Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.
Equity markets rose this week, catching some relief from a softer-than-expected July CPI report. For the first time in 11 months, CPI data was weaker than expected. While a big chunk of this surprise was due to lower energy prices, inflation in other goods categories also showed signs of slowing, such as airfares, car rentals, and lodging.
The data was welcome news to FOMC officials, but as San Francisco Fed president Mary Daly said on Wednesday, “it’s still too early to declare victory.” Policymakers appear to be focused on the need to raise rates to a restrictive level and attentive to where inflation will settle absent additional aggressive action. In this vein, investors shouldn’t get too excited about an 8.5% y/y inflation print. While inflation-related data this week should help the Fed step down to a 50bp hike in September from 75bp in June and July, additional rate increases and an extended period of restrictive rates remain quite likely.
This week, the focus is on retail sales on Wednesday and the Philly Fed manufacturing index on Thursday. The minutes from the July FOMC meeting will be released this week, with several Fed officials set to speak. Thus markets will again be tuned for any insight on the potential policy rate path, and rates markets should continue to be volatile.
Data deck for August 13 - August 19:
