US highpoints for June 13 week: FOMC, inflation expectations

By Theresa Sheehan, Econoday Economist
June 13, 2022

It isn’t a piece of economic data that will be the highpoint in the June 13 week, but the FOMC meeting of June 14-15. Expectations for a 50-basis-point rate hike are pretty much universal. Last Friday’s higher-than-expected CPI results may up a few of those forecasts, but 50 basis points is realistic. It is unlikely that meeting participants would want to raise alarm with a larger rate hike without seeing at least one more inflation report. On the other hand, the University of Michigan’s measures of consumer inflation expectations, also posted Friday, did show a 3 tenths jump for 5-year expectations to 3.3 percent. If the Atlanta Fed’s business inflation expectations for June on Wednesday at 10:00 ET are on the rise as well, the committee might just decide to act more forcefully both to combat inflation and preserve their credibility as an inflation fighter.

The wording of the post-meeting statement and the tone of the update to the Summary of Economic Projections (SEP) will provide some guidance. Both of these will be released at 14:00 ET on Wednesday. Weaker growth, a slight loosening in a very tight labor market, more heated inflation outside the core, and a more aggressive path of rate increases will inform the statement and FOMC forecasts. Chair Powell’s press briefing at 14:30 ET will try to convey confidence that the FOMC can achieve a soft or “softish” landing for the economy as monetary accommodation is removed swiftly, but it may prove an uphill battle against a skeptical press.

The FOMC will have in hand the May data for retail and food services sales set for release on Wednesday, June 15 at 8:30 ET. A drop in motor vehicle sales and a jump in gasoline prices are going to be the two conflicting themes in interpreting the May report. Consumers may be pulling back in discretionary purchases – especially big ticket items like motor vehicles and appliances – due to inflation that is forcing increased spending in other areas like food and energy.

The other piece of data that may indicate softening of the economy is the NAHB/Wells Fargo housing market index for June at 10:00 ET, also on Wednesday. There have been indications that homebuilders are less confident and consequently cutting back on building projects. The June number should extend that trend. Homebuilders will not want to have inventories of homes sitting around, especially given that these have been costlier to construct due to higher costs for labor, land, and materials.

By and large, the economic data that feeds into GDP is about 2/3 complete for the second quarter. GDP Nowcasts for the second quarter have been softening. From early estimates of about 2.5 percent, it looks like the US could see a smaller gain under 2 percent.

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