By Denny Gulino
WASHINGTON (MaceNews) – The latest Consumer Price Index figures – suggesting a further softening of the inflation threat, rekindled hopes for a Federal Reserve pivot – hopes at odds with clearly stated Fed intentions to do no such thing.
Good news for used cars, energy and some other categories came up against the very strong 0.8% increase in shelter, and as everyone knows, shelter is a third of the CPI and besides, is very, very “sticky.”
So the 0.1% negative headline reading for December’s overall “all items” category, and the relatively mild 0.3% increase in the core rate were fully anticipated. Yet, as indicated by the roller coaster U.S. stock futures and a bouncing US 10-year yield immediately after release time, the result was nevertheless confusing.
As Philly Fed Bank President Patrick Harker told the Main Line Chamber of Commerce audience a few minutes after the CPI – but not necessarily commenting on this CPI, “As long as we’re getting and moving it (inflation) in the right direction, I think we should be more cautious than more aggressive.”
For Harker, that means several more rate hikes but in just quarter point increments. For Ian Shepherdson, chief economist of Pantheon Macroeconomics, it meant, “No further rate hikes are needed.”
Where both agree are that housing costs will decelerate. Harker said it will take “a while” for deceleration to reach the economic statistics. Said Shepherdson, “Don’t worry about the big increase in rents. It won’t last.”
Later in the day St. Louis Fed President James Bullard, speaking at a Wisconsin Bankers event, took a view on the pace of rate hike opposite to that of Harker. “I don;t really see any purpose in dragging things out through 2023. That doesn’t really seem to help us.”
Bullard, not an FOMC voter this year, said, “I like the front loading policy. I think if we want to get to the llow 5% range (terminal rate) we should go ahead and move to that level.” The front loading policy, he said, ‘has served us well.”
And that’s where dreams of Fed pivots and pauses are blasted into stark reality and sobering wakefulness. The quotes from Fed Chair Jerome Powell, Fed FOMC minutes and repeated declarations by other Fed officials on the subject of being “sufficiently restrictive” and the need to stay at that point could fill pages.
At St. Louis Fed’s James Bullard said last week, when asked by Mace News how would we know when we were “sufficiently restrictive,” he answered to look at the CPI. And the CPI is nowhere close to a 2% target.
“Inflation is still very high,” Harker said. The latest core rate increase multiplied by 12 is 3.6%, a long way from 2%. Compared to a year earlier, it’s up 5.7%, even further from the 2% target. It’s the same for PCE numbers the Fed actually cares about.
Market pundits say traders and investors “see through” the CPI, which is why US. stocks settled down mildly positive by midday. That terminal rate can’t possibly go to 6%, right? Those anticipated quarter point rate hikes have to taper off to nothing later this year, right? The Fed won’t do exactly what it says it will do, right? Stay tuned.
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This story was updated with St. Louis Fed’s Bullard remarks at 12:45p ET.
Contact this reporter: denny@macenews.com
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