📝 Inflation Expectations to Take Some Heat Off The Fed: Wells Fargo

This week's retail sales report offered further evidence of fading consumer purchasing power. Sales increased 1.0% in June. However, after applying our inflation adjustment, we estimate real retail sales actually fell 1.0% over the month. Essentially, consumers are spending more and getting less across the board. Manufacturers are also feeling the pressure of higher costs. Industrial production unexpectedly declined 0.2% in June. Manufacturing activity declined for the second consecutive month and downward revisions to past data suggest a slower pace of production. Moderation in the factory sector is traditionally consistent with a broader moderation in demand, and June's weaker-than-expected outcome likely signals to the Fed that tighter policy is having the intended effect on activity. Fresh data on long-term inflation expectations, which slid to the lowest reading in a year, also take some heat off the Fed to hike rates a full 100 bps at its next policy meeting on July 27. The Fed may again opt instead for a still-large 75 bps hike. - Wells Fargo Economics