Pro Perspectives 9/28/23






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September 28, 2023

We get the Fed’s favored inflation gauge tomorrow.

As you can see in the chart below, it has been moving the right direction, but well shy of the Fed’s target of 2%.

The expectation for tomorrow’s numbers (for the month of August), is 3.9% on this year-over-year number.  On the monthly number, which Jerome Powell referenced in his recent Fed meeting, it’s expected to come in at 0.2%.  

If the year-over-year number does indeed come in below 4%, it will be the lowest since inflation peaked in February of last year (the month before the Fed started the tightening cycle).  

If the monthly change comes in at 0.2%, that would be three consecutive months at that low level, which if annualized the Fed is looking at inflation running less than 2.5%.

This is in line with the cpi data we talked about earlier in the month.

Remember, we looked at this chart …

If both core and headline inflation were to grow at around the average of the past three months (monthly rate of change), the paths would cross by the end of the year, and the core (what the Fed cares most about) would be in the mid-2s by the mid-2024, which happens to be when the market has been expecting rate cuts

Of course, the Fed tried to disabuse the market of that expectation in the communications from their September 20 meeting, by removing two rate cuts from their projections for 2024.

They want us thinking “higher rates for longer,” which is intended to suppress demand (despite the sustained disinflationary trend, driven by a crash in money supply growth).

Just like they wanted us thinking inflation was “transitory” back in 2021, which we can only assume was intended to keep the consumption fire burning (in the face of a textbook inflation boom, driven by the explosion in money supply growth).

Are they just prone to mistakes, or are they purposely managing to an outcome?

Let’s hope they aren’t manipulating toward a return of the post-GFC era of sluggish growth and ultra-low inflation, with the threat of deflation.

That would leave us with trillions-of-dollars of fiscal bullets fired, with no growth to show for it (a massive increase in debt, with no growth offset).

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