How long can the Fed whistle past the "There is no inflation" graveyard before raising rates?

David Goldsmith

All Powerful Moderator
Staff member

David Goldsmith

All Powerful Moderator
Staff member

“Carefully,” Dude: Powell at the Press Conference​

by Wolf Richter • Sep 20, 2023 • 153 Comments

Our drunken sailors “hate inflation, hate it,” and are in a foul mood, but are in good shape and keep spending.

By Wolf Richter for WOLF STREET.​

I still have no idea why the Fed has not yet implemented my suggestion – made publicly multiple times in 2023, including here, here, here, here, here, and here – to equip Powell with a Taser that he keeps under the lectern during the post-meeting press conference, and when a reporter asks a stupid, repetitive, or hypothetical question, he pulls it out, aims, ZZZZZAPPP, and “Next question.” That would be immensely helpful and would cut the press conference from the current hour or so, down to 15 minutes.
The Fed today held the top of its policy rates at 5.50%, and the dot plot indicated that there will be one more hike in 2023, to 5.75% at the top, and in a shocker, it indicated that at the end of 2024, the rate would still be 5.25%, only two rate cuts in 2024, instead of four as projected in June. So that caused a slew of Taser-questions.

“Carefully,” dude.

The key word at the FOMC post-meeting press conference was “carefully.” Powell said it 12 times, and even said, “…proceed carefully, as I keep saying.” That was Powell’s theme today. The reporters had other ideas.
“We’re in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate,” he said in the prepared remarks to set the tone. And, “Given how far we have come, we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks.”

Rates have gone up a lot, and they’ll go up a little more, and once they stop going up, we’re not going to cut them for a while, inflation has come down a bunch from the peak last year but is still way too high, stuff is unpredictable, monthly data bounces up and down, and we’ll just have to wait, but we believe we’re on the right track, and we take our time with the rate hikes and “proceed carefully.”
For markets, the Fed isn’t proceeding carefully enough, though: Late afternoon, the 10-year Treasury yield spiked to 4.41%, in sort of a delayed reaction, and stocks fell broadly after the press conference, with the S&P 500 index down 0.9% and the Nasdaq Composite down 1.5%.

Upward drift of the dots continues.​

Today’s dot plot which was part of the Fed’s “Summary of Economic Projections” (SEP), continued the trend that was started in the fall of 2021 that each dot plot is more hawkish than the prior ones, each one projecting higher rates for even longer, and this upward drift of the dots has not been broken yet.
So in the press conference, one reporter after another, from this angle and from that angle, tried to push Powell into saying something dovish about the missing rate cuts, but to no avail. A Taser would have performed miracles. ZZZZZAPPP. “Next question.”

When are rates restrictive enough? “You know ‘sufficiently restrictive’ only when you see it.”

“Real interest rates now are well above mainstream estimates of the neutral policy rate, but we are mindful of the inherent uncertainties in precisely gaging the stance of policy.”
“We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective.”
“What we decided to do was maintain a policy rate and await further data. We want to see convincing evidence that we have reached the appropriate level, and we have seen progress, and we welcome that, but we need to see more progress before we will be willing to reach that conclusion.”
“Real interest rates are meaningfully positive, and that’s a good thing. We need policy to be restrictive so that we can get inflation down to target, and we are going to need that to be the case for some time.”
“That’s what we need to get to. And we have been moving toward it, and as we have gotten closer to it, we slowed the pace at which we’ve moved. I think that was appropriate. And now that we are getting closer, again, we have the ability to proceed carefully.”
“We understand that it’s a real rate (adjusted for inflation) that will matter, and that needs to be sufficiently restrictive. And, again, you know ‘sufficiently restrictive’ only when you see it. It’s not something you can arrive at with confidence in a model or in various estimates.”
“But let’s say if we get to that level, then the question is how long do you stay at that level, and that’s another set of questions.”
“For now the question is trying to find that level where we think, we can stay there. And we haven’t gotten to a point of confidence about that yet.”

The economy is surprisingly strong: so higher for longer.

