US: Soft data unlikely to knock the Fed off course - ING

James Smith, Economist at ING, explains that today’s sub-consensus US data is unlikely to rock the Fed's boat, meaning there are increasingly few reasons for not hiking in June.

Key Quotes

“On the face of it, today’s US data looks fairly disappointing. On inflation, headline CPI dipped back to 2.2% from 2.4%. Admittedly, one of the major drags in March, hotel prices, completely bounced back in April. But that wasn’t enough to offset a broader softening which nudged the core rate of inflation back below 2% to 1.9%.”

“Likewise, both headline and core retail sales missed estimates (0.4% and 0.2% respectively). But strong backward revisions are enough to convince us that consumption is making a solid rebound after a brief slowdown in the first quarter. It’s hard to say whether that sluggishness was down to a fundamental blip (e.g. higher prices eating into budgets) or, more likely, due to inaccurate seasonal adjustment ("residual seasonality" in economist-speak). Either way, it’s fairly clear that the effect was “transitory”, and the backdrop of healthy consumer confidence and a robust jobs market will boost spending over coming months.”

“This supports the Fed commentary over the past week, where a number of a speakers have reiterated their intention to hike twice more this year. A June hike is now looking more and more likely.”