The one certainty from Mr Powell’s Jackson Hole speech a couple days ago is this: The Fed remains firmly committed to its 2% inflation target. Corollary: all policy decisions will stem from that.
I’ve put together a chart comparing headline, core and employment cost inflation - see below. My interpretation of the data is this: headline inflation may have come down sharply due to an outsize drop in energy prices, but core and employment cost inflation are still more than double the Fed’s target.
Those expecting a quick reversal of high interest rates and restrictive monetary conditions (QT) are going to be very disappointed - unless a severe recession hits. Either way, not ideal for debt and equity markets.
I get that energy prices are dragging down CPI in recent months. But - the current energy prices are still lower than those of a decade ago! It appears that energy prices may be sticky and do not track inflation over time.
ReplyDeleteYears ago I tried to "analyze" and predict oil/gas prices. It was - and still is - a futile activity, since it all comes down to Saudi princes and Russian dictators and their whims/needs. If we ever get ourselves weaned from fossil fuels it may become possible, but not before.
DeleteThe Fed should switch their target to 6% lol
ReplyDeleteAlexander the Great did it (Gordian Knot/sword), why not the Fed, too :) :) :)
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