Are Rate Hikes Finally Behind Us?

Charles McKenzie

US Inflation continues to cool with the May headline CPI inflation number coming in at 4% YoY. This marks the slowest annual pace the US has seen since March of 2021. Additionally, core CPI – which excludes food and energy – fell on an annual basis as well, further supporting our belief that inflation reached its high-water mark last year. 

While core inflation continues to trend down on a year-over-year basis, the number remains stubbornly high compared to pre pandemic levels at 5.3%, a fair bit above the 4.0% headline number as well. On a monthly basis, core CPI rose 0.4% for a third consecutive month. While some may see the Fed’s preferred inflation number remaining elevated as a cause for concern, we believe the details in the underlying numbers are largely encouraging and point to softer readings in the future. More specifically, the two largest contributors to the elevated core number were shelter (0.6% MoM) and used vehicles (4.4% Mom). With these two items removed, core CPI was only up 0.09% in May and 2.3% YoY. While it is easy to manipulate CPI numbers by simply removing certain aspects, we believe that both shelter and used vehicle prices will fall significantly in the coming months. Leading indicators on shelter and used cars – rents on new leases reported by Zillow and the Manheim Used Vehicle Index – have begun to decline and foreshadow a further decline in the future.

As the year continues, we believe both core and headline CPI will continue to fall and ultimately CPI could reach the Fed’s target of 2% within the next 12 months. The recent inflation declines have given the Fed space to pause at their last meeting (06/14), allowing the central bank to monitor the effects of its previous consecutive 10 rate hikes. Despite Chairman Powell’s continued hawkish comments, we believe rates have nearly reached their peak and hikes are largely behind us. We predict we will likely see one more 0.25% rate before the central bank pauses for good.


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This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.

Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.

The Consumer Price Index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies

The Manheim Used Vehicle Value Index is based on all completed sales transactions at Manheim’s U.S. auctions that fall into the 20 market classes according to the J.D. Power and Associates classification scheme listed below. This results in a usable sample size of over five million transactions annually.

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