Current Inflation Index Reports and Fed Policy/Actions

[Flieger]

True, but one still needs a target to shoot for, so, why not?

True. I am assuming that's why there are other factors considered for rate cuts/hikes. But with a potentially "arbitrary" target, maybe the other factors, if more researched or determined, should have the higher influence.

Flieger

 

[Onda]

True, 2% is not a sacred number, but the Fed prefers it because it is high enough to reduce the risk of deflation and give monetary policy room to cut rates in downturns, while still low enough that inflation expectations usually remain anchored and people continue to trust long-term price stability.

 

[dickoncapecod]

Well, I'll leave that tempest in its teapot and simply reiterate the question I think Fed should consuder: how much economic pain is crushing the last 0.6% above "target" worth?

 

[mrfeh]

Well, I'll leave that tempest in its teapot and simply reiterate the question I think Fed should consuder: how much economic pain is crushing the last 0.6% above "target" worth?

Do you honestly think they aren't considering this?

They have 2 mandates, and they are no longer in a position where one is so solid they can focus on the other.

 

[MichaelB]

The Fed has always had smart people criticizing their policy stance, and I consider this to be the best measure of their position. When smart folk stop criticizing the Fed policy I’ll start to worry. Not the case now.

 

[Chuckanut]

Well, I'll leave that tempest in its teapot and simply reiterate the question I think Fed should consuder: how much economic pain is crushing the last 0.6% above "target" worth?

How much economic pain will the extra 0.6% cause?

I think it’s the trend more than the number. Whether it’s inflation or taxes, if people see a trend in the wrong direction, they take steps to protect themselves.

 

[DEC-1982]

The problem is that inflation has been over the Fed target rate for many consecutive years. Plus, the trend is in the wrong direction. Arguably, the trend is again "transitory".

 

[Flieger]

How much economic pain will the extra 0.6% cause?

I think it’s the trend more than the number. Whether it’s inflation or taxes, if people see a trend in the wrong direction, they take steps to protect themselves.

I could be wrong, but it seems to me the inflation number is not "linear". The lower it gets, the more effort (pain?) it takes to get the next 0.1% improvement.

Flieger

 

[MichaelB]

I could be wrong, but it seems to me the inflation number is not "linear". The lower it gets, the more effort (pain?) it takes to get the next 0.1% improvement.

Flieger

It’s definitely not linear, but the difficulty is not a function of proximity, it depends on “environmental conditions”.

I’d say what makes it easier or more difficult are things like deficit spending and employment trends.

 

[Chuckanut]

I could be wrong, but it seems to me the inflation number is not "linear". The lower it gets, the more effort (pain?) it takes to get the next 0.1% improvement.

Flieger

The law of diminishing returns strikes again.

 

[audreyh1]

Not surprisingly, the YOY CPI jumped to 3.3% in March due to a 10.9% increase in energy prices in March, however the core CPI just moved up 0.1% returning to 2.6%.

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

 

[braumeister]

CPI-W (which is the one that matters for Soc Sec and other COLAs) jumped up quite a bit in March.

 

[Montecfo]

The subdued core CPI is in a sense the big news. But if fuel costs stay elevated this will not last.

 

[Onda]

The University of Michigan’s preliminary April 2026 consumer-sentiment index fell to 47.6, the lowest reading in the survey’s history, while year-ahead inflation expectations jumped to 4.8%, a combination that points to trouble because households that feel this pessimistic and expect higher prices often cut spending and become harder for the Fed to stabilize.

That is a bad signal for growth and inflation at the same time.

 

[MichaelB]

<mod note> The current Middle East conflict is a divisive topic, so the moderator team kindly requests members refrain from discussing it.

Some posts were removed,

 

[Chuckanut]

If people are spending more on gasoline, then it stands to reason that they have less money for other things. Reduced demand means lower prices for those items. At some point this works itself out.

 

[Montecfo]

Yes. I think the fuel price spike, if it endures, makes Fed rate cuts more likely.

 

[MichaelB]

Yes. I think the fuel price spike, if it endures, makes Fed rate cuts more likely.

If the price of petroleum and especially fuel remain at this level the Fed funds rate will be the least of our concerns. It has to be affecting the growth rate and outlook.

 

[ShokWaveRider]

It is unfortunate, as in the USA we have enjoyed reasonable, some would say cheap petrol costs. In the UK, Canada and the EU prices have always been a lot more. Admittedly their gallon is a little bigger or simply priced in liters, so it does depend how one calculates it. Thus we are not used to the current prices. The tragedy is that when petrol prices go over $4 per US gallon in the US, some folks cannot afford to put petrol in their cars simply to go to work. I paid $50 to fill my car up yesterday, and that was at Costco that is $0.40c a gallon cheaper than local petrol stations.

 

[Onda]

Yes. I think the fuel price spike, if it endures, makes Fed rate cuts more likely.

Not necessarily at first. A long lasting fuel spike creates what is often called a stagflation scenario — slower growth combined with higher inflation — which usually makes the Fed more cautious rather than quicker to cut rates.

The 1970s are the classic example of a stagflation scenario caused by it.

 

[MichaelB]

Not necessarily at first. A long lasting fuel spike creates what is often called a stagflation scenario — slower growth combined with higher inflation — which usually makes the Fed more cautious rather than quicker to cut rates.

The 1970s are the classic example of a stagflation scenario caused by it.

There is virtually nothing in common between the 1970’s / 1980’s and today’s economic situation, and there is also no sign at all that stagflation is or should be a serious concern for us.

 

[Montecfo]

Not necessarily at first. A long lasting fuel spike creates what is often called a stagflation scenario — slower growth combined with higher inflation — which usually makes the Fed more cautious rather than quicker to cut rates.

The 1970s are the classic example of a stagflation scenario caused by it.

My point was higher fuel prices slow the economy. The economy was slow before the fuel spike. This makes the next Fed move likely to be stimulative.

We are a very long way from anything like the 70's. Inflation even post the spike is quite modest by comparison to the 70's. The decade started with inflation at more than twice the rate we are experiencing, and rose dramatically from there.

 

[Montecfo]

If the price of petroleum and especially fuel remain at this level the Fed funds rate will be the least of our concerns. It has to be affecting the growth rate and outlook.

Yes and that is why the Fed is likely to cut.

 

[Onda]

There is virtually nothing in common between the 1970’s / 1980’s and today’s economic situation, and there is also no sign at all that stagflation is or should be a serious concern for us.

Saying there is nothing in common goes too far. We are again seeing an external energy shock, rising inflation expectations, weaker consumer confidence, and slower-growth concerns — not full 1970s stagflation, but clearly some of the same ingredients. The difference is that inflation and unemployment are still far lower today, so it is a risk to watch rather than the base case.

We should know more fairly quickly, because in situations like this the economy usually shows its direction early.

 

[Onda]

There is virtually nothing in common between the 1970’s / 1980’s and today’s economic situation, and there is also no sign at all that stagflation is or should be a serious concern for us.

I had mentioned stagflation already in early 2025, to which you replied at the time. I think we are significantly closer to it today and still heading in a direction that deserves attention.