2/16 - Weekly Economic Highlights

The economic data released during the past week served as a stark reminder to investors the path to get core inflation down to the Federal Reserve 2% policy objective will be non-linear and challenging in 2024.

On Tuesday morning, the Consumer Price Index (CPI) as of January 2024 was released and both the headline and core month over month numbers moderately surprised to the upside, coming in at 0.3% and 0.4%, respectively, 0.1% higher than the consensus expectations. Year-over-year Core CPI was unchanged between December 2023 and January 2024 at 3.9%, versus consensus market expectations the year-over-year number would trend lower linked to favorable base effects. The Chandler team forecasts core CPI inflation to trend lower over the course of the year, but the implications of the tight labor market are likely to keep progress sluggish.

The Retail Sales figures as of January 2024 were released on Thursday morning and moderately disappointed relative to expectations, with the headline number at -0.8% compared to consensus expectation of -0.2%. The closely followed Retail Sales Control Group component, which feeds more directly into GDP forecasts, also disappointed at -0.4% compared to consensus expectation of 0.2%. The Atlanta Federal Reserve GDP Nowcast estimate of 1Q 2024 GDP ticked lower post the Retail Sales update, forecasting 1Q GDP of 2.9% compared to the prior reading of 3.4%, notably still well above estimates of trend growth. The Producer Price Index (PPI) data was released this morning and came in hotter than expectations, with the core number at 0.5% compared to the 0.1% consensus estimate. Several of the components of the PPI release are correlated with the Personal Consumption Expenditures (PCE) inflation estimates due to be updated at the end of January, needless to say the recent improvements in PCE inflation are poised to stall in the short term.

The totality of the data released contributed to heighted interest rate volatility during the week and had market participants reassessing their expectations on adjustments to monetary policy in 2024. On a week-over-week basis two-year Treasury notes were higher by 19 basis points to 4.67%, five-year Treasury notes were higher by 17 basis points to 4.31%, and ten-year Treasury notes were higher by 14 basis points, to 4.31%. The Chandler team continues to believe the Federal Reserve will emphasize optionality regarding their policy stance, but importantly the optionality is specific to the time period policy will stay restrictive as opposed to a further tightening of policy. The Chandler team forecasts the Fed Funds rate will be adjusted moderately lower as we approach the summer months, as core inflation trends lower over time, offset by the strong labor market serving as an impediment to inflation moving all the way down to the 2% target in 2024.

Leading Economic Indicators, FOMC Minutes, Chicago Fed National Activity Index, Jobless Claims, and S&P Global PMIs.

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