Waiting for Pivot - A tragicomedy in two acts
The dominant story in both bond and equity markets has been that the Fed will pivot, and soon. Investors expect a rapidly weakening economy to force the US central bank to do an about-turn, and cut rates barely months after hikes finish.
Core CPI (which excludes food and energy prices) over 6 months is running at an annualised pace of almost 7 per cent. But the 3-month rate is almost 8 per cent. And the 1-month number annualised is nearly 9 per cent.
That means core CPI is speeding up, not slowing down, and is in a very different zip code than the Fed’s 2-per-cent target.
Monetary policy does work with a long and variable lag.
Ajay Rajadhyaksha global chair of research Barclays
FT Alphaville 8 August 2022
https://www.ft.com/content/a1ff260f-3150-45b9-b760-720c5bd513cd
The condition for inflation accelerating or decelerating is actually quite simple.
Each month the year-over-year inflation rate consists of a string of 12 month-to-month inflation changes. Each month, 11 of those values are the same as the month before. The oldest of the 12 months drops off and a new month adds on.
The sole determinant of whether inflation accelerates year-over-year is whether the current July increase is greater or less than it was a year earlier.
Robert Brusca MarketWatch 9 August 2022
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