Inflation Cools & The Egg Boom Busts

John Crotteau (0:00)

This episode is brought to you by Charles Schwab. Timing the market, fighting inflation, managing risk? Financial decisions can be tricky. Investing isn't just math, it's psychology. Your neurons are playing favorites, and the market doesn't care. Financial Decoder, an original podcast from Charles Schwab, can help.

Join host Mark Reapy as he breaks down practical strategies to help overcome the mental traps that may affect your investing decisions. Listen at schwab.com/financialdecoder.

The August Inflation Report is out. We have the latest numbers and what that may portend for the Fed.

Emily Milliron (0:37)

Too Many Hens has created a crack in the bottom line for America's largest egg supplier.

John Crotteau (0:42)

For Wednesday, September 30th, it's Brew Markets Daily. I'm John Crotteau.

Emily Milliron (0:46)

I'm Emily Milliron. Let's get moving and grooving.

John Crotteau (0:56)

Emily, so happy to have you in studio again today. Later, we're going to get into ham and eggs. Pardon me. Spam and eggs.

Emily Milliron (1:03)

Even better.

John Crotteau (1:04)

Even better. But first, let's go macro with a slew of data release this morning that has economists rethinking the will they, won't they speculation when the Fed meets again at the end of October. So let's start with a fresh reading on the Federal Reserve's Preferred Inflation Gauge, which broadly showed that inflation cooled more than expected in August. The Personal Consumption Expenditures, or PCE, index rose 3.4 percent in August, less than the 3.7 percent expected. And that 3.7 percent was the number we saw from much of the summer.

When you strip out volatile energy and food prices, core PCE rose 3 percent, which was a drop from July's increase and again, lower than expected.

Emily Milliron (1:46)

Yeah, John, so far, we've clocked some mixed sentiment from Fed presidents around the country. But according to CME Futures, markets now see a 35 percent chance of another Fed hike at the end of October. That's down from 70 percent earlier this week and cutting those odds in half. And now a rate hike by the end of the year, that's still pegged at over a 70 percent chance. Nothing to blink your eyes at. We will be watching the data roll in.

John Crotteau (2:12)

Exactly. It may as just cooled for the next meeting. And about that data, yesterday, Emily, we were talking about the viewership time on Netflix, and the co-CEO suggesting that, all hours are not created equal. Well, when it comes to this inflation data and the metrics there, there's been an evolution, let's call it, for how the data is tabulated. The Bureau of Economic Analysis, the BEA, recently updated its methodology for calculating specific components of the PCE price index that we're covering today.

They changed how they assess inflation across three categories, computer software, legal fees, and investment advice. And let's just take one of those as an example, computer software.

Previously, that category included things like flash drives, which I don't consider software. And we've seen that the prices surged in that type in flash drives in the past year as part of the AI buildout, making demand for memory so much higher. And some economists have argued that these types of inclusions had artificially increased the overall inflation number, so it would make sense to take these parts out.

Either way, energy prices remained high. Gasoline jumped 4.4% in August. And groceries are still expensive, which we're going to talk about more later in the show.

Emily Milliron (3:26)

Yes, we are. Also initially sending stocks today was revised GDP data that showed the economy grew more than previously thought in the second quarter. The Commerce Department raised its reading for annualized GDP in the second quarter to 2.2% and well above the 1.5% that had previously been reported. And what we keep hearing, consumer spending remains stronger than previously thought. It increased by 0.9%, but of course that is partially down because of those higher gas prices.

John Crotteau (3:55)

Right, exactly. Consumer spending isn't just, I'm going to go out and spend more money on clothes. It includes staples for living like gasoline. You have to drive yourself to work. So I don't know if it means that the state of the consumer is strong because that number is up, or simply we have to keep buying these expensive essentials.

All right, Emily, later in the show, we're going to explore why Mattel's stock is down today. Hint, it's not because of the fast approaching holiday season.

Emily Milliron (4:20)

I can't wait for that, but first, this episode is brought to you by Charles Schwab. Timing the market, fighting inflation, balancing risk. No one says financial decisions are easy. In fact, it's the exact opposite. Financial decisions can be really tricky, and it's often your own thinking that can lead you astray. Financial Decoder, an original podcast from Charles Schwab, can help.