“Economic activities have been stronger than we expected, stronger than I think everyone expected, so what you’re seeing is this [policy] is what people believe as of now will be appropriate in order to achieve what we are looking to achieve, which is progress toward our inflation goal as you see in the SEP.
“We have learned all through the course of the last year that actually we needed to go further than we had thought. You go back a year, and what we wrote down, it’s actually gotten higher and higher.” The upward drift of the dots.
“It’s a good thing that the economy is strong. It’s a good thing that the economy has been able to hold up under the tightening that we’ve done. It’s a good thing that the labor market is strong. The only concern, and it just means this, if the economy comes in stronger than expected, that just means we will have to do more in terms of monetary policy to get back to 2%, because we will get back to 2%.”

Why is the economy so strong, despite higher rates? We’re guessing.

“I guess it’s fair to say that the economy has been stronger than many expected given what’s been happening with interest rates. Why is that?”
“One explanation is that household balance sheets and business balance sheets have been stronger than we had understood, and so that spending has held up in that kind of thing. We are not sure about that. The savings rate for consumers has come down a lot. Questions whether that is sustainable. It could just mean that the data effect is later.”
“It could also be that the neutral rate of interest is higher for various reasons. We don’t know that. It can also be that policy hasn’t been restrictive enough for long enough.”
“There are many candidate explanations. We have to, in all of this uncertainty, make policy, and I feel like what we have right now is what’s still a very strong labor market, and there are many candidate explanations. We have to, in all of this uncertainty, make policy.

Where the heck is the neutral rate?

“Stronger economic activity means rates; we have to do more with rates, and that’s what the meeting is telling you. In terms of what the neutral rate can be, we know it by its works.
“It may, of course, be that the neutral rate has risen. You do see [participants] raising their estimates of the neutral rate. And it’s certainly plausible that the neutral rate is higher than the longer-run rate. Remember, what we write down in the SEP is the longer-run rate. It is certainly possible that the neutral rate at this moment is higher than that.”
“And [the possibility that the neutral rate moved higher] is part of the explanation for why the economy has been more resilient than expected.”

Soft landing, ZZZZZAPPP.

When asked if he would call “the soft landing now a baseline, an expectation,” Powell said, “No, I would not do that. I’ve always thought that the soft landing was a plausible outcome, that there was a path to a soft landing. I have thought that, and I’ve said that since we lifted off.”
“It’s also possible that if the path is narrowed, and it has widened apparently, ultimately this may be decided by factors that are outside of our control at the end of the day, but I do think it’s possible, and I also think this is why we are in a position to move carefully, again, that we will restore price stability.”
Then later, Bloomberg News asked, “I was surprised to hear you say that a soft landing is not a primary objective.”
Instead of pulling out his Taser for the nth time today, and ZZZZZAPPP, Powell replied, “To begin, a soft landing is a primary objective, and I did not say otherwise. I mean, that’s what we have been trying to achieve for all of this time.”

External factors: energy prices, strikes, student loan payments, you name it, we got it.

He was asked how list of external factors would impact the Fed and the economy.
“There is a long list, and you hit some of them. It’s the strike, it’s the government shutdown, resumption of student loan payments, higher long-term rates, oil price shock. There are a lot of things that you can look at, and so what we try to do is assess all of them and handicap all of them. Ultimately though, there is so much uncertainty around these things.”
“The strike, the thing about it is it’s so uncertain. We have looked back at history. It could affect economic output, hiring and inflation, but that’s going to depend on how broad it is, and how long it’s sustained for. And it also depends how quickly production can make up for lost production. None of those things are known now. It’s very, very hard to know. So you just have to leave that uncertain.”

If we don’t get inflation under control now…

“The worst thing we can do is to fail to restore price stability because the record is clear on that. If you don’t restore price stability, inflation comes back, and you can have a long period where the economy is just very uncertain, and it will affect growth, it will affect all kinds of things. It can be a miserable period to have inflation constantly coming back, and the Fed coming in and having to tighten again and again.”
“So the best thing we can do for everyone, we believe, is to restore price stability. I think today we have the ability to be careful at this point and move carefully. That’s what we are planning to do.”

