Inflation’s still riding high as earnings season dawns, dashing hopes that the Fed will reverse course
Inflation doesn’t take a vacation… though investors wish they could buy it a one-way ticket to Cabo. US consumer prices in September were up a hotter-than-expected 8.2% from a year ago — a slightly slower pace than last month, but still likely far too steamy to convince the Fed to simmer down on big rate hikes. Plus, that healthy September jobs report has dashed hopes that a Powell pause (#Powse) is coming soon.
- Sad consumers: “Core inflation” (aka: excluding food and energy) was up 6.6%, the highest yearly gain for core since 1982.
- Sad economy: This week the IMF cut its global growth forecast, and Chase CEO Jamie Dimon said the US would likely enter a recession within nine months.
- Sad investors: Earnings season’s kicking off, and S&P 500 companies are expected to report their lowest annual profit growth since 2020.
Still need hot Cheetos, though… Inflation is cruising at 40-year highs, partly because Americans continue to spend through price increases. Consumer spending ticked up more than expected in August, even as high interest rates and prices weighed on demand. Delta and American reported strong sales growth despite spooky fares. Pepsi shocked investors with 9% sales growth as shoppers loaded up on Cheetos and Lay’s despite price hikes.
The Fed moves forward with an old map… It’s guiding the economy based on how things looked in the past (like: last month’s inflation), not how they might look nine months from now. If the route changes to a steep downturn, it might be too late to turn back. While the Fed is backward-looking, markets are forward-looking. That’s why this earnings season investors may be more interested in forecasts than results from last quarter.