Data dependent

Question: What will it take for the Fed to cut rates?

Karen Manna: The Fed has told us time and time again that they are data dependent, and it will be the data that comes in line with their principles and that gives them the confidence to reduce rates. The data will lead them to their conclusion, but it also creates a market that is data dependent, so we're seeing strong reactions in the treasury bond market as different data elements are reported. So the Fed will look for inflation to come down. They tend to look less at CPI, which is what the market focuses on, and more on PCE because that's the actual prices that are in the economy on the goods. They've also told us in recent days and weeks that they will be focusing more on inflation for services, so taking apart, or disaggregating, the inflation numbers so it's not just the whole. Because they think that prices on goods inflation, or inflation on goods, has come down rapidly, and that perhaps inflation on services has been a bit stickier. The reason for that is that the supply chain has come and healed a little bit more quickly than they had anticipated. Supply chains have less of an impact on the service economy, that's more related to labor. So they're going to look very closely to see if the service economy is also cooling and that they can see sustained reduction of inflation.