AFMC - The U.S. Economy In Peril: Part 2 - Inflation

2024-04-13 08:52:52 ET

Summary

• Inflation concerns and hotter-than-expected inflation data are reducing the outlook for rate cuts by the Fed.
• Wages remain high, adding to inflationary pressures and potentially hurting small businesses.
• The US EV policy and the new electric truck mandate will cost billions and contribute to higher prices for everything.
• Given all of the data, it's obvious that the Fed funds rate is not too restrictive.
• Obstacles are everywhere. The Fed has no control over spending on "illegal migration", "green energy," policy mandates regarding energy, and loan forgiveness. All contribute to inflation.

“The road to Easy Street goes through the sewer.” – John Madden

Interest rate concerns were already in focus as the equity markets digested what Powell and other Fed officials were saying—that they were walking back the dovish 3-cut outlook that was initially a 6-cut one. With the latest hot inflation report, it won't take long before the Fed starts reducing the outlook for rate cuts again.

One report isn't a trend, but three reports in a row can be considered the start of one. The latest CPI report makes it three in a row with hotter-than-expected inflation data. Short-term interest rates rose, and the Fed funds futures were hammered on the CPI data, repricing for fewer rate cuts this year and a later start date.

The Fed has long warned that inflation cooling will not be linear, and today's report reflected the stubbornness of price pressures. While energy and housing contributed over half of the strength, modest gains in many other components suggested a broadening. Indeed, Powell's "supercore" rate, which also excludes housing, rose 0.65% on the month, after gains of 0.47% in February and 0.85% in January, according to Bloomberg....

For further details see: