The rate debate

Daily update

US July personal income and spending data is due. The middle income consumers’ relatively strong starting point for the year has helped to sustain consumption, although political polarization has created some distortions in spending. Consumption remains the key focus for overall economic activity in the US this year.
Markets are focused on whether US economic weakness justifies rate cuts. Federal Reserve Governor Waller, a candidate for Fed chair, was very focused on employment prospects in remarks yesterday. Waller cited relative pessimism on the economic outlook and employment in particular to justify rate cuts.
There is an inflation data deluge today. Tokyo August consumer prices moderated as expected—the international standard core rate is now 1.5% y/y. The main European economies offer preliminary August consumer price data, generally expected to hold steady. Inflation expectations data is also due, but consumers are not known for rational inflation expectations.
US August Michigan consumer sentiment also gives inflation expectations. Republicans think inflation will be half, and Democrats that it will be two and a half times the current rate. The personal consumer expenditure deflator for July is expected to be stable. It is granular details that will excite economists. Exactly where price pressures are coming from determines whether this is temporary or more enduring.