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Inflation Report Hard To Square With Rate Cuts
Underlying US consumer prices increased more than expected in data released on Tuesday, again imperiling the best laid plans of mice, men and doves alike.
The core CPI gauge rose 0.4% MoM in February, the BLS said. I should note, up front, that the unrounded print was 0.35842%. If you're the glass half-full type, you might suggest that doesn't really count as an upside surprise. Economists were looking for a 0.3% increase.
Spin aside, we now have consecutive 0.4% (rounded) monthly increases on
Oer tends to lag in both directions and the way rent is calculated does as well. Insurance costs do too. These are areas that should slow down as the year progresses. The data does not suggest the necessity of cutting in March. However, as priya misra opines cuts are to normalize rates, not necessarily to stimulate or react to today’s latest print. The Fed got burned with transitory, so they will be slow to cut. Hopefully they don’t sleepwalk us into an unnecessary slowdown. The longer they wait, the faster and harder they will need to cut rates.
What if cutting rates does nothing … an illusion gesture to placate the disgruntled- we here in H’s salon have come to a somewhat common understanding of FED perceived capability vs reality, no?
Cuts now may act as insurance. Inflation seems to be slowly coming down. Doing nothing by implication suggests higher real rates. You may be right about the lack of high sensitivity to rate cuts. To me that argues more strongly not less, for rate cuts if that is the case.
FWIW, agreed.
If rates don’t matter, you can as well keep them low… 🙂
My own take is that, given cash buffers and savings, rates are less effective this time around – though (C)RE and regional banks are still suffering for real.
It’d be interesting if the government could try and lean on housing/service inflation component… but NIMBY would not like that…
RIA isn’t taking into account the neutral rate and the very real possibility that it’s as much as 200bps higher than the long run dot (which might anyway shift up). Read the Weekly: https://heisenbergreport.com/hr-weekly/
Which, incidentally, explains why he/she’s been calling for a recession for at least a year and a half. If your neutral rate estimate’s too low, you’d be inclined to think policy’s more restrictive than it actually is, which’ll lead you to forecast a recession that never comes.
Disappointing report but how much of the upside surprise is due to tough YoY comps? I’m not clever enough to do the math.
Apparently you are the only one who gives a sh*t about the rules, H!
well, this is not Vietnam.