US data: robust growth, lackluster price pressures - ANZ

Analysts at ANZ explained that while the key US data event is Friday’s payrolls, data released overnight reinforced the same old theme of robust growth but lacklustre price pressures. Personal income and spending data suggest private consumption should continue to be the pillar of GDP growth in Q3.

Key Quotes:

"Even before this data, ANZ GDPNow was suggesting +3% q/q saar for Q3 growth. However, the Fed’s preferred measure of inflation – the core PCE deflator – rose just 0.1% m/m in July, which saw the annual reading hold steady at 1.6% y/y. That’s not too far below the Fed’s 2% target, but it is still below target, and unfortunately the trend since the beginning of the year has been down (or flat at best if one’s an optimist).

CPI data will be released on 16 September. Market attention will now turn to Fed Vice Chair Fischer’s comments tonight, looking for anything to support the case for a September rate hike. Market pricing for September is currently just 36% (down from 44% after the Fischer interview at Jackson Hole).

Meanwhile, the SF Fed just published an economic letter on the US neutral rate (r*) based on its relationship to potential growth. Over the next decade, the note “suggests a very gradual rise in r-star from a value near zero in early 2016 to a long-run value of around 1% in 2026. This long-run projected value is slightly below the central tendency midpoint for the longer-run real federal funds rate from the June 2016 Summary of Economic Projections (SEP) issued by the Federal Open Market Committee (FOMC)”