The Road to 2%: The Fed has a dual mandate of full employment and price stability. The benchmark for the latter is a CPI annual increase of 2%. If so, we have a ways to go before inflation returns to a level where the Fed can seriously consider reducing short rates, or the market is ready to ease long ones.
This week’s inflation numbers remain stubbornly high with a CPI at 3%. There are other measures as well to which the Fed pays as much or more attention in assessing the state of inflation in addition to the CPI: Core CPI, (up 3.3%), Supercore CIP and the Producer price index. Mr. Wesbury will give you a guided tour of this metric menagerie in this recent blog post: January CPI. He warns that “Moving forward, we expect the Fed to remain on hold until inflation renews its long and winding march toward 2.0%, or the economy slows substantially.”
A Chaotic Week: The economic news this week was not the best. Inflation as measured by the CPI was up 3%. This was the fourth consecutive month of rise with no relief in sight. Inflation plus a labor market and both industrial production and retail sales still moving up will do little to motivate the Fed to reduce short rates and there seems to be little to bring down longer term rates like mortgages. The next trend will be one of rise according to ITR Economics’ Brian Beaulieu who suggests that the Trump administration’s tariffs aren’t likely to bring prices down either. In this week’s Fed Watch, Mr. Beaulieu unpacks the data from a chaotic week.
