New York Stock Exchange Senior Market Strategist Michael Reinking argued Wednesday that markets were “well prepared” for the previously announced headline inflation figures, but stressed that the data were “poor”.
Speaking to Fox News Digital, Reinking also noted what the latest inflation data, which stands at a 40-year high, means for the United States. Federal Reserve’s next moves As central bank officials try to tame rising inflation.
On Wednesday morning, the Labor Department said the consumer price index, a broad measure of the price of everyday goods, including gasoline, groceries and rents, rose 9.1% in June from a year ago. Prices rose 1.3% in the one-month period from May. Both figures were much higher than Refinitiv economists’ main figure of 8.8% and monthly earnings of 1%.
The data points to: fastest inflation Since December 1981.
INFLATION INCREASED 9.1% IN JUNE, ACCELERATING FURTHER EXPECTED TO NEW 40-YEAR HIGH
“I think the markets were pretty well prepared for the headline number to be hotter than expected,” Reinking told Fox News Digital, pointing to the gas price he said was at its peak at the time in mid-June.
“We’ve seen gasoline prices come in over the last month,” he said.
Last month, gas prices set a record with the national average of over $5 per gallon.
On Wednesday, the national average was $4.63 a gallon of gas, which was about 40 cents lower than the previous month, according to AAA.
Reinking argued that the so-called core price data, which excludes more variable measures of food and energy, comes as little surprise.
The Labor Department said core prices rose 5.9% year-on-year. Core prices also rose 0.7% month-on-month – higher than in April and May – suggesting that underlying inflationary pressures are strong and pervasive.
“The core CPI was where the problem was, because we didn’t see any slowdowns in this data,” Reinking said. Said. “When you look at all of the different components, looking at what we’ve heard from retail companies, we were hoping to see some easing in used car prices, automobiles and potentially clothing, and we didn’t see any of that.”
The worse-than-expected report is expected to have significant effects on the Federal Reserve and will likely consolidate a series of aggressive rate hikes to keep prices down. Policymakers increased the benchmark interest rate by 75 basis points last month for the first time since 1994, confirming a similarly large increase is on the table in July.
Reinking argued that with inflation being even warmer in June than economists had expected, Wall Street raised the possibility of a mega-scale, 100 basis point increase in July.
The market strategist noted that he wanted to see inflation data “fall significantly for a few months” before the Fed “takes its foot off the accelerator.”
He argued that the data released on Wednesday “reset the clock” as it revealed there was no “slowdown”.
Reinking argued that while Wall Street “commonly expects the Fed to go another 75 basis points by the end of July,” Wednesday’s data opens the door to a possible 100 basis point rate hike.
Noting the comment from Atlanta Federal Reserve Bank Chairman Raphael Bostic earlier on Wednesday, he said: “everything is in play” When asked about the possibility of the central bank increasing interest rates by a full percentage point later this month.
According to CME Group’s trade-tracking FedWatch tool, about 38% of traders are currently pricing in the probability of a 100 basis point increase this month.
Still, the Fed is in a dangerous position as it walks the line between cooling consumer demand and bringing inflation closer to its 2% target without unintentionally pushing the economy into a recession. Walking rates tend to create higher rates on consumer and business loans, forcing employers to cut spending, slowing the economy.
Asked whether he believes the Fed can successfully land a hard soft landing, Reinking told Fox News Digital it’s “threading the needle.”
LARRY SUMMERS WARNED THAT INFLATION IS IMPOSSIBLE TO FALL WITHOUT ‘SIGNIFICANT ECONOMIC THINKING’
“I think there is a possibility,” he continued. “We come from a pretty good place economically, especially compared to the rest of the world…
Reinking also noted that there was “a possibility” that the data released Wednesday showed “the heaviest inflation pressure”, especially when looking at “what commodity markets have been doing in the past few months.”
It also warned that investors will “continue to see some volatility as markets grapple with this ebb and flow of economic data and Fed policy progress.”
Reinking noted that the United States is “clearly in an economic slowdown.”
“The next big question from here is how deep and how long this slowdown will be and how inflation and the Federal Reserve and their response to inflation will play a big part in how long this extension will last,” he continued.
Reinking also revealed that he believes there is “major concern” in the markets at the moment.
“The worry markets have is that by not reacting early enough to inflation data, the Fed will amplify an initial policy error and then have to tighten up on an already slowing economy, thus magnifying it and creating a greater slowdown.” explained.
As the second-quarter earnings season kicked off with JPMorgan Chase, Morgan Stanley, First Republic Bank, Cintas and Conagra Brands, Reinking spoke to Fox News Digital before the market opened on Thursday.
He argued that financials “sit in a very good spot to understand what’s going on from a macro perspective.”
“One of the biggest keys we’ll see this quarter is whether banks are really starting to increase provisions and reserves for forward loan losses,” he added.
“As we expect slowdown, we are reversing the course of reserve flow we saw last year,” Reinking said. “Now they [banks] They will have to start rebuilding those reserves to prepare for a more difficult credit environment.”
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On a more general note, Reinking argued, if management teams start cutting out guidance and “if the market can relax with that guidance being a little more conservative, that could help stabilize things here in the short term.”
Megan Henney and Breck Dumas of FOX Business contributed to this report.
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