Farmers & Merchants Bank

Consumer and Producer Inflation Data

A variety of economic data releases and Federal Reserve (Fed) commentary helped to propel U.S. financial markets higher. On the economic front, updated figures for both the Consumer Price Index and Producer Price Index were released. On the consumer front, inflation data came in as expected on a year-over-year basis at 3.1%. On the producer side, the year-over-year came in slightly lower than estimated with a year-over-year result of 0.9%.

Fed Funds Rate Commentary

The commentary from the Fed came in the form of an updated policy statement that accompanied their announcement that they were maintaining the current level of the Fed Funds rate. Fed Chair, Jerome Powell, provided additional commentary at his post-announcement press conference. In the policy statement, the Fed used language that suggested that further increases to the Fed Funds rate may not be needed. In his press conference, Chair Powell backed away somewhat from the “higher for longer” strategy to one of not keeping the Fed Funds rate “too high for too long.”

Consumer Credit

Other positive pieces of economic data released this week included a smaller-than-expected increase in Consumer Credit. The increase was less than forecast and less than half of the prior month’s reading. This lower reading is attributed to a belief that tighter lending standards and higher interest rates are contributing to a slowing of credit growth. Interestingly the level of credit card debt being serviced by consumers represents a lower share of household income than it was prior to the COVID pandemic.

Consumer Sentiment

Lastly, the University of Michigan Sentiment Index rose sharply in part due to a lowering of inflation expectations by consumers. The survey revealed that consumers’ one-year outlook for inflation fell to 3.1%, the lowest level since March 2021.