In the United States, inflation has decreased more than expected in June, increasing the likelihood of a rate cut in September. This news comes after Federal Reserve Governor Lisa Cook mentioned that a “soft landing” was beginning to align with U.S. data. The CPI report for June showed a decrease in both headline and core inflation, which is positive news for the Federal Open Market Committee (FOMC). This may lead to a rate cut in September, especially as concerns grow over the cooling labor market.
The NFIB Small Business Optimism Index was released this week, indicating that small businesses remain upbeat. However, there are signs of a soft landing, including fewer firms planning to raise prices and evidence of a cooling labor market. Governor Lisa Cook and Chairman Powell have both mentioned positive developments in prices, labor markets, and economic activity. Chairman Powell highlighted that the risks to the Fed’s dual mandate are more balanced now, which could lead to rate cuts sooner rather than later.
Looking ahead, investors will be watching retail sales and housing starts data for June to assess the impact of the cooling labor market on domestic activity. Chairman Powell’s upcoming appearance at the Economic Club of Washington will also be crucial in understanding the Fed’s future decisions. With inflation trending lower and employment metrics showing increasing slack, a September rate cut could be on the horizon.
In Canada, the housing market saw an increase in activity in June, with both buyers and sellers becoming more active. This was likely influenced by a drop in interest rates during the month. The Bank of Canada will be pleased with this development, as rising home sales contribute to overall economic growth. Additionally, the mild performance in benchmark prices indicates subdued home price inflation, which is positive for consumer inflation.
Next week, the Bank of Canada’s Business Outlook Survey and Survey of Consumer Expectations will provide insights into the economic outlook. The June CPI report will also be closely watched, with expectations that core inflation measures may have dipped slightly. While this may not be enough to prompt a rate cut in July, markets are pricing in a rate cut in September.
Overall, both the U.S. and Canadian economies are showing signs of cooling inflation and economic activity. The upcoming data releases and central bank decisions will be crucial in determining the future monetary policy direction in both countries. Investors and market participants will need to stay vigilant and adapt to the changing economic landscape.