The people who are “most hurt by inflation.”

“The people who are most hurt by inflation are the people who are on a fixed income. If you are a person who spends all of your income, you don’t really have any meaningful savings, you spend all of your income on the basics of life, clothing, food, transportation, heating, the basics, and prices go up by 5, 6, 7%, you are in trouble right away; whereas even middle-class people have some savings and some ability to absorb that.”
“It is for those people as much as anybody that we need to restore price stability. We want to do it as quickly as possible. Obviously, we would like the current trend to continue, which is that we are making progress without seeing the kind of increase in unemployment that we have seen in the past.”

The drunken sailors “hate inflation, hate it,” and are in a foul mood, but are in good shape and keep spending.

“It’s a very hot labor market, and you are seeing high nominal wages, and you are starting to see real wage growth [adjusted for inflation] is positive by most measures. So I think overall households are in good shape.”
“Surveys are a different thing. Surveys are showing dissatisfaction, and I think a lot of it is just people hate inflation, hate it. And that causes people to say the economy is terrible.”
“But at the same time they are spending money, and their behavior is not what you would expect from the surveys. That’s kind of a guess at what the answer would be, but I think there is a lot of good things happening on household balance sheets and certainly in the labor market and with wages. The biggest wage increases have gone to relatively low-wage jobs, and now with inflation coming down, you see real wage growth.”

David Goldsmith

All Powerful Moderator
Staff member

UBS CEO tells paper he's not convinced inflation is under control​

December 17, 20235:20 AM
VIENNA, Dec 17 (Reuters) - The chief executive of Swiss banking giant UBS (UBSG.S), Sergio Ermotti, is not convinced central banks have got inflation under control, he said in a newspaper interview published on Sunday.
Federal Reserve Chair Jerome Powell said last week that interest-rate increases were likely over in the United States and lower rates were coming into view but central banks have stuck to plans to keep policy tight well into next year.

Seven sources told Reuters the European Central Bank would need to see how inflation and other data pan out between now and, at the earliest, its March 7 meeting before considering the kind of "dovish" pivot the Fed performed.
"One thing I've learned is that one must not try to make predictions on the coming months - it's nearly impossible. That said, at this stage I am still not convinced that inflation is really under control," Ermotti told Swiss newspaper Le Matin Dimanche when asked about the economic outlook.
"The trend seems favourable but we must see if it continues. If inflation approaches the 2% targets in all major economies, central banks' policies could loosen a bit. In this environment, it is very important to remain agile," he added.
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UBS has said it will slash 3,000 jobs in Switzerland to cut costs following its takeover of Credit Suisse - the biggest bank merger since the global financial crisis, orchestrated by the Swiss state to avert Credit Suisse's collapse.
"We will do our best, based on a principle of meritocracy. Use retirements, early retirements, natural departures. Three thousand people at Credit Suisse did not commit errors, no doubt far fewer," Ermotti said.
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"In fact, the hardest part will be making these choices, firing people who are in no way responsible for what happened," he added.

David Goldsmith

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Fed Members Fan Out to Douse Raging Rate-Cut Fires​

by Wolf Richter • Dec 18, 2023 • 283 Comments

So far, vice chair Williams, Mester, Bostic twice already, and even Goolsbee who accused markets of wishful thinking.

By Wolf Richter for WOLF STREET.​

All heck re-broke loose in the markets last Wednesday after the Fed announced that it would keep its five interest rates steady, with the top at 5.5%, and with the “dot plot” in its Summary of Economic Projections (SEP) showing that 11 of the 19 participants expected three or more rate cuts in 2024 while 8 expected between zero and two cuts, which put the median therefore at three rate cuts in 2024. But trading in the options market implies six rate cuts in 2024 – double the median projections.
Alas, for most of 2022, the dot plot projected rate cuts in 2023; and then in the December 2022 dot plot, those rate cuts in 2023 vanished.
The Powell-was-dovish meme started in May 2022 and swamped the internet after every single FOMC meeting, no matter what Powell actually said. Markets have been betting on rate cuts ever since the Fed started hiking rates. And those Powel-was-dovish memes and rate-cut bets were followed up by subsequent rate hikes all the way to 5.5%, and markets have been wrong with their rate-cut bets in 2022 and 2023, and so that’s nothing new.
What’s new is the magnitude of the fires that ensued in the markets, and so Fed members fanned out to douse those fires, starting with Fed Vice Chair John Williams on Friday with his line, “We aren’t really talking about rate cuts right now.”

