Inflation Isn’t Going Down

PPI came in 0.5% higher in September than in August, and 2.2% higher than last September, BLS reported yesterday. CPI was reported this morning up 0.4% from last month and 3.7% over last year.

Annualizing a monthly figure is always a dicey proposition since it amplifies any noise in the signal. But it also by far yields the most timely reading compared to year over year data which show the aggregate change over the past twelve months, effectively telling you what the rate was six months ago. With that in mind, the annualized monthly PPI was 6.2% and the CPI 4.9%.

The financial media have lost their collective minds obsessing over yesterday’s Fed minutes release. The new monetary policy narrative is that the policy issue has changed from how high Fed funds will go to how long it will remain at that level. Speculation as to the former was already ridiculous … even the FOMC members themselves don’t know. The best they can do is tell us what their concerns are. The latter is a veritable venture into the absurd, making a mockery of any notion of data dependence. Nothing could happen between now and that magic date experts have pencilled in that could affect policy.

What would actually prompt the Fed to cut its rate target? Inflation data moving into the target range is one possibility. But since the premise the Fed will be data dependent has already been dispensed with, that avenue is moot.

Another is some kind of “financial accident”. A hedge fund blows up, banks go bankrupt, the stock market crashes, etc. The clairvoyant FOMC members know when this will happen but are keeping their thoughts a secret, only to be divined by talking head geniuses.

Not to mention that the only relevant policy variable is the Fed’s announced rate target. The balance sheet is irrelevant. To say the least, not proved.

The Fed may want us to think so anyway. But what happened to the days of real journalism when the press regarded questioning leadership as its duty?

Meanwhile investors have at their disposal a rich source of data that’s actually relevant. The Treasury yield curve. The thirty trillion dollar treasury bond market is exceedingly efficient, incorporating everything knowable about the course of interest rates, not to mention tracking the actual real world borrowing rates of the world’s biggest borrower over every time frame from zero to thirty years. And serving as the benchmark for trillions more. But never mind … financial news anchors and commentators know better. All they need do is suss out that information about the future that Jay Powell and company have in their possession but are hiding from the media.



6 thoughts on “Inflation Isn’t Going Down

  1. jk says:

    when developed markets have had recessions their long term rates have declined. when emerging markets have had recessions their long term rates have risen. given the flood of upcoming supply, i wonder which will happen, and more immediately what will happen when the treasury releases its qra -quarterly refunding announcement – at the end of this month.

    1. Finster says:

      Funny you should mention that, JK. Only minutes ago a guest on Bloomberg (not exactly noted for fringe views) remarked that we’ve just seen a period of “third world” monetary policy. So whether the next act should better resemble the traditional “emerging” or “developed” market process seems more than legitimate.

      I’ve begun to wonder if the old risk-on-off paradigm is obsolete. Maybe it helps explain the failure of stocks to sell off anywhere near proportionally to bonds. Is it possible that some element of a new paradigm is beginning to sneak in unremarked? That there may be a budding sliver of the market fleeing to the safety of stocks from the risk of bonds?

  2. jk says:

    I think the magnificent 7 are being treated as a safety trade. certainly any portfolio manager has to see them that way or face career risk.

    1. Finster says:

      In the context of the stock market, the Mag 7 are certainly treated as a safety play … the novelty would be if they were so regarded relative to bonds.

      Speak of the devil … so far today we’re finally getting the more traditional sharp move down in stocks with a sharp move up in bonds. Gold and silver (and oil) doing a moonshot. No idea whether it persists or is just correcting too much of the opposite. For now … likely more is still out there … somewhere …

  3. Finster says:

    September PCE came in 0.4% higher than August, and 3.4% than September 2022. The annualized monthly increase was 4.9%, indicating an acceleration in pace from the full year 3.4% average.