Don’t worry. Because Mike Wilson’s not.
Not worried, I mean. Not about Fed hikes, nor really about inflation, which makes sense because as a chief equity strategist for a blue-chip Wall Street investment bank, Wilson makes far too much money to be concerned about anything short of runaway price growth. (I’m just joking, Mike. All in good fun.)
In his latest weekly, dated Monday, Wilson called September 11’s core CPI overshoot “old news.”
On some levels, it’s hard to argue with that characterization. After all, the data covered August. It’s now September. Plus, elevated inflation’s been with Americans for half a decade by now. It’s “old news” in that sense too. (Maybe the “poors” need to accept this as the new normal. I wonder if they’ve tried making more money. That’d help. So would owning stocks, which minted nearly $11 trillion in paper wealth for well-to-do American households in Q2.)
But those aren’t the only reasons Wilson didn’t lose any sleep over the August inflation figures. He also pointed to “nuance” which ostensibly suggests the overshoot wasn’t as concerning as bears (like he used to be) would have you believe. Yes, core price growth was ~double the monthly pace needed to restore underlying inflation to the pre-pandemic trend, but “some of the upside was concentrated in a handful of categories,” while the shelter gauge “remained softer and tariff pass-through continued to fade,” Mike said.
Although the analog with the 1970s looks scary (figure on the right, below), the Fed’s in a good position to prevent history from rhyming, let alone repeating.
The annotations on the left figure are there to remind you just how irresponsible policy was in 2021. Or to remind you just how helpful hindsight is when it comes to judging the correct course of action.
“[I]t’s worth keeping an eye on [the] trend given the analog with the 1970s when the Fed failed to
eliminate inflation, which led to a second large wave [but] Fed funds at 3.75% today, with headline/core inflation at 3.4%/2.4%, is a long way from the fall of 2021 when the Fed had rates at zero and they were actively engaged in QE with headline CPI north of 7% and core PCE above 5%,” Wilson said.
Mike’s overarching message: If the Fed is behind the curve, they’re “not that far behind the curve.” The fact that stocks ended up rallying post-CPI and bonds were mostly stable after days of losses for both proves “markets trade ahead of the headlines,” he went on. “We think that adds credence to Chair Warsh’s commitment to re-establish free-market signaling.”
[Insert smirk emoji.]
