The US seems to have inflation under control

<p>Kia ora,</p><p>Welcome to Friday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news market chatter is building for a Fed rate pause.</p><p>First up today, <a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank"><strong>the American consumer inflation rate came in at 3.2% in July</strong></a>, almost exactly as expected (3.3%). Base effects and rising rents were behind the tick up, and it marks a halt in the 12 consecutive months of declines. A year ago they were reporting CPI inflation of 9.1% so it is actually huge progress from there and a solid tick for monetary policy positioning, especially as a year ago it was widely predicted the US would be in recession now, and it obviously it isn't.</p><p>Because this result was as expected, there has been only muted financial market responses. But one is that core inflation is still high even though it eased to 4.7% from 4.8% in June. The bond market sees this as a reason the Fed might keep rates high, or even raise them again. But most others see encouraging signs in the detail that inflation will fall from here. The next US Fed (FOMC) rate review is on September 21 (NZ).</p><p>US <a href="https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20231764b.pdf" target="_blank"><strong>jobless claims</strong></a> rose by +20,000 last week to 226,000. That isn't a lot in such a large labour market but is was more than anticipated. There are now 1.8 mln people on these benefits, a decrease because qualification expired faster than new claimants.</p><p>The <a href="https://www.fiscal.treasury.gov/files/reports-statements/mts/mts0723.pdf" target="_blank"><strong>US Federal government deficit</strong></a> came in at -US$221 bln in July, almost the same as it was in June. But it was expected to be about half that. </p><p>Meanwhile, despite the widely publicised stumbles, it seems that over