US Economy News Today: Wholesale Prices Are 'Bad Omen' Ahead of Tomorrow's Inflation Report

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Small Business Optimism Jumps for First Time in 2024

4 hr 35 min ago

Small business optimism grew for the first time this year but inflation continues to be a top concern for business owners, data from the National Federation of Independent Business (NFIB) showed.

The NFIB Small Business Optimism Index jumped by more than a point to hit 89.7 in April, though it remained below the 50-year average for the survey. Inflation continues to be the biggest issue for business owners, though the 22% who cited inflation as their most important problem was three percentage points lower than last month.

“Cost pressures remain the top issue for small business owners, including historically high levels of owners raising compensation to keep and attract employees,” said NFIB Chief Economist Bill Dunkelberg.

Fewer business owners said they raised prices in April, while the 26% who plan on making price hikes during the month dropped to the lowest reading in a year.

“Inflation is still a challenge, but a drop in the share of businesses raising prices is a welcome sign that price pressures for small firms are not intensifying,” wrote Wells Fargo economists Charlie Dougherty, Jackie Benson and Patrick Barley. 

-Terry Lane

Powell Hammers Home ‘Patience’ Message On Rate Cuts

8 hr 26 min ago

If the comments of Federal Reserve Chair Jerome Powell are anything to go by, the fed funds rate is likely to stay right where it is, no higher and no lower, for a good while. 

On Tuesday, Powell joined the chorus of Fed officials saying with inflation running hotter than expected at the outset of the year, the central bank will have to hold its key policy rate higher for longer than officials had forecast a few months ago.

“We’ll need to be patient and let restrictive policy do its work,” Powell said in a panel discussion at the Foreign Bankers Association in Amsterdam.

He also, not for the first time, downplayed the possibility of hiking the interest rate higher than it is, saying that it’s already restrictive—meaning that high rates have made borrowing costly enough to be a drag on inflation and the economy in general. 

“I don’t think that it’s likely based on the data that we have that the next move that we make would be a rate hike,” Powell said. “I think it’s more likely that we’ll be at a place where we hold the policy rate where it is.”

Powell’s comments shed some light on how Fed officials are assessing their fight against inflation.

After consumer prices started surging in late 2021 when the economy reopened from the pandemic, the Fed started ratcheting up its key interest rate starting in March 2022, eventually reaching its highest since 2001 in July 2023. Inflation has tumbled from its peak of a 9.1% annual rate in June 2022 as measured by the Consumer Price Index but has hovered around 3.5% at the outset of the year, still above the Fed’s 2% target. 

Notably, Powell didn’t offer a timeline for when the central bank might cut the fed funds rate. Earlier in the year, when inflation seemed to be on a firmer downward trajectory, Powell had forecast a rate cut at some point in 2024.

Financial markets are awaiting the next government report on inflation on Wednesday, which will show whether the trend changed in April.

Wholesale Inflation Jumps Ahead of Tomorrow’s Consumer Inflation Report

9 hr 19 min ago

Wholesale inflation jumped higher than expected in April, creating worries that consumer inflation data released this week will come in too hot. 

The Producer Price Index moved higher by 0.5% when compared with the prior month, the Bureau of Labor Statistics reported. On a year-over-year basis, the PPI increased to 2.2%, the biggest jump in the annual reading in a year.

“This week is important for markets because they are worried about inflation and this morning’s Producer Price Index (PPI) hasn’t done anything to assuage those fears,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. 

The measurement of price changes at the wholesaler level came in higher than anticipated, with economists surveyed by the Wall Street Journal and Dow Jones Newswire forecasting a more modest 0.3% monthly rise.

Fuel costs were one factor pushing wholesale prices higher, with nearly three-quarters of the rise in goods prices tied to a 5.4% increase in gas prices.

Economists also saw the PPI core inflation reading growing at a faster rate than it did in the prior month. Taking volatile food and fuel prices out of the measurement, PPI came in at 0.4% month-over-month growth. That was above the 0.2% increase that economists were looking to see and the 0.2% growth in the prior month.

The wholesale inflation report comes ahead of tomorrow’s release of the Consumer Price Index, a closely watched measurement of consumer price changes. 

“Today’s PPI is a bad omen for tomorrow’s CPI number—despite the relationship between the two being somewhat complicated—and if the market is spooked by today’s higher-than-expected PPI number, then it will be even more disturbed by a higher-than-expected CPI number tomorrow,” Zaccarelli said. 

-Terry Lane