Today, it was the turn of Chicago Fed president Austan Goolsbee, who said in an interview on CNBC that he was “confused” about the markets’ interpretation of Powell’s remarks last Wednesday, that those interpretations were essentially wishful thinking.
When he was asked what the Fed did on Wednesday, what the change of policy was, he said: “We voted not to raise rates,” he said. “Policy change was, No Change. We kept rates where they were.”
“The data on inflation is the key thing that we missed in our mandate, and the key thing that should drive our decision making is on inflation,” he said. We have seen significant improvement on the inflation front, bringing us back closer it looks like to our target. And that’s reflected in the SEP dots.”
When he was asked if there was still a bias to hike after the word “any” was added to the statement (“In determining the extent of any additional policy firming…”), Goolsbee said:
“If we get improvement on inflation, that we’re clearly moving to target – and we’re still not there yet, we still need to see these markers – if we get inflation back into the range of our dual-mandate goals, then we’ve got more symmetric concerns, let’s call it, about both sides of the dual mandate,” he said.
When he was asked about what the market “heard” in reaction to the meeting, he said:
“It’s not what you say, or what the chair says. It’s what did they hear, and what did they want to hear. I was confused a bit; was the market just imputing, here’s what we want them to be saying? I thought there was some confusion how the FOMC even works. We don’t debate specific policies, speculatively, about the future. We vote on that meeting. And we voted at that meeting not to raise rates, we put out an SEP that forecast for next year that the individuals on the FOMC collectively thought conditions are going to be not a recession and inflation is going to be coming down, which would allow us to reduce the restrictiveness. And it’s hard for me to get into the head of where the market is. I think it’s best to remember the old Volcker lesson: our job is to act, and their job is to react.”
Also today, Cleveland Fed president Loretta Mester, a voting member of the FOMC in 2024, came out in an interview in the Financial Times to douse those rate-cut fires.
“The next phase is not when to reduce rates, even though that’s where the markets are at,” she said. “It’s about how long do we need monetary policy to remain restrictive in order to be assured that inflation is on that sustainable and timely path back to 2%.”
“The markets are a little bit ahead,” she added. “They jumped to the end part, which is ‘We’re going to normalize quickly’, and I don’t see that.”
On Friday, it was New York Fed president and Fed vice chair John Williams who, in an interview on CNBC, trampled all over those rate-cut fires:
“We aren’t really talking about rate cuts right now,” he said. “We’re very focused on the question in front of us, which as chair Powell said… is, have we gotten monetary policy to sufficiently restrictive stance in order to ensure the inflation comes back down to 2%? That’s the question in front of us.”
When he was asked about futures pricing for a rate cut in March, he said, “I just think it’s just premature to be even thinking about that.”
“It is looking like we are at or near that in terms of sufficiently restrictive, but things can change,” he said. “One thing we’ve learned even over the past year is that the data can move and in surprising ways, we need to be ready to move to tighten the policy further, if the progress of inflation were to stall or reverse.”
“We’re definitely seeing slowing in inflation. Monetary policy is working as intended,” Williams said. “We just got to make sure that … inflation is coming back to 2% on a sustained basis.” (We linked the CNBC YouTube video of the interview in the Wolf Street comments).

