Upcoming Inflation Reading Expected to Solidify Fed Resolve
Fed officials have been sharpening their rhetoric about the extremes they are willing to go to ensure inflation does not become entrenched. The minutes from their June policy meeting, released last week, revealed the alarm spreading through the central bank over persistently high inflation. “Many participants judged that a significant risk now facing the committee was that elevated inflation could become entrenched if the public began to question the resolve of the committee to adjust the stance of policy as warranted,” the minutes said.
The inflation data will follow last week’s jobs report, which showed nearly 400,000 jobs were added in June with the unemployment rate nearing a 50-year low, underscoring a tight labor market that’s helping to keep wage growth elevated. The low level of unemployment implies that the pool of workers searching for a job remains narrow, which is likely to keep job openings elevated. That dynamic could wane as the Fed keeps raising rates, which is meant to curb consumer demand and, as a result, demand for workers. “After this report, you can pretty much count on 75 basis points in July,” said Jim Caron, Chief Fixed Income Strategist with Morgan Stanley Investment Management. “The job market is strong and it’s not giving up any growth.”