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Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Are you ready for some central bank decisions? Besides the Fed, which will announce its latest decision on rates this Wednesday, we will also get policy decisions from Brazil, Taiwan, Switzerland, Norway, the UK, the Eurozone, Mexico, Peru, and Russia this week. Then, next Monday Japan will join the fray. Along with the Fed, we’ll have a good amount of economic data to digest with CPI tomorrow and PPI Wednesday. Those aren’t the only reports on the calendar, though. On Tuesday we’ll also have Small Business Optimism from the NFIB, and Thursday will include jobless claims, Retail Sales, Import and Export Prices, and Business Inventories. Then, to close out the week, Friday’s reports will include Empire Manufacturing, Industrial Production, and Capacity Utilization.
While this morning’s economic calendar is light, the one report investors will be watching is the monthly survey of consumer expectations (SCE) from the New York Fed. As inflation has become the market’s primary concern over the last few years, the New York Fed’s SCE, which tracks inflation expectations among other items, has taken on added significance.
Heading into this morning’s 11 AM release, the charts below show historical readings for the SCE’s inflation expectations readings for one and three years ahead. After peaking at 6.8% in June 2022, one-year inflation expectations have been nearly cut in half to the current level of 3.57% which is just modestly above the historical average level of 3.39%. Keep in mind, though, that the average would be a lot lower if it wasn’t for the spike higher during 2021 and the first half of 2022. Before 2021 in fact, one-year inflation expectations were never higher than the current level.
Three-year inflation expectations also spiked higher in 2021 and early 2022. Unlike one-year inflation expectations which are still elevated relative to their pre-Covid levels, three-year expectations are actually below their historical average of 3.00%. Here again, the average is elevated due to the Covid spike, but even before the pandemic, there were several other times when three-year inflation expectations were higher than they are now.
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