Also on Friday, Atlanta Fed president Raphael Bostic, a voting member of the FOMC in 2024, gave two interviews to step out those rate-cute fires, one with Reuters, and the other later in the day with Marketplace, which aired on NPR.
In the Reuters interview, Bostic said, that he sees two rate cuts in 2024, starting “sometime in the third quarter” if inflation continues to drop as expected.
“I’m not really feeling that this is an imminent thing,” he said, and policymakers still need “several months” to accumulate enough data and confidence that inflation will continue to fall before moving away from the current policy rates.”
He expects core PCE inflation to end 2024 at around 2.4%, which would be enough progress towards the Fed’s 2% target to justify two rate cuts in the second half of the year.
Bostic told Reuters that he will be cautious about cutting rates too soon. “We’ve been getting close to the neighborhood” in terms of the three-month and six-month core PCE readings, he said, but “I am going to try not to presuppose anything at this point,” he said. “We’ve been surprised throughout the pandemic on a number of fronts, some to the good and some to the bad.”
In the Marketplace interview, Bostic said: “I use the words patient, cautious and resolute. And this is the time when we’ve got to be resolute, and make sure that we don’t jump to conclusions and declare victory. Look, there’s still a ways to go.”
“And you know, headline inflation is a little above 3%, core is above 3%. And our target is 2%. So we need to really make sure that we’re well on our way. And when we do that, then I’ll be feeling a lot better. But I don’t feel like we’re there right now.”
And he affirmed what John Williams had said on CNBC earlier on Friday: “I’m actually where John is on this. I’ve been saying for a long time, we need to be willing and comfortable being higher for longer.”
“For me … the time when we would consider dropping rates is really still Quarter 3 of 2024. That’s in my outlook, that’s what I have in mind if inflation proceeds as I expect it will.”
“I’m not looking for anything or expecting anything imminent to happen. We’re just going to let the economy keep running and make sure that inflation is well on its way to 2%,” he said.
“But you know, financial markets were talking about us cutting last year [2022] or this year [2023], and that didn’t come to pass either. So we’re kind of in a push on this. And we’ll see sort of where things progress in the early part of 2024.”

David Goldsmith

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JPMorgan Chase CEO Jamie Dimon warns US economy heading towards ‘the cliff’ predicts debt ‘rebellion’​

By Breck Dumas, Fox Business
Published Jan. 27, 2024, 1:54 p.m. ET

JPMorgan Chase chairman and CEO Jamie Dimon says the U.S. is speeding toward a cliff as the nation’s runaway debt continues to mount, sounding the alarm that the situation needs to be tackled before it results in a crisis.
The chief executive of the nation’s largest bank issued the warning during a panel discussion at the Bipartisan Policy Center on Friday, when he was asked for his take on what it means for the economy if the federal government fails to address the issue.

. He noted that today, the debt-to-GDP ratio is above 100%, and said it is projected to reach 130% by 2035.
“And it’s a hockey stick,” Dimon said, describing how the debt growth would appear on a chart.
He said the U.S. has not reached the “hockey stick” surge yet, “but when it starts, markets around the world – by the way, because foreigners own $7 trillion of U.S. government debt – there will be a rebellion, and that is the worst possible way to do it.”

“It is a cliff, we see the cliff,” Dimon said. “It’s about 10 years out, we’re going 60 miles an hour [toward it].”

Dimon went on to agree with fellow panel member former House Speaker Paul Ryan, who called the snowballing debt “the most predictable crisis we’ve ever had.”

The outlook for the federal debt level is bleak, with economists increasingly sounding the alarm over the torrid pace of spending by Congress and the White House.
The latest findings from the Congressional Budget Office indicate that the national debt will nearly double in size over the next three decades. By the end of 2022, the national debt grew to about 97% of gross domestic product. Under current law, that figure is expected to skyrocket to 181% at the end of 2053 — a debt burden that will far exceed any previous level.

Dimon agreed with House Speaker Paul Ryan that the runaway debt is headed towards a “predictable” crisis.

David Goldsmith

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Fed holds interest rates steady and March cuts are unlikely

The cost of borrowing for mortgages and home equity lines of credit are the highest in more than a decade.

New York City real estate buyers who rely on financing are going to have to wait a little longer for interest rate cuts.

