Rate of CPI change is declining on a MoM basis due to one time fiscal headwinds/supply normalization. The demand side has not been addressed at all, with nominal GDP growth close to 10% YoY and the tightest labor market in history along very high wage growth numbers.
If the Fed doesn’t raise unemployment before loosening policy, CPI will rebound due to the level of labor market tightness and wage growth.
It’s possible the Fed will use declining headline CPI to justify pivoting prior to rise in unemployment, but this will almost certainly turn out to be a mistake and require even higher rates a year or two out.
If the Fed pivots before actually triggering a solid softening in the economy, all assets will rally and labor market will retighten.
They made exactly this mistake many times in the 70s and 80s. The only way out at this point is to keep policy tight until a recession event kicks off
Rate of CPI change is declining on a MoM basis due to one time fiscal headwinds/supply normalization. The demand side has not been addressed at all, with nominal GDP growth close to 10% YoY and the tightest labor market in history along very high wage growth numbers.
If the Fed doesn’t raise unemployment before loosening policy, CPI will rebound due to the level of labor market tightness and wage growth.
It’s possible the Fed will use declining headline CPI to justify pivoting prior to rise in unemployment, but this will almost certainly turn out to be a mistake and require even higher rates a year or two out.
If the Fed pivots before actually triggering a solid softening in the economy, all assets will rally and labor market will retighten.
They made exactly this mistake many times in the 70s and 80s. The only way out at this point is to keep policy tight until a recession event kicks off