nomists are currently forecasting that co
nsumer prices for August will fall slightly from July and that prices were up 8.1% over the past 12 months. Of course, 8.1% is still incredibly high by historical standards but it would be a notable slowdown from the June's 9.1% year-over-year spike in prices.
"We probably have seen the peak on inflation. Food and energy prices are coming down. There is more room to the downside," said Joe Kalish, chief global macro strategist with Ned Davis Research.
But traders are hoping that the September rate hike is the last one of such magnitude. Assuming the Fed boosts rates by three-quarters of a point on September 21, that would bring interest rates to a target range of 3% to 3.25%.
Look at fed funds futures on the CME for November. As of midday Friday, investors were pricing in 70% odds of a half-point hike at the Fed's November 2 meeting ... to a range of 3.5% to 3.75%.
There was just a 10% probability of a fourth straight 75 basis point increase, however, which could be one reason why stocks have rebounded so far in September following their August tumble.
Price increases slowing and consumers still spending
Wall Street is clearly betting that inflation trends will continue to head in the right direction. Economists also expect producer prices, the cost of goods at the wholesale level, to fall slightly in August. Forecasts are for a drop of 0.1% from July to August, following a 0.5% decrease from June to July.
Producer prices surged 9.8% year-over-year in July but that's down from June's high water mark of 11.3%. Any further slowdown would likely be welcomed by the market, the Fed and consumers.
That brings us to retail sales. Consumer spending figures for August are due out Thursday morning. The government reported last month that retail sales were up 10.3% year-over-year in July. It will be interesting to see if that rate of sales picked up in August or slowed down.
The Fed is in a tough spot. It wants to put inflation pressures to rest and the way to do that is with big interest rate hikes. But the Fed would also like to avoid a recession if it can, which is why some are still hoping for a soft, or a "softish," landing for the economy, as Powell said in May
Powell also talked a
bout rate hikes and inflation causing "some pain"
for the eco
nomy at his Jackson Hole speech last month. That could be an argument for the Fed to do smaller rate hikes...as long as inflation co
ntinues to cool.
And that is the key point. Investors have to pay closer attention to the inflation data than whatever Powell or other Fed members are saying. The Fed remains data dependent, which is why rate hike odds are constantly in flux.
"There must be a convincing downward trend in inflation. We are not there yet," said David Donabedian, chief investment officer of CIBC Private Wealth US, in a report Friday.
Big techs on tap
nomy isn't the o
nly thing in focus next week. Two software giants, Oracle (ORCL)
and Adobe (ADBE)
, will report their latest earnings. Investors will be watching for clues a
bout the state of tech spending among big businesses.
Shares of both companies have fallen this year, along with rest of the tech sector and broader market. Oracle is down nearly 15% while Adobe has plunged more than 30%.
But analysts expect solid sales growth from both companies ... nearly 15% for Adobe from a year ago and an almost 20% increase from Oracle.
One investment strategist said that big tech firms like Oracle and Adobe make sense for investors.