfall Outlook]](https://www.nhc.noaa.gov/storm_graphics/AT14/refresh/AL1424WPCERO+gif/032332WPCERO_sm.gif)
*Stock data, cryptocurrency, and commodity prices at the market closing
US stocks rose on Wednesday, with the S&P 500 and Dow Jones Industrial Average closing at new record highs. The Nasdaq Composite also gained after paring earlier losses. The market was focused on several key developments, including the US Department of Justice considering asking a judge to force Google to sell off parts of its business to address its monopoly in internet search. This news initially pressured Alphabet shares. The minutes from the Fed’s September meeting showed a “substantial majority” of officials supported the 50 basis point interest rate cut, but some favored a smaller 25 basis point cut. This suggests a slightly more hawkish sentiment than previously thought. Investors are awaiting the release of the September Consumer Price Index (CPI) report on Thursday, which will provide further insight into inflation trends and potentially influence the Fed’s future rate decisions. Market expectations for the Fed’s November meeting have shifted, with a 24% chance now priced in for no rate cut, up significantly from previous estimates.
August 2024 sales of merchant wholesalers were up 1.1% from the revised August 2023 level. Total inventories of merchant wholesalers were up 0.6% from the revised August 2023 level. The August inventories/sales ratio for merchant wholesalers, except manufacturers’ sales branches and offices, based on seasonally adjusted data, was 1.35. The August 2023 ratio was 1.35. Employment in this sector is up 0.7% which suggests there is marginal growth In fact, using US Census own numbers – we see sales growth over 2% year-over-year – and relatively the same as the previous month. Bottom line is that there is no indication of a recession or slowing of this sector.
Here is a summary of the Participants’ Views on Current Conditions and the Economic Outlook in the minutes of the Federal Open Market Committee for the meeting held on September 17-18, 2024:
Participants expressed cautious optimism about inflation trends, noting that while inflation remains elevated, recent data suggests a sustainable return to the 2% target. Key factors influencing this outlook include diminishing pricing power among businesses and a slowdown in nominal wage growth, which is critical for controlling inflation in the services sector. Labor market conditions have eased, with a notable rise in the unemployment rate since April 2023. However, participants agreed that the labor market remains solid, with limited layoffs and manageable job vacancies. The overall economic activity is expanding at a steady pace, supported by resilient consumer spending despite some financial strains on low- and moderate-income households. Participants acknowledged risks to the economic outlook, with reduced upside risks to inflation and increased downside risks to employment. This balance of risks informed their decision to ease monetary policy by lowering the federal funds rate target range by 50 basis points to 4.75% to 5%. While some members preferred a more gradual reduction of 25 basis points, the majority agreed that this adjustment aligns with current economic indicators. Looking ahead, participants anticipate a gradual move toward a more neutral monetary policy stance as inflation trends down sustainably and employment remains near maximum levels. They emphasized that future monetary policy decisions will depend on ongoing economic developments rather than a predetermined course.
Since the meeting, there was a blowout BLS employment report which many believe is inflationary. Likely, this report will temper further federal funds rate reductions. As must know, I did not favor a reduction in the federal funds rate as I believed there remains a significant amount of inflationary pressures which have not moderated.
Here is a summary of headlines we are reading today:
Click on the “Read More” below to access these, other headlines, and the associated news summaries moving the markets today.
