Latest Inflation Numbers and Discussion

[explanade]

Was listening to a podcast, apparently the Fed governors are periodically asked to predict the teminal feds fund rate in the future.

They plot all these different predictions and for now, the prediction is 5.1% by the end of 2023. That is, most of the predictions cluster around that figure.

Well we're at 4.25-4.5% I believe.

Does that mean they'd go up to around 5.1% and stop? That could be just two more tightenings.

Or they'd go up to say 5.5-6% and then maybe roll it back towards the end of next year to end up around 5.1%?

 

[NW-Bound]

Was listening to a podcast, apparently the Fed governors are periodically asked to predict the teminal feds fund rate in the future.

They plot all these different predictions and for now, the prediction is 5.1% by the end of 2023. That is, most of the predictions cluster around that figure.

Well we're at 4.25-4.5% I believe.

Does that mean they'd go up to around 5.1% and stop? That could be just two more tightenings.

Or they'd go up to say 5.5-6% and then maybe roll it back towards the end of next year to end up around 5.1%?

"It depends." That was the message I got, listening to Powell.

 

[JoeWras]

Dot plots.

It is their guess. Problem is, the market is rejecting the dot plot right now. So... We don't know.

IMHO, the Fed needs to do what they say they'll do at least through next summer to regain trust.

 

[Koolau]

Dot plots.

It is their guess. Problem is, the market is rejecting the dot plot right now. So... We don't know.

IMHO, the Fed needs to do what they say they'll do at least through next summer to regain trust.

Otherwise, it's just smoke and mirrors (like usual.)

 

[audreyh1]

December CPI Report released. https://www.bls.gov/news.release/cpi.nr0.htm

December CPI -0.1% from November seasonally adjusted.

Last 12 months dropped to 6.5% from 7.1% last month.

Inflation over the last 6 months has been very low.

 

[Montecfo]

It is a really good report, continuing the recent trend of very low inflation. The headline number declined by .1% month over month.

Yields on 2, 5 and 10 year treasuries all moved lower.

 

[Gumby]

...

Inflation over the last 6 months has been very low.

0.33% annual rate, to be precise.

 

[pb4uski]

0.33% annual rate, to be precise.

I guess that will make my decision on whether or not to buy more I bonds in 2023 easier.

 

[Montecfo]

0.33% annual rate, to be precise.

Yep.

Fed really needs to moderate the increases now.

 

[Gumby]

I guess that will make my decision on whether or not to buy more I bonds in 2023 easier.

Yes, indeed. If you look at the I-Bond thread, I calculated out the May 2023 rate if we stay on the current trajectory. It would be 0%, unless Treasury adds a fixed component.

 

[Freedom56]

With the stock market casino continuing with meme stocks surging again, the Fed will certainly continue to hike rates. The market has already priced in a 25 basis point hike at the next Fed meeting and that isn't likely to change. The prospects of a rate cut later this year that the market has priced, is becoming dim.

 

[Bigdawg]

With the stock market casino continuing with meme stocks surging again, the Fed will certainly continue to hike rates. The market has already priced in a 25 basis point hike at the next Fed meeting and that isn't likely to change. The prospects of a rate cut later this year that the market has priced, is becoming dim.

I'm hoping for a 25 basis point hike. But, wouldn't be surprised with a 50 basis point hike. Thinking 50 is overkill.

 

[Gumby]

With the stock market casino continuing with meme stocks surging again, the Fed will certainly continue to hike rates. The market has already priced in a 25 basis point hike at the next Fed meeting and that isn't likely to change. The prospects of a rate cut later this year that the market has priced, is becoming dim.

I've never understood it to be the case that surging meme stock prices cause inflation, which is what the Fed is trying to subdue. In my experience, the stock market usually does better when inflation is low and/or falling.

 

[frank]

I don't know where inflation is going down. I don't see any sign of lower prices in iowa. everybody thought the minimum wage should be 15. per hour, but with the current prices, that still is not a living wage even if both are working.

 

[Gumby]

Zero inflation does not mean prices are going down, it means they are no longer rising. You need deflation to see prices go down.

 

[Jeffman52]

If I understand correctly, its not the Stock Market the Fed is using as a way to determine if we are heading the right way to lowering inflation.



The things they are really looking at are labor participation rates, housing market strength, and nominal wages. As long as nominal wages continue to increase and labor participation rates continue to be 4% or lower, I expect the Fed to keep pushing interest rates up.

 

[Car-Guy]

I'm hoping for a 25 basis point hike. But, wouldn't be surprised with a 50 basis point hike. Thinking 50 is overkill.

I think that's correct based on the info we have at this point. I think we have a couple 1/4 point increases to go before they stop. Then the question, from my POV, is how long do they stay there... I guess it depends.

 

[Aerides]

The prospects of a rate cut later this year that the market has priced, is becoming dim.

If the market has priced in a cut this year, that is silly. Nothing I've heard or seen should have created that expectation. An easing of increases, possible a hold by EOY, at best.

A quarter or two of normal inflation should be a good marker to stop the increases and then decide where to go after that.

 

[Fermion]

I don't know where inflation is going down. I don't see any sign of lower prices in iowa. everybody thought the minimum wage should be 15. per hour, but with the current prices, that still is not a living wage even if both are working.

You can't live on $62,000 a year gross in Iowa? Iowa? Like all there is to do there is watch corn grow right?

 

[audreyh1]

Yep.

Fed really needs to moderate the increases now.

Next Fed meeting is Jan 31 to Feb 1.

 

[Chuckanut]

FWIW, current interest rates are in a very 'normal' area. The last decade or so of ulta-low interest rates where a aberration. Yields of 4-5% on savings, CDs etc. were far more normal for most of my time on this planet.

I can see a rather flat interest rate situation for quite a while.

 

[audreyh1]

If I understand correctly, its not the Stock Market the Fed is using as a way to determine if we are heading the right way to lowering inflation.



The things they are really looking at are labor participation rates, housing market strength, and nominal wages. As long as nominal wages continue to increase and labor participation rates continue to be 4% or lower, I expect the Fed to keep pushing interest rates up.

The Fed uses the PCE as their preferred indicator for inflation.

 

[ShokWaveRider]

Fed really needs to moderate the increases now.

That is exactly what they are/have been doing. 75b to 50bp last time, 25bp this time and perhaps 25bp next time.

 

[MichaelB]

Fed policy makers will need to see confirmation of lower inflation numbers reflected in wage data before considering a change in policy. Their preferred measure is the employment cost index, and the 4Q ‘22 number will be released Jan 31. 3Q ‘22 was pretty high, so a reduction is needed for the Fed to slow rate hikes.

In the meantime, the Atlanta Fed wage tracker shows wages are still growing >6%. Indeed.com has a similar wage tracker and shows similar numbers.

 

[Montecfo]

That is exactly what they are/have been doing. 75b to 50bp last time, 25bp this time and perhaps 25bp next time.

50 bp has never been considered moderate except in light of last year's unprecedented series of 75 bp increases.

But yes directionally this is correct. But you have to think about the fact that the increases for the last 6 months have not had time to trickle through the economy.

So at this point I am concerned they are overshooting, as is usually the case.