3 ms·

Oil is down 20% from June, so it's likely we'll have somewhat tapered inflation next CPI. Current best estimate for FOMC meeting 6 weeks from now is a 50 bps ra

Oil is down 20% from June, so it's likely we'll have somewhat tapered inflation next CPI. Current best estimate for FOMC meeting 6 weeks from now is a 50 bps raise, and then two more 25 bps raise to end the year at 3.25%. Sounds reasonable to me.

lamontcg 4y ago
Over the course of 2 years from 2004 to 2006 the fed raised interest rates by 425bp which ultimately popped the housing bubble. In less than a year the Fed will have increased rates by 325bp in your scenario, and there's no indication by the Fed that they're going to slow down that much, and currently no indication that inflation will hit their 2% target rate. And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy (and you can't even see the last commodities boom when oil went to $100/bbl in the core-CPI readings from that time -- the rise in oil prices didn't cause the core CPI increase, so falling oil prices won't reverse it). And I think the markets are underestimating how much they'll hike rates to close out the year. If core CPI remains elevated even as oil comes off its highs then they could at least do 3 more 50bp hikes to close out the year.
- dragonwriter 4y ago
  > And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy Energy, as well as being a CPI component itself, is a key production input and has outsize effects on prices across the board (though that effect is smoothed compared to immediate energy costs); if energy costs have peaked (and not just seeing a downward fluctuation over the last month or so), then that itself is going to be a huge brake on core inflation.

3 ms·

Oil is down 20% from June, so it's likely we'll have somewhat tapered inflation next CPI. Current best estimate for FOMC meeting 6 weeks from now is a 50 bps ra

by throwaway_4ever 4y ago

lamontcg 4y ago
Over the course of 2 years from 2004 to 2006 the fed raised interest rates by 425bp which ultimately popped the housing bubble. In less than a year the Fed will have increased rates by 325bp in your scenario, and there's no indication by the Fed that they're going to slow down that much, and currently no indication that inflation will hit their 2% target rate. And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy (and you can't even see the last commodities boom when oil went to $100/bbl in the core-CPI readings from that time -- the rise in oil prices didn't cause the core CPI increase, so falling oil prices won't reverse it). And I think the markets are underestimating how much they'll hike rates to close out the year. If core CPI remains elevated even as oil comes off its highs then they could at least do 3 more 50bp hikes to close out the year.
- dragonwriter 4y ago
  > And they're more concerned with core CPI running around 6% than the price of food and energy, so oil coming off its highs doesn't actually mean that much to policy Energy, as well as being a CPI component itself, is a key production input and has outsize effects on prices across the board (though that effect is smoothed compared to immediate energy costs); if energy costs have peaked (and not just seeing a downward fluctuation over the last month or so), then that itself is going to be a huge brake on core inflation.