Current Inflation Index Reports and Fed Policy/Actions

[audreyh1]

Today’s PCE Report

The annual number has been the same for several months but apparently the markets did not take it well. The month to month change in personal expenditures at 0.4 was higher than expected. Personal Income and Outlays, February 2025 | U.S. Bureau of Economic Analysis (BEA)

Warning: Pease don’t discuss tariffs in this thread. That’s how the last, excellent long-running inflation discussion thread was closed.

 

[Koolau]

Thanks for sharing.

I've often said that my personal inflation rate always seems much higher than the official but I'm certain part of that is associated with where I live. I'll peruse the report at my leisure.

 

[audreyh1]

The PCE report is the inflation report that the Fed follows most closely.

 

[Chuckanut]

Why is it stuck at 2.5%? For me that’s the question. I don’t know. I can speculate that the the massive deficit spending is the prime suspect. Last month we reached one trillion dollars in deficit spending for the fiscal year. That is a record time.

 

[Teacher Terry]

My personal inflation rate is much higher. Our insurance for our condo buildings doubled so hoa fees are going up for the second year at 15%. Even though I live in Nevada it’s because of the fires. My private condo insurance went up 30%.

I recently rescued a small dog whose owner died. She’s black, older and needs a 2.5k dental so her prospects weren’t good for a home. One of my 2 dogs is dying from heart failure so I figured she would be a good fit for my other dog who can’t be left alone without screaming and repeatedly throwing his 5lb body against the front door.

All 3 need special food for stomach issues so that costs me 200/month even though all together they only weigh 23 pounds. Amy is on 2 medications that cost 100/month plus grooming every 8 weeks for 150. Good thing I adore the little buggers.

 

[SnowballCamper]

Inflation is excess money supply, triggered this time by the Covid stimulus, which has yet to work its way out of the system e.g. get recaptured by government interest rates. The Fed is trying to thread the needle, not raising interest rates too high or for too long, and so erring on the side of longer running inflation. I think that's a prudent strategy...the alternative is to err on higher unemployment. The combined Treasury Department goal of reducing the 10year yield means (to me) that the fed will not end up cutting the overnight rate this year. The stock market will not like this, and we'll see another drop, and I'll rebalance to a slightly higher stock allocation in hopes that we don't get stagflation that runs too long.

 

[Koolau]

Inflation is excess money supply, triggered this time by the Covid stimulus, which has yet to work its way out of the system e.g. get recaptured by government interest rates. The Fed is trying to thread the needle, not raising interest rates too high or for too long, and so erring on the side of longer running inflation. I think that's a prudent strategy...the alternative is to err on higher unemployment. The combined Treasury Department goal of reducing the 10year yield means (to me) that the fed will not end up cutting the overnight rate this year. The stock market will not like this, and we'll see another drop, and I'll rebalance to a slightly higher stock allocation in hopes that we don't get stagflation that runs too long.

This all sounds very familiar. Especially the fires. We're paying for Maui and a fire that happened in a condo building made of wood (not concrete like ours) which had interior halls where people left their doors open for ventilation. It was a fire/nado waiting to happen. When it did, it cost lives and now we pay.

 

[audreyh1]

Why is it stuck at 2.5%? For me that’s the question. I don’t know. I can speculate that the the massive deficit spending is the prime suspect. Last month we reached one trillion dollars in deficit spending for the fiscal year. That is a record time.

Honestly I don’t really expect it to drop much below 2.5%. 2009-2016 was a very unusual period in terms of global inflation.

 

[audreyh1]

Wow, nice lower inflation report for March 2025. 2.4% annual for March which is the lowest for the last 12 months and matches the low reading for September.

PDF link: https://www.bls.gov/news.release/pdf/cpi.pdf

 

[Trailwalker]

With an across-the-board minimum 10% tariff on all countries, this is the calm before the storm. The Fed is unlikely to cut anything until we see the impact.

 

[audreyh1]

With an across-the-board minimum 10% tariff on all countries, this is the calm before the storm. The Fed is unlikely to cut anything until we see the impact.

Who knows how it will all play out? I certainly will be watching to see what the Fed says and does.

P.S. There are already several other threads discussing tariffs in general.

 

[Fermion]

With 10 year tips 2.125% coupon selling for 2.22% (just bought some more yesterday), 2.5% inflation gives you a 4.72% yield, better than the regular 10 year. I also don't see inflation going below 2.5%.

 

[Closet_Gamer]

2.5% is so close to 2% that I don't see the Fed taking any action to address it. Its a pretty goldilocks situation from their side of the fence. All of the action is on the fiscal policy side of the government.

And I think Powell has made it pretty clear there is no "Fed Put" for the stock market.

 

[Koolau]

The Fed is unlikely to cut anything until we see the impact.

Who knows how it will all play out? I certainly will be watching to see what the Fed says and does.

2.5% is so close to 2% that I don't see the Fed taking any action to address it. Its a pretty goldilocks situation from their side of the fence. All of the action is on the fiscal policy side of the government.

And I think Powell has made it pretty clear there is no "Fed Put" for the stock market.

Yeah, with all the stuff going on fiscally, this simply would not be a great time for the Fed to stir the pot with a rate change. Wait for the dust to settle and see what's actually gonna happen - especially with the Big C before Chairman Powell steps in. Realistically, the Stock Market is not his department. We need some dry Fed powder in case the R word rears its ugly rear.

