Markets got excited on news of the softer-than-expected CPI headline print today. Headline inflation came in at 3.2% YoY vs expectations of 3.3%. However, what deserves closer scrutiny is not the headline number – it’s Core CPI at 4.7% YoY and shelter costs. For e.g., two-thirds of the monthly inflation increase came from shelter – where rents rose 0.4% MoM. This is now the 18th straight month the price of shelter has risen at least 0.4% MoM. But here’s the thing – there isn’t. much the Fed can do with monetary policy to change this.
Fed Reserve
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Fed: Don’t Expect Rate Cuts
If nothing else, I took one thing away from this week’s Fed decision: don’t expect rate cuts anytime soon. The market had priced in a 25 bps rate increase – with the Fed flagging it well in advance. And the Fed didn’t disappoint. But what they were hoping for was more of “dovish hike” It wasn’t coming… Powell is keeping things tight-lip. And he has good reason to… he (like the market) simply doesn’t know what lies ahead. And whilst things appear to be trending in the right direction – it’s far too premature to call a victory over unwanted inflation
What Banking Crisis?
Are things actually looking up? If your measure is the equity market… you would say absolutely. Stocks continue to charge higher on the back of lower inflation and optimism the Fed is closer to the end of its hiking cycle. What’s not to like? However, there’s something else giving markets a boost. Easy money! Financial conditions are as easy as they’ve been all year. For example, it was only 4 months ago and we had a mini banking crisis… where funding was a lot tighter. That’s now a distant memory.