The Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) Index, rose +0.1% M/M in June, and +2.2% Y/Y. Excluding food and energy the PCE Index rose +0.1% M/M and +1.9% Y/Y, remaining on trend for 2% inflation.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index rose +6.4% Y/Y in May, flat versus the previous month. While housing data has come in weaker than expected in recent months, housing prices on the west coast continue to soar. Seattle, Las Vegas, and San Francisco remain red hot, with prices rising +13.6%, +12.6%, and +10.9% Y/Y, respectively, according to S&P. A dearth of new inventory across the country, coupled with rising remand, continues to create a squeeze that results in higher prices in most cases.
Taken together, short term interest rates are likely to continue moving higher as the Federal Reserve remains on track to raise rates two more times in 2018. According to data compiled by Bloomberg, the probability of a September rate hike is all but certain at 92.1%, while December still looks highly likely at 55.7%.