US DATA: NY Fed Consumer Survey: Inflation Expectations Looking Stubborn (1/2)
The New York Fed's Survey of Consumer Expectations leaned in a stagflationary direction in August, showing both an uptick in short-term inflation expectations and increasing pessimism on the labor market front. Overall the deterioration in the labor market outlook is likely to be the main takeaway from the FOMC going into its meeting next week, stubborn inflation expectations are unlikely to be ignored, illustrative of the Fed's current policy dilemma.
- Starting with the closely-watched inflation expectations, the survey saw a rise in the 1Y median to a 3-month high 3.20% from 3.09% prior. The 3Y median was steady at 3.00% for a 4th consecutive month, but the 5Y median ticked up to a 6-month high 2.93% (2.88% prior).
- The 1Y reading mirrors August increases in other consumer expectations surveys of 1Y inflation expectations, including UMichigan (4.80% from 4.50%) and Conference Board (6.20% from 5.70%). All are below tariff-related peaks earlier this year but appear to have bottomed out.
- We also note a subtle uptick in the UMichigan 5-10Y metric, to 3.5% from 3.4%. In both surveys, this metric appears to have stalled out above pre-2025 tariff levels.
- That said, we think most on the FOMC consider the NY Fed survey to be the most "robust" among these measures in terms of methodology. While it's shown much less dramatic swings than its counterparts, it is showing short-term/3Y pressures as being a little more elevated than in previous periods when the Fed was contemplating easing.
- Somewhat counter-intuitively, the survey's measure of median one-year ahead point predictions for various commodity price changes (eg gas, food, healthcare, education, rent, gold) were all flat to somewhat lower. The big standout on that front was for rent, for which inflation is seen running at 6.0%, down sharply since 9.1% in June and lowest since January.
- Median uncertainty over future inflation ticked a little higher though remained in recent ranges (which since the pandemic have been elevated vs the 2013-19 period,
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
