Good Thursday AM from your Hometown Lender,

And the soup in the kitchen was starting to smell so good. Then someone added too much salt.

All (well most) of the recent economic data was showing signs of muted inflation and a softening labor market. Mostly everyone was pointing at the Fed saying, echoing the President that they are too late with cuts. We still have the softening labor market which, is the Fed’s main focus these days, but after today’s PPI report, we may not have muted inflation. I am not at all saying that inflation is picking up. CPI was tame and tamer than expected Tuesday.

Today’s PPI report, which just blew past any expectations though, begs the question if inflation is controlled.

The big jump in the PPI came from service costs which increased by the most since March 2022, and within the services sector margins at wholesalers and retailers jumped 2% led by machinery and equipment wholesaling. Clearly some of the tariffs are being passed on to you and me. A crazy number, prices of fresh and dry vegetables jumped by 39%. PPI is a much more volatile data series and the components that flow through to PCE inflation suggest a smaller spike in consumer inflation.

• PPI MOM was 0.9 on expectations of 0.2
• Core PPI MOM was 0.9 on expectations of 0.2

I don’t think this changes the Fed’s mind on a September cut, but I do unfortunately think that a 50bps cut is unlikely.

The bond market is reacting as it should. T

he 10-yr is back up to 4.30% and mortgage bonds are about .125 worse. All within the same trading range we have been. Just for the moment, we are not going to see much lower rates. 

Tomorrow brings the retail sales numbers and some other data as well (Capacity Utilization, etc…).

We could see some more volatility depending on where those reports come in. I still see the rate path is in our favor and rates will improve. It is never a straight line up or down.

Stay safe and make today great!