US Inflation No Relent From Fed

US Inflation came in at just 3% for the year. This is however to a large degree due to the higher base effect taking into account that huge surge of a year ago. Prices are still going higher, even from those surge levels.

There will be no backing away by the Fed at least at its next meeting.

US Headline Inflation

3% is the kind of number the Federal Reserve does want to see. There were serious concerns within the data however. The monthly inflation rate actually re-accelerated from 0.1% to 0.2%. Energy inflation fell massively, but electricity prices were 5.4% higher. 

US Core Inflation

The all important Core inflation rate did decline to 4.8%, but it remains only marginally off its peak and this is a red alert level for any central bank. Signalling the crisis is not yet resolved. Yesterday’s inflation numbers, though moving in the right direction, are not enough to convince the Fed the core rate is on its way back down in a sustainable fashion. Though core monthly inflation did fall to 0.2%.

There is a risk here, that as the adjustment to the new higher base of a year ago works its way through the data series, that overall inflation could still stabilise at too high a level for the Fed’s comfort.

Core inflation at 4.8% is in fact still a truly alarming level. The Fed will see no reason at all to relent from its tightening bias on the back of this data. ‘More work may well need to be done.’ This is likely to be the prevailing internal mantra at the Fed for the time being.

If we get another good result in the next round of data, then, finally, we may be at or very near to the terminal rate for the current hiking cycle. This has however been an historic re-pricing of interest by the Fed and other central banks. One, it must be stressed, which is not going away any time soon.

It is critical to understand that even when the Fed stops hiking, we have at least one more hike to come, there is no magical turnaround to a new phase of rate cuts. These are the new interest rate levels everyone must learn to live with. Permanently. They are here to stay.

At the same time, the continuing burden of higher prices will continue to grind the US consumer and businesses alike. There is neither any relief from the new higher prices permeating and circling through the economy constantly. They are here to stay too.

US Mortgage Rates

The combination of permanently higher rates, the US mortgage rate just shot to a new high above 7%, and very high living expenses, place the US consumer in a permanent pressure cooker from which the economy will find little escape.

We were respecting the immediate upward momentum in stocks for the time being. Again, though, equities are to a large degree still rallying on false hopes of rate cuts eventuating. Making the market eventually vