October inflation shows September interest rate cut was a mistake
October's inflation report could add to the growing body of evidence the Fed is claiming. cut interest rates prematurely In September.
At first glance, this report appears to be quite benign. of Consumer Price Index (CPI) rose 0.2%The Ministry of Labor announced on Wednesday. This is consistent with increases reported in July, August, and September. This isn't perfect. Ideally, we would like to see inflation still falling rather than stabilizing, but this does not seem to be a cause for alarm.
But if you look a little closer, you'll see that inflation has increased significantly. Before the revaluation, the index rose 0.24405%, up from 0.17987% in September. In other words, the inflation rate increased by 0.06 percentage points; It hit its highest price since April..
The graph below shows that this is a troubling trend toward higher inflation.
To put this into perspective, the results for October are Annualized inflation rate is approximately 3%It was also the highest since April. The annual three-month inflation rate, which many economists watch as an indicator of underlying pressure, rose from 2.1% to 2.5%. The 12-month inflation rate, which most people will read about in the financial press, rose from 2.4 percent to 2.6 percent.
The core inflation rate was 0.3% compared to the previous month. Before rounding, it actually decreased slightly from 0.31241 percent to 0.28017 percent. As a result, the monthly annual interest rate decreased from 3.8% to 3.4%. But some of the soft numbers from late spring and early summer are now out of the three-month window. 3-month annual rate rises to 3.6% From 3.1%.
The median CPI for the month calculated by the Cleveland Fed was 0.3%. It has remained at that level for the past four months and is above its level at the beginning of the year. This suggests that underlying inflation is actually falling, rather than falling further. Remains at a high level more in line with 3% inflation That's above the Fed's 2% target.
of Ability of median CPI to predict inflation It has been very strong throughout this cycle. Wall Street analysts could probably close the tab on the spreadsheet they use to calculate their inflation forecasts and predict that core inflation will be the median of the previous month.
Jason Furman pointed out that what we're seeing is: Signs that inflation never really went away. The dip from late spring to summer is, well, temporary.
But the F.R.B. committed to lower interest rates This means that you cannot move backwards without a shock. There will be another rate cut in December, and it is very likely that rates will be cut at every other meeting next year.
Pigeons are flying down all over Washington right now.
Is this enough? donald trump?The next president is likely to want the Fed to cut rates quickly next year, and may oppose it if the Fed chooses to do so. But he probably won't be too upset if the Fed signals its intention to continue lowering rates through the rest of the year. In fact, if the Fed stops in January, which we think is likely, it will likely stop in March, its first meeting since President Trump took office.
This is one of the reasons we think Concerns about a conflict between President Trump and Federal Reserve Chairman Jerome Powell are overblown (However, the market certainly doesn't seem to share this concern). The Fed is entering a rate cutting cycle just as President Trump is in the White House. This is a far cry from the situation in 2017, when Mr. Trump began his presidency at the same time as the rate hike cycle began. This time there are pigeons in the White House and Ecclesville.
And Trump should be careful what he wishes for. Soaring inflation crippled the Biden-Harris candidacy. a A return to inflation would be very detrimental to President Trump's plans. And it could derail support for tariffs, tax cuts and even deregulation. President Trump's policies will be promoted by price stability but undermined by inflation.
