Moneybeat: The latest consumer price index

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets and the economy with financial analyst and advisor David Bahnsen. David's head of the wealth management firm The Bahnsen Group, and he is here now. David, good morning.

DAVID BAHNSEN: Good morning, Nick. Good to be with you.

EICHER: Wow, David! What a weekend. Just a fraction of an inch and history changes. I mean, this is a tragedy for the family of the man murdered in this assassination attempt on former President Trump. But before we get into the regular economic news of the week, it does seem relevant, I think, to talk about how markets tend to respond to big events like these, whether they shake confidence or increase it. Any idea how this might go?

BAHNSEN: I think that when you look at this from the lens of financial markets—which really would kind of be a reference to both stock and bond markets—there's always a possibility that you get a little short term volatility, but generally, Nick is not very long lived.

You know, the story is, as you say, a news story for the ages that could have forever changed history in a profound way. And yet, what markets, you know, you look at, what will happen with the presidential election, what happens with the overall psyche of the country. It's very difficult for markets to price those things in, Financial markets are used to pricing in earnings, pricing in interest rates, pricing and economic confidence, and this stuff gets into kind of a non-quantifiable dimension that, I think, is very difficult to digest. If we were talking about a civil war, if we were talking about an attack on the country, something that had an immediate, measurable economic impact, that's a little different.

In this case, though, I don't expect a huge response to financial markets. I think a lot of people are of the opinion that President Trump was in a very good position for this election before this event, and certainly his just almost mythical standing and screaming in defiance will probably help. I mean, it was really a shaking moment to observe him stand in that moment and and cheer on with the crowd after having a bullet come that close to his head. Markets may very well price in a greater likelihood of his success in November, but I can't say that for sure yet. It's a little premature.

We'll get more polling and other things in the days to come. But candidly, markets already, I think, we're expecting him to at least be in a somewhat advantageous position. There's still months to go, but like you, like me, like I'm sure our listeners, most of us, are just so focused right now on the gratitude that that bullet missed.

EICHER: All right. David, new inflation figures are out by way of the Consumer Price Index for June, that came last week. Of course, we talked last week about the Central Bank needing the right kind of optics before cutting interest rates,. Finally. the CPI came in a little better than expected, down to 3% even 3.0 not quite into the twos, as the Fed wants. But David, you really do look deeply into these reports. What do you see?

BAHNSEN: Well, certainly the CPI number was that sort of validation that the Fed had been looking for. I've spoken on the podcast several times about wanting the cover to be able to say, "Okay, this is all clearly headed in the right direction," that even with the shelter component of CPI reflecting a 5.2% year over year price growth, where I think the reality is much closer to 3%, you're still seeing inflation number headed down to a point where the Fed can do what they need to do and want to do anyways, which is begin to cut rates before we start seeing a really difficult strain put on the economy, put on credit markets, ultimately put on the jobs market.

So, it would have been harder for them to do it, Nick, if you were getting CPI prints that looked like a couple we had earlier in the year, even though a .1% higher isn't a huge needle mover. It optically would look bad. But getting a .1% lower, you know, this was the first time that the total blended CPI number showed prices down month over month in over four years; and it's blended prices that are down when 40% of CPI is allegedly up 5.2%. I mean, we're in outright deflation on core goods, which producer prices have been foreshadowing for some time, but this month, without having any of the outliers like we had a couple months ago, where auto insurance shot up 22%, this month, you saw apparel, airfare, hotels, used cars. A lot of these kind of things have negative price movement. Gasoline prices were down as well. That all contributed to the kind of CPI number the Fed wanted to see.

EICHER: David, you follow the prediction markets closely, what's the likelihood of a rate cut when the Fed meets July 30? Or do you think the governors will wait for the September meeting? Or maybe both?

BAHNSEN: I will be surprised if they cut July, but I was saying on your podcast and on my own Dividend Cafe for the last couple months that I didn't believe they'd cut in September, because I thought they'd want to avoid the optic of cutting before the election. And now, I don't think they have a choice. The futures are pricing in very close to—but not quite—100% chance of a cut in September. So I would not anticipate a cut in July, but the market is pricing in 100% chance now by December, 99% by November, 93% by September, so we're going to see half a point come out of the federal funds rate by the end of the year.

EICHER: Alright, David Bahnsen is founder, managing partner, and chief investment officer of The Bahnsen Group. You can check out David's latest book. It's titled Full-Time: Work and the Meaning of Life. The website, fulltimebook.com. David, I hope you have a great week.

BAHNSEN: Thanks so much, Nick. Appreciate it. See you next week.

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