Latest Inflation Numbers and Discussion

[Wile E. Coyote]

The 2% target is relatively new. I would not be surprised to see a new higher target and I see folks calling for this.

Not that new as I remember it from Economics lectures in college back in 1995 (otherwise known as almost 30 years ago).

 

[audreyh1]

Not that new as I remember it from Economics lectures in college back in 1995 (otherwise known as almost 30 years ago).

It is new. Before 2012 it was rumored and asked about but never official.

 

[GenXguy]

I'm not surprised that some people want a higher target just like those who want higher taxes. Pushing for a higher inflation rate is just another form of a tax increase. It's an inflation tax. And when you earn higher returns to compensate for higher inflation, you pay extra taxes there as well.

 

[pb4uski]

And just who does this mythical inflation tax get paid to? Not the IRS.

 

[GenXguy]

And just who does this mythical inflation tax get paid to? Not the IRS.

Here's a good article that explains it:
https://thehill.com/opinion/finance/580043-the-inflation-tax-is-not-only-real-its-massive/

The inflation tax is not only real, it’s massive

 

[Turbo29]

How Much Are We “Taxed” by Surprise Inflation? -- Federal Reserve Bank of St. Louis

Historically, the effects of inflation shocks, both positive and negative, have been small—barely exceeding 1% of U.S. GDP in the most extreme cases. However, the large inflation surprises we experienced last year, together with the ever-increasing Treasury debt in recent years, has led to an unprecedented, large-scale redistribution. This has resulted in an inflation tax that amounts to 3.3% of U.S. GDP imposed on Treasury debtholders—that is, a tax rate of 6.5% on wealth invested in Treasury securities due in one year or further.

 

[Montecfo]

The shelter number, which is flawed (perhaps fatally) is a real outlier. It continues to spike upward despite the rate of rent increase being on the decline for a very long time.

I think that would be one reason to set the target higher.

Good graph at this link:

"February marks the 5th continuous month of either flat or negative monthly changes for the national rent index."

https://www.zumper.com/blog/rental-price-data/

 

[Wile E. Coyote]

It is new. Before 2012 it was rumored and asked about but never official.

And it was taught.

 

[Chuckanut]

Inflation up by 0.4% in February. The Core inflation was also up by 0.4%.

From the AP:

“ Prices rose 0.4% from January to February, higher than the previous month’s figure of 0.3%, the Labor Department said Tuesday. Compared with a year earlier, consumer prices rose 3.2% last month, above January’s 3.1% annual pace.

Excluding volatile food and energy prices, so-called “core” prices also climbed 0.4% from January to February, matching the previous month's rise and a faster pace than is consistent with the Fed’s 2% inflation target. Core inflation is watched especially closely because it typically provides a better read of where inflation is likely headed.”

Not so good.

 

[GenXguy]

Inflation up by 0.4% in February. The Core inflation was also up by 0.4%.

From the AP:

“ Prices rose 0.4% from January to February, higher than the previous month’s figure of 0.3%, the Labor Department said Tuesday. Compared with a year earlier, consumer prices rose 3.2% last month, above January’s 3.1% annual pace.

Excluding volatile food and energy prices, so-called “core” prices also climbed 0.4% from January to February, matching the previous month's rise and a faster pace than is consistent with the Fed’s 2% inflation target. Core inflation is watched especially closely because it typically provides a better read of where inflation is likely headed.”

Not so good.

Yes, certainly not good. Yet, the Fed is still forecasting 3 rate cuts. And they increased the inflation outlook.

 

[Montecfo]

A couple of interesting things I found in Powell's latest comments.

1. He said inflation is unlikely to return to pre-pandemic levels. In my view this further signals a possible change to the Fed's target. The 2% was set when all the attention was on increasing the rate of inflation to acceptable levels. We are in a very different environment now with a housing shortage and right-shoring.

2. He signaled that the tapering of QT could begin soon. Presumably this means they may soon begin buying treasuries to somewhat offset the runoff of the T-bonds and mortgage backed securities accumulated since 2008.

Both of these developments could put downward pressure on interest rates.

 

[GenXguy]

1. He said inflation is unlikely to return to pre-pandemic levels. In my view this further signals a possible change to the Fed's target.

I don't see that as an indicator they are changing the target but maybe waiving the white flag that they can't get it as low as it used to be and caving to external pressure to lower rates. Of course, that's not good news for struggling Americans who are already having trouble paying the bills, running up credit card debt, and drawing early from 401K plans just to get by. It's like the number 1 complaint people give about this economic time period.

 

[Montecfo]

I don't see that as an indicator they are changing the target but maybe waiving the white flag that they can't get it as low as it used to be.

This may be a distinction without a difference.