Everyone wish us all luck. It's getting complicated.

Old Chinese curse: May you live in interesting times. (Heh, heh, I think we're there).

 

[DEC-1982]

I expect many companies have been stocking up since November knowing tariffs were coming. It's hard to say how many months it will take for CPI to show the effect of the tariff situation.

 

[Koolau]

I hope we have some strategic stocks of critical minerals. Big C is now threatening an embargo.

 

[Closet_Gamer]

I hope we have some strategic stocks of critical minerals. Big C is now threatening an embargo.

The embargo is definitely their big leverage here. That or forming some type of new trade consortium with the Asian countries that are also reeling from the situation (though they can buy enough to replace the exports to the US).

We’re about to discover how expensive it will be to extract these minerals elsewhere. I suspect that like a lot of this situation, it’s not that overtime you can’t get these minerals elsewhere so much as you can’t do it quickly or as cheaply.

All of this still smells like inflation to me.

 

[YellowSubmarine]

I expect many companies have been stocking up since November knowing tariffs were coming. It's hard to say how many months it will take for CPI to show the effect of the tariff situation.

This tariff stuff will drag on for some time. Why are we eliminating products from overseas will ultra high tariffs/taxation when we do not have the infrastructure in place to fill the gap/void that was created.? The next three to six months will be interesting as supply dwindles and the back to school and holiday demand increases. This is classic price inflation.

 

[Koolau]

This tariff stuff will drag on for some time. Why are we eliminating products from overseas will ultra high tariffs/taxation when we do not have the infrastructure in place to fill the gap/void that was created.? The next three to six months will be interesting as supply dwindles and the back to school and holiday demand increases. This is classic price inflation.

Perhaps in the future we will be prepared for strategic materials shortages. I recall going through this during oil shock one and two. We decided then not to be dependent on adversaries for oil. We have been successful on that front - but not without some pain.

 

[Closet_Gamer]

This tariff stuff will drag on for some time. Why are we eliminating products from overseas will ultra high tariffs/taxation when we do not have the infrastructure in place to fill the gap/void that was created.? The next three to six months will be interesting as supply dwindles and the back to school and holiday demand increases. This is classic price inflation.

If one believes that reshoring major parts of the supply chain and manufacturing is a national imperative, then we do have to deal with financial incentives.

Otherwise, companies will do what they’re supposed to do … find the lowest cost way to deliver what people want. In the current system, that happens by sourcing all sorts of things in other countries that have lower costs. Whether that cost advantage is due to labor supply, safety regs, currency, national subsidies or lax pollution standards doesn’t really matter. Water flows downhill.

Changing incentives means doing one or both of two things:

1- Lowering domestic costs
2- Increasing foriegn costs

The last administration/Congress took the path of government subsidies, most notably the CHIPS act focused on integrated circuits, with the all the pros/cons of government intervention.

This administration has decided to go after increasing foriegn cost burdens and is saying they will lower domestic costs thru de-regulation and tax cuts. If they’re serious about the latter, they will do that thru capital gains relief and faster capex deductions for company investments.

One thing that I think is true is that there is not good approach here. If you do in the current “everything, everywhere, all at once” approach, we risk serious economic and geopolitical disruption. If you do it with massive, targeted subsidies we risk picking winners/losers and spending a boatload of money without moving the needle. If you try to do it slowly and incrementally, then special interests will chip away at the effort over time as they seem to improve short term profits.

This is, in a very serious and strategic way, a question of national policy.

 

[audreyh1]

Can we move the in depth tariff policy discussions to another thread?

 

[HFWR]

I hope we have some strategic stocks of critical minerals. Big C is now threatening an embargo.

There are large deposits of lithium in the US. Other minerals I’d have to do a deeper dive.

One development seems to be sodium-based batteries. Not quite as power dense as lithium, but no shortage of sodium.

Several youtube videos discussing extraction in general, forecasting what might happen if we continue on a growth forever path.

 

[Aerides]

Saw this chart today which makes it more clear to me that "oh 10% across the board" is really not it, and the 90 day pause, also, really, not, when weighted for imports by country.

 

[Closet_Gamer]

Saw this chart today which makes it more clear to me that "oh 10% across the board" is really not it, and the 90 day pause, also, really, not, when weighted for imports by country.
View attachment 55130

That’s a great chart. I think the * on Mexico and Canada would be that those tariffs only apply to items that aren’t covered by the existing trade agreement.

I wonder what % is covered?

 

[walkinwood]

Can we move the in depth tariff policy discussions to another thread?

You're fighting a losing battle. When do we ever have a straight line in our discussions?

I think the feds are right in the wait & see current attitude. Our trade policy seems to swing based on the whims of one man, so, in the background, they're probably getting contingency plans in place for various possible outcomes. My concern is that the man will tread on the feds (I know the fed is independent) & by the time the courts rectify the situation, a lot of damage will be done.

I'm reading that there is already a drop in demand for good (see Whirlpool announcement) and consumer sentiment is at a recent low, so maybe the lack of demand & possible rise in unemployment will offset the anticipated rise in prices to keep inflation somewhat in check. I try not to predict anything or rather, not to act on any of my predictions.