US: Weak inflation and growth casts doubt on Fed hiking path - ING

James Knightley, Senior Economist at ING, explains that US retail sales and CPI came in below expectations again and as a result Fed's communication strategy is coming under pressure.

Key Quotes

“US Consumer Price inflation has come in at -0.1%MoM%/1.9%YoY, a tenth of a percent below expectations on both. Core inflation was even weaker at 0.1%/1.7%. This is the slowest rate of annual core price inflation since May 2015 with weakness seen in apparel (third consecutive monthly fall), while transportation costs dropped sharply, helped by lower fuel costs.”

“Retail sales also came in weaker than expected with headline sales falling 0.3%MoM versus expectations of a flat outcome - the details showing a very mixed picture amongst different sectors. This creates more of a headache for the Federal Reserve in how it communicates its hiking strategy. They keep talking about slower growth and weaker inflation being transitory (the word was used on nine separate occasions in the minutes to the May FOMC meeting), but the longer we go without seeing growth and inflationary pressures is resulting in the markets becoming less convinced about higher interest rates.”

“With little sign of tax reform and fiscal stimulus coming the Fed will likely sound more cautious on the prospect of an additional hike later this year even though their forecasts will almost certainly include it when released later on today.”