I am not sure they will change it but a lot goes into those Fed words. They are purposeful.

 

[timeforgolf]

It certainly appears the Fed has adjusted their target upwards a bit to be more realistic and to avoid a hard landing, but it also appears three rate cuts this year have become a very long shot.

 

[Qs Laptop]

It certainly appears the Fed has adjusted their target upwards a bit to be more realistic and to avoid a hard landing, but it also appears three rate cuts this year have become a very long shot.

"Three rates cuts are a very long shot"

?

Updated 4:51 PM CDT, March 20, 2024

WASHINGTON (AP) — Federal Reserve officials signaled Wednesday that they still expect to cut their key interest rate three times in 2024, fueling a rally on Wall Street, despite signs that inflation remained elevated at the start of the year.

https://apnews.com/article/federal-...t-rates-cuts-502ced8f228ee469f84fc6f2eeea6e3e

 

[Montecfo]

If PCE comes in warm this week we might see some mild upward pressure on rates.

We are certainly not in a normal environment with continuing 1.5T+ deficits. Or perhaps that's the new normal.

Point is it does not help the inflation picture.

 

[MichaelB]

PCE was released this morning. The Year-to-Year overall price index rose 2.5%, while the core PCE YTY came in at 2.8%. The Month-to-Month indicios came in at 0.3% increase. So, the longer term trend of reduced inflation continues, while a shorter term (3 months) seems to show the lower rate has plateaued at a rate a bit above the Fed target.

This is still a generally good report. No need for the Fed to raise rates, but also no call to reduce them.

 

[Montecfo]

PCE was released this morning. The Year-to-Year overall price index rose 2.5%, while the core PCE YTY came in at 2.8%. The Month-to-Month indicios came in at 0.3% increase. So, the longer term trend of reduced inflation continues, while a shorter term (3 months) seems to show the lower rate has plateaued at a rate a bit above the Fed target.

This is still a generally good report. No need for the Fed to raise rates, but also no call to reduce them.

I saw it the same. Yes they are not thinking raising rates, they are trying to figure out when to start cutting.

Unemployment has ticked up nationally. State unemployment data has been reported to show weakness outside of 5-6 states with California showing the highest unemployment in the land.

Employment is the key metric for the Fed at this point .

 

[Gumby]

I don't see any burning need for a rate cut. Back in the 90s, the economy was quite healthy and the market was booming with a Fed Funds rate almost exactly the same as it is today. They didn't lower until the dot bomb crash in 2000.

https://www.statista.com/statistics/187616/effective-rate-of-us-federal-funds-monthly/

 

[Closet_Gamer]

I'm definitely in the camp of hoping they hold rates steady until some real metric forces their hand. And if they said no cuts this year and the market gave back 10%, that would be no fun but not catastrophic either. I think the current rally is way overdone.

If they did some Fed magic where they lowered the official rate but continued with QT as a way to manage real world rates to roughly where they are today, that might even be better as it would hoover up some of the cash sloshing around in the system and help get their balance sheet back under control.

 

[ShokWaveRider]

I hope interest rates stay good till at least next month. We have a mondo CD maturing and I need to be able to re-invest it. Not being selfish at all!

 

[explanade]

Oil prices are up and gasoline prices have gone up quite a bit in the last month or two.

OTOH, unemployment has ticked up yet consumer confidence is the highest in 2.5 years.

Very mixed picture.

 

[Car-Guy]

I hope interest rates stay good till at least next month. We have a mondo CD maturing and I need to be able to re-invest it. Not being selfish at all!

I find myself wishing the same thing almost every month now. Got to keep that ladder built. Just had another one mature this week and did a re-buy the very next day. I have nothing maturing in April but two coming up in early May. So, I'll hope rates hold at least until then.

 

[Chuckanut]

Oil prices are up and gasoline prices have gone up quite a bit in the last month or two.

OTOH, unemployment has ticked up yet consumer confidence is the highest in 2.5 years.

Very mixed picture.

Late credit card payments are also going up.

 

[CaptTom]

Oil prices are up and gasoline prices have gone up quite a bit in the last month or two.

OTOH, unemployment has ticked up yet consumer confidence is the highest in 2.5 years.

Very mixed picture.

Gasoline prices aren't a good indicator. Too volatile. Without actually running the numbers, it seems to me they've risen less than the overall actual inflation rate over the past few years. Obviously you can cherry-pick any time frame and dispute this, but I suspect most consumers "feel" this is the case.

Unemployment is another odd indicator lately. There is some "natural" level of unemployment. What that number "should" be can be argued, but with so many businesses struggling to find staff, it's possible that a bit of an uptick there is actually a good thing. Again, this is more just my perception than the result of actual research.