Inflation printed cool at negative .1 headline and .1% core driven by shelter cooling to .2% from .4% and airline fares plunging 5% offset somewhat by auto insurance bouncing up to .9% from -.2% last month. The decline in shelter is very bullish for future inflation prints as that was the one component of inflation that had not declined due to a BLS methodology flaw.
The cool inflation print, combined with a weakening economy and labor market, indicates that the Fed should cut in July, but probably won't due to its flawed policy framework and propensity to be behind the curve. We do believe that the Fed will definitely cut by September. The September Fed cut will usher in a wave of continued central bank cuts which will require a large injection of liquidity into the global banking system. Historically, large injections of liquidity cause rallies in both stocks and bonds. We reiterate our 6,000 target on the S&P and continue to believe that the market rally will broaden out during the summer.
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