The Bureau of Labor Statistics in the United States reported a monthly gain in the CPI with 0.3 per cent for the month of July, which in turn resulted in a rising inflation rate over a 12-month period before seasonal adjustment to 1.8 per cent, from the previous rate of 1.6 per cent for June.
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In the report, it is further stated that the most significant contributing factors to the spiked CPI data are noticeable increases in gasoline and shelter indexes [source]. The sudden rise in overall inflation, close to the 2 per cent symmetrical target of the Federal Reserve, was undoubtedly unexpected to occur so soon after the sharp tumble in June, which is subsequently going to make the job of the FED even less straightforward in the following months.
The FED cut the interest rate with 25 basis points on the 31st of July, which was the first reduction of the federal rate in over a decade (we have dedicated an entire article on the subject, underpinning all of the relevant information regarding the FOMC’s decision, and also exposing the likely future ramifications for the US economy. You can read it here.
Following the decision, Donald Trump has expressed his concerns regarding the intentional devaluation of the Yuan by the Chinese central bank, which is giving the world’s second-largest economy a competitive advantage over American exporters, and is the prime reason for Trump’s additional demand for the FOMC and Jerome Powell to reduce the federal funds rate even more, in order to deny China, the advantage. The currency war, however, might not go according to Trump’s plans, as additional reductions by the committee now seem unlikely, as that might drive the inflation to spiral out of control.
Jerome Powell has already argued that the FED, in general, is monitoring the economic situation in the states as it develops and that the FOMC remains open to implementing whatever policies are necessary in order to achieve the committee's goals. This implies that the chairman and his colleagues are not afraid to change their monetary stance frequently, given the extremely volatile economic conditions at the current time. Thus, at the present rate, an interest rate hike by the end of the year seems more likely than a rate cut, given the rising inflation and strong labour conditions.
The Dow Jones Industrial Average finished the trading day with a 1.48 per cent total gain, by breaking above the fundamentally important 23.6 per cent Fibonacci retracement level at 26033.0, and eventually closing at 26279.9.
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