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I don't think anyone is surprised by this. CPI at 7.1% is better than expectations and trending downwards but it's still way above target. That being said, rate
by tootie 4y ago
I don't think anyone is surprised by this. CPI at 7.1% is better than expectations and trending downwards but it's still way above target. That being said, rates have been near zero for so long, I don't see how they would need to raise rates to any astronomical level. Powell has been pretty clear on where he expects rates to land by end of 2023 and that's in the 5-6% range. So more raises are baked in, but the pace and intensity will continue reacting to CPI unemployment reports. Mind you that GDP is not part of the calculation.
I'm also calling shenanigans across the board on the notion that "Fed will cause a recession" because it's become a pretty meaningless distinction. The definition of a recession is essentially arbitrary but typically tied to GDP which is not part of the Fed's mandate. If you want to talk pragmatism, inflation is hurting consumers while employment is still overheated. GDP contraction may as well be a rainstorm in the middle of the ocean. Looks bad, but really who cares? Inflation is hurting us now. The labor marker has barely released pent up tension let alone started to slacken. Of course they'll keep raising and everyone aside from equity investors will be better off for it.
- vkou 4y ago> Looks bad, but really who cares? People who will lose their jobs to the recession will care quite a bit. For most people, it's better to be employed in an inflationary environment, than unemployed and broke in a recession.
- tootie 4y agoI think you missed my point. The Fed will definitely react unemployment. That's their mandate. I'm specifically saying they won't react to GDP which is what defines a recession. Unemployment hurts. Inflation hurts. GDP is just a number. That's why the Fed has to balance inflation and employment. The current situation is that employment is very, very strong and even a substantial slowdown probably won't raise unemployment to unmanageable levels.
- dragonwriter 4y ago> I don't think anyone is surprised by this. CPI at 7.1% is better than expectations and trending downwards but it's still way above target. If actual monthly CPI inflation had been 0 since July, the 12-month trailing number would still be high because its a 12-month trailing number; OTOH, PCE inflation is not nearly as low, even looking at the monthly numbers (not really high, except in the 12 month trailing, but not low and still noisy), so, given the Fed's preference for PCE, its easy to see why they still see the need for monetary brakes, looking at current, not jusy 12-month trailing, inflation.