The Federal Reserve concluded its January meeting yesterday and left interest rates untouched, opting to maintain the federal funds target range at 5.25 to 5.5 percent.

In a statement, Fed officials touted progress taming inflation but note that it remains elevated. The statement did not mention interest rate cuts, which indicates cuts in March are unlikely.

The Federal Open Market Committee said, “The economic outlook is uncertain, and the committee remains highly attentive to inflation risks…The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

The current range for the federal funds rate means the cost of borrowing for mortgages and home equity lines of credit are the highest in more than a decade, according to Bankrate. But the improving picture for inflation means a pause for the fast-paced rate hikes seen last year.

Melissa Cohn, the regional vice president of William Raveis Mortgage, says Fed chair Jerome Powell is signaling that the central bank is proceeding cautiously.

“As expected, the Fed left rates unchanged at their first meeting of 2024. While the rate of inflation is dropping, Powell has made it clear that they remain vigilant and will not cut rates prematurely. There have been data points that remain stronger than the Fed would like to see,” Cohn says.

What does this mean for mortgage rates?
“Mortgage rates are likely to bounce around now as the direction of bond yields and mortgage rates remains data-driven,” she says. Cohn points to the ADP report, which revealed fewer new jobs than the market expected.

“All eyes will be on Friday’s jobs report for the direction of rates in February,” she adds.

David Goldsmith

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Corporate America’s Surprising Profits Help Propel Stock Rally​

(Bloomberg) -- With earnings season around two-thirds done, Corporate America is solidly beating expectations and Wall Street is ratcheting up its profit forecasts by the week.

The brightening backdrop for the biggest US companies is helping sustain the stock market’s strength to start the year, and it’s also a far better scenario than analysts envisioned even early last month. At the time, there were still questions around how companies and consumers were dealing with high interest rates.

As it turns out, some 80% of S&P 500 Index companies reporting results this earnings cycle have surprised to the upside, handily exceeding the 10-year average of 74%, according to Bloomberg Intelligence data through Friday afternoon. Energy, information technology and consumer staples are among the sectors leading the way.

Earnings Growing at Fastest Clip Since 2022 |

David Goldsmith

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US Inflation Tops Forecasts, Likely Delaying Any Fed Rate Cuts
- US consumer prices jumped at the start of the year, stalling recent disinflation progress and likely delaying any Federal Reserve interest-rate cuts.

The consumer price index rose by more than forecast across the board in January — on a monthly and annual basis — as did the core measures, which strip out food and energy costs. A key subset of services prices advanced by the most in nearly two years, and shelter costs heated up, government data showed Tuesday

But new weightings — which are effective as of the latest figures — will place a greater emphasis on services and less on goods, which economists say will slightly boost the outlook for the CPI this year.

Shelter prices, which is the largest category within services, advanced 0.6%, matching the steepest gain since early 2023. Economists see a sustained moderation in this area as key to bringing core inflation down to the Fed’s target.

What Bloomberg Economics Says...

“The January CPI report shows it won’t be a smooth road to get inflation back to 2%... Our base case is for the Fed to begin cutting rates in May — though if the troubling signs in this report persist, the risk of a later cut rises.”

— Anna Wong and Stuart Paul. To read the full note, click here

Excluding housing and energy, services prices climbed 0.8% from December, the most since April 2022, according to Bloomberg calculations of the measure known as supercore. While policymakers have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on the PCE index.

The PCE doesn’t put as much weight on shelter as the CPI does. That’s one reason why it’s trending much closer to the Fed’s 2% target.

Friday’s release of the producer price index will provide more clues, as several categories within that report feed directly into the PCE price calculation. The PCE figures will be released later this month.

Excluding housing and energy, services prices climbed 0.8% from December, the most since April 2022, according to Bloomberg calculations of the measure known as supercore. While policymakers have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on the PCE index.

The PCE doesn’t put as much weight on shelter as the CPI does. That’s one reason why it’s trending much closer to the Fed’s 2% target.

Friday’s release of the producer price index will provide more clues, as several categories within that report feed directly into the PCE price calculation. The PCE figures will be released later this month.

