LIVE MARKETS-US inflation may have found a new normal

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US INFLATION MAY HAVE FOUND A NEW NORMAL

U.S. financial markets and the Federal Reserve are shifting their focus toward the labor market outlook in the coming months, moving away from inflation as the primary concern, analysts at Wolfe Research said.

The brokerage says that inflation above the Fed's 2% target is not unusual, and unless price pressures intensify, employment remains the key metric for any policy shift.

Recently, markets have shrugged off hotter-than-expected inflation prints, expecting sustained softness in housing prices and rents to outweigh the upward impact from tariffs on goods, with the latter being more one-time in nature than a permanent change in inflation expectations, they note.

"Taking a long-term perspective, CPI has averaged 2.9% since 1983, consistent with recent measures," said Wolfe strategists led by Chris Senyek.

Signs of cracks in the U.S. labor market have resulted in a dramatic repricing of the outlook of U.S. monetary policy, prompting traders to nearly fully price in a 25 basis point rate cut in September.

(Kanchana Chakravarty)

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