US Core CPI Tops Forecasts, Bolstering Case for Rate Hike

0:00 Boy, the markets are like what they saw, I guess, on this inflation print as Alexis was just reporting stocks higher. yields kind of steady ish the ten years down three coming in almost four basis points for 92. So there you go. Sarah Hunt she's a professional. She does this stuff for a living. Partner and chief market strategist at Alpine Saxon Woods. Share. What did you make of the inflation data today? And more importantly, what do you think the Fed's going to make of it.

0:24 So it came in pretty much in line a little bit high on on one component. But and the I think the issue is around energy right now I think the hardest thing for the fed is it's hard to use a policy prescription of raising rates to deal with the fact that we have an energy supply problem, and I think that that's the tension. And if you see a discussion about why they did or did not raise rates, I think something in there tells you that it's hard to fix this problem with raising rates.

0:51 You've got a housing market that's in fairly struggling shape. Still. You've got raising, rising mortgage rates, you've got rising gas prices. All these things are tough on the consumer. So trying to slow demand and raise rates that way, it's it's a tension of trying to fix the problem. And I'm not sure that that fixes it. But I think that that's where that's what people are looking at right now. So that's it. Markets finally having to price in a world where inflation isn't going back to 2% anytime soon, I think they're good.

1:15 Definitely pricing in what the problem of energy is doing. And and to your point about diesel earlier, it's it's goods. It's everything that moves in a truck is now going to have a surcharge in it. Right. You've got fertilizer prices being high as well. You've got beef prices in this country for other reasons being high. There's a lot of different things there. It's hard to see how fixing how raising rates is going to fix those things.

1:36 But I understand also that the fed does not want to look like it's not responsive. So there's that's I think that's the biggest tension there for next week. How do you think the equity market behaves if we're going to go into a period of maybe one, maybe two, maybe three rate hikes over the next, I don't know, six months? I mean the bond market seems to have priced it in. I'm not sure about the equity market. How do you think about it.

1:57 I'm not sure that the equity market has either. But some of the issues that are driving the equity market, higher earnings and big spend on technology, I'm not sure that that rate change is going to make that go away. So the issue really is for whom do higher rates have a bigger problem as far as equity markets are concerned. But the larger technology companies that are building out the data centers and the infrastructure and all the spend that we keep talking about, I'm not sure that those changes are going to be so impactful in the near term that it's going to cut that spending. Therefore, the earnings are still going to be fairly robust. I think that's the tension that the equity market is playing with. And how that goes forward is we're going to see where that goes. But you've got plenty of pockets in, where stocks have come down. But the backdrop is still fairly good on the industrial sector. You've seen a lot of those stocks come in, but the backdrop still looks good. They're coming in on the potential for higher interest rates. So I think that there's I think that there's some room in the equity markets. But we are sitting in pretty lofty levels in some cases. Yeah.

2:50 So what is there. Blue button. There we go. I feel like Tom I mean. Yes, exactly. Detroit Lions Detroit Lions, big bucks. so that said, I mean, where does AI spending have to go to a certain point before you say, you know what this is? This is a concern. Well, I think that this is the interesting thing about the fact that you're getting so much backlash on data center location is one of the things that may slow down spending, whether or not companies want to slow.

3:16 And what you did here in second quarter earnings was still that there's an enormous amount of demand pent up in there. It was not a discussion of dropping demand, whether or not token prices continue to drop and how that impacts the decisions going forward is now being slightly bottlenecked by the fact that it's difficult to cite things. So there is some slowdown that's happening because of ancillary issues as opposed to just I just want to keep spending.

3:38 So it's it all of those things are playing together. If things slow down on the spending front a little bit, people are looking for that change in the second derivative. Is that change getting are we now going to a slowdown even though it's still big? Is it slowing down? So far we haven't seen it. It will happen.