Unlike services, a sustained decline in the price of goods over most of the past year has been providing some relief to consumers. So-called core goods prices, which exclude food and energy commodities, fell by the most since July.

Recent comments from large consumer companies suggest price pressures will ease this year.

Coca-Cola Co. said Tuesday that it raised prices 9% in the fourth quarter, more than analysts expected. Much of the increase was driven by what Chief Executive Officer James Quincey called “hyperinflation” in certain regions of the world. He expects prices to moderate this year in most countries. In North America, lower-income shoppers are starting to push back on price hikes and are buying fewer of the company’s products.

Burger King owner Restaurant Brands International Inc. also said it expects “a pretty decent step back in the level of pricing across the industry.”

At the same time, cereal maker WK Kellogg Co. is betting that some Americans will continue to shell out for some higher-end products. The company recently launched several new premium brands. In an interview Tuesday, CEO Gary Pilnick said the premium cereal category is performing well because “it’s incredibly affordable” as far as meals go.

Fed officials will have access to multiple inflation reports — including one more CPI print — before their next policy meeting on March 19-20. Though Wall Street has been pushing for the central bank to start easing rates, policymakers have indicated they’re likely to stay on hold for a fifth straight meeting.

That’s in part due to the strength of the US jobs market. A separate report Tuesday showed real earnings advanced by the most since July on an annual basis, extending a months-long streak in which wage growth has modestly outpaced inflation.

David Goldsmith

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Economists Sound Alarm On Inflation's Stubborn Grip: 'No Chance Inflation Will Return To 2%' Without New Rate Hikes​

byPiero Cingari

February 13, 2024 11:33 AM | 3 min read

The January inflation report delivered an unsettling surprise to investors Tuesday, indicating that price pressures remain more tenacious than anticipated. Despite a slight decrease from December’s 3.4% figure to 3.1% year-on-year, inflation exceeded forecasts, challenging the Federal Reserve’s pathway to anticipated rate cuts.
Hotter-than-expected inflation figures were visible in the month-over-month changes, as well as in the underlying price index.

Overall inflation saw a monthly uptick of 0.3%, surpassing both its previous increase and the anticipated 0.2%. Excluding food and energy, core inflation maintained a yearly rate of 3.9%, failing to meet the forecasted reduction to 3.7%.
Economists, analysts and market observers analyzed the implications of the data, considering its potential impact on Federal Reserve policies and future market dynamics.

Bank Of America Adjusts Rate Cut Calls​

The January Consumer Price Index report reinforces the Federal Reserve’s concerns around sticky core services inflation due to a tight labor market, said Stephen Juneau, an economist at Bank of America.
The bank now views a March rate cut as highly unlikely and sees diminished prospects for a cut in May. Nonetheless, Juneau continues to anticipate rate cuts starting in June, hopeful that forthcoming CPI data will pivot the discussion back to disinflation — provided that January’s figures are seen as an outlier rather than a harbinger of a new trend.
Bank of America highlighted the dollar’s sharp reaction following the inflation report, with the USD appreciating across the board amid concurrent re-pricing of Fed expectations. On an index level, the DXY, as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP) has moved back to its highest level in three months, having now more than fully retraced the move lower on back of the dovish December FOMC meeting.

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Inflation Trends Signal No Relief Without More Fed Hikes: Schiff​

Economist Peter Schiff, known for his gold advocacy, made a striking statement Tuesday regarding the inflation data: “There’s no chance inflation will return to 2% without further rate hikes by the Fed.”
He views the situation as favorable for gold, suggesting it demonstrates the Fed’s inability to curb inflation with its current interest rate strategy. “The game is over,” Schiff said.
As I've been warning the Jan. #CPI data confirms that #inflation has bottomed and is now headed back up. The higher than expected .3% rise annualizes to 3.7%. The .4% jump in the core annualizes to 5%. Without additional rate hikes there is no chance inflation will return to 2%.
— Peter Schiff (@PeterSchiff) February 13, 2024