Inflation Data Keeps Fed Rate Hike in Play

Summary

Renaissance Macro’s Neil Dutta discusses the upcoming US inflation data and the July jobs report, arguing that the data supports further Fed tightening. He expects at least one more rate hike this year and sees the US yield curve flattening into autumn as the FOMC effectively forces the chair’s hand.

• Upcoming CPI and PPI reports are critical for the September Fed meeting.
• Dutta says the July payrolls report, with a falling unemployment rate, actually pushes the Fed toward hiking.
• He highlights mounting hawkish dissent among FOMC members, including governors.
• Inflation data has been skewed to the upside; a string of 0.2% monthly readings is historically unlikely.
• Dutta expects at least one more rate hike this year, treating each meeting as a coin flip.
• If the committee controls the chair, he predicts the yield curve will flatten into autumn.