LIVE MARKETS-The Fed: it's complicated!

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THE FED: IT'S COMPLICATED!

SGH Macro chief U.S. economist and keen Fed watcher Tim Duy says that the current period ranks among the most complicated setups for navigating the Fed that we have ever seen.

The labour market remains solid but there are signs of underlying weakness, inflation continues to run above the Fed's target, the FOMC is split and Trump is trying to reshape its Board of Governors.

"Altogether, this creates a very complicated policy and trading environment," writes Tim Duy.

Attention is now firmly on today's inflation figures, particularly core CPI, which feeds into core PCE inflation.

A downside miss will lessen the risks to the inflation side of the mandate and "help lock in a September cut," Duy says.

Duy adds that it would also increase the odds of an October cut and even open up the possibility of a 50 basis point move next month should the underlying weakness in the employment data show up in higher unemployment and jobless claims.

An upside miss would put a cut next month in doubt, especially if inflation broadens out beyond tariff impacted goods, Duy adds.

Consensus calls for core CPI to have increased 0.3% in July, a not unusual estimate.

"We note that the median estimate every month this year has been 0.3% MoM Core CPI, and that has been wrong every time – primarily due to downside misses," Citi notes.

Could it be seventh time lucky?

Reprinted with permission of Citi Research. Not to be reproduced.

(Samuel Indyk)

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