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Fed Suffers Another Setback
Bad news, everybody: US producer prices rose far faster than expected last month, a development which, depending on the details, could introduce upside risk to the next PCE prices update.
The headline final demand index rose 0.5% in April from March, BLS data released on Tuesday showed. Consensus expected a 0.3% gain. The prior month was revised lower (to show a small decline), but that's small comfort.
Excluding food and energy, wholesale prices rose by the same 0.5% against expectations for
The small revision downward in March seems to have gotten traders’ attention.
I think they’re more likely tying to do the math for PCE. Maybe that math’s favorable. I don’t know. But it just feels like one excuse after the other. There’s always a mitigating factor and on and on. Some days, I just think: “You know, here it is three years later and inflation’s not back to target. End of story.”
The other thing is, I can’t even count the number of times that math hasn’t ended up working. Like: Analysts crunch the numbers, and then they say “Oh, the read-through for PCE’s favorable,” and then two weeks later, “Oops! PCE overshot anyway.”
I have been traveling a lot lately. The one thing that I see everywhere I go (midwest to mountain states to California) are a LOT of apartment projects under construction. As these apartments come on line, hopefully there will be a meaningful impact with lower housing costs.
With regard to the intersection between inflation and the upcoming presidential election, young people who are out of college, working and trying to support themselves are going to vote for the presidential candidate that they think will be most likely to improve their personal financial situation. They will (doubtfully) consider any issues beyond that.
And, fwiw, Trump agenda (if he gets to implement any of it) will be significantly worse for inflation.
He wants to cut the labor force significantly (all those migrants), slam tariffs on anything foreign or thereabout (inflationary) and cut taxes for the rich/deepen the deficits (inflationary).
Sooo…
Yeah, but his base won’t care. He’ll say the BLS’s data is wrong and they’ll believe him. Or else he’ll just go the Erdogan route and say it’s all a conspiracy. Numbers are a conspiracy.
Reality has been a conspiracy against conservatives since societies got bigger than iron age tribal federations…
Powell’s remarks make clear he doesn’t believe or doesn’t want to say PPI is a setback. His insight about running large deficits dovetails neatly w/ Yellin’s comments about high interest rates making it difficult for fiscal policy. Not a chance those messages were coordinated in advance., of course.
We’re caught up in an epidemic of “insanity loops.”
Jeff, You’re a loyal reader, and I value your comments, so don’t take this the wrong way, but: It’s “Yellen,” with an “e.” Not “Yellin” with an “i.”
You do that all the time, and I always fix it for you, but from now on I’m going to count on you to spell it correctly. 🙂
Thanks H! Lol classic example of me overlooking the obvious or, as my mom said now and then when I was a teenager, “How could someone so smart do something so stupid.” Of course she was biased about my mental abilities… I have stepped in many holes in my life thinking about the stars. I’ll spell Yellen correctly in the future–and work on my focus overall lol. Thanks again.
Hmm. I have to go with bloomberg on this. The numbers are a mixed bag. Maybe I am wrong, and things will get worse. Today’s release does not move the needle in either direction though.
You’ve been saying inflation was going to go away and that the Fed was too tight for three years running now.
Also, I gotta give people a reason to read. You reckon this works?: “PPI Release Doesn’t Move Need In Either Direction. Please Ignore.” Are you gonna read that? I wouldn’t.
I mean, if the loop is true (and I agree it must be true to some undetermined extent), it just proves that the US needs to increase taxation.
Now, I dislike taxes just like everybody else. But Americans/Anglo-Saxons seem to hate them with a passion. Which means, my personal original take that taxe rates should vary a lot more, to respond to macro conditions (in a counter cyclical fashion, obviously) is a DOA idea.
But logically, it seems like a damn solid idea to me.
And all this time I was appreciating the pun.
Market seems not that apprehensive about a possible too-hot CPI report tomorrow, unless there is a bunch of hedging going on under the covers.
Is it possible traders figure the bar for rate hikes is so high, and the actual expectation for rate cuts so low, that hotter-for-longer aka no landing is a scenario to be embraced, at least with a six month investment horizon?
Your “insanity loop” can last only to the extent that low-to-middle income Americans remain solvent. I feel like that loop ends in a credit crisis of sorts, left to its own devices.
I’d be more worried about the pass through of this number combined with rising inflation expectations. Because either companies will take the margin hit (unlikely) or pass through on costs are coming with no relief in sight.
Service inflation higher—has anyone had a technician make a service call for their appliances, AC,Furnace, plumber, electrician etc? I live outside Philly and no one seems to make a service call under $150-200 for an hour.