Leland Abrams, Portfolio Manager
Leland Abrams, Portfolio Manager

Abrams: CPI Data Continues to Paint an Improving Picture; Core (Ex-Shelter) Below Fed’s Target

Leland Abrams, who serves as Chief Investment Officer for the investment manager Wynkoop LLC and a portfolio manager of a fixed income fund at Catalyst, provides his analysis of the release of economic data on July 28, 2023:

Today’s economic release of inflation data continues to paint an improving picture.  Headline CPI rose 0.17% in July from June, or 3.18% from a year ago.  Core inflation also rose 0.2%, the same as last month, bringing the YoY change to 4.7%.  

However, a closer look at core is necessary.  The shelter component still showed a positive gain, which is not realistic (we’ve discussed how lagged these data are).  In the real world, rents peaked last year and are coming down, which will make its way into these readings very soon, we suspect.  

The San Francisco Fed released a study a few days ago discussing this very fact.  They estimate that shelter services will turn negative by next year and stay there for a while, helping drive core CPI materially lower.  The shelter component makes up 40% of the core CPI.  

Core CPI excluding shelter was -0.06%, with a 3-month annualized equivalent at 1.13%, well below the Fed’s 2% target.  

The market responded with a small rally in the yield curve, but relatively muted as traders positioned themselves positively pre-release.  Fed swaps are now almost erasing the chance of a September hike and lowered the probability of a November hike to around 20%.  

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Leland Abrams, Portfolio Manager
Leland Abrams, Portfolio Manager
Leland Abrams serves as Chief Investment Officer for the investment manager, Wynkoop LLC. Leland is Lead Portfolio Manager of an NARMBS income-oriented fund at Catalyst Funds. Prior to joining Wynkoop in September 2016 as Principal and Portfolio Manager, Mr. Abrams spent five and a half years at Candlewood Investment Group LP. Most recently, he was the RMBS Sector Manager responsible for overseeing approximately $1 billion in RMBS investments across the firm. Previously, Mr. Abrams spent two and a half years as a non-agency mortgage and esoteric ABS trader and credit analyst at United Capital Markets, Inc. Prior to that, Mr. Abrams was a Credit Analyst and Trader at Dresdner Bank, AG (Dresdner Kleinwort Wasserstein). Mr. Abrams holds a B.A. in Economics from Bucknell University. Mr. Abrams served as a Director and member of the Audit Committee for Front Yard Residential Corp, a public REIT headquartered in Christiansted, VI until the company’s sale in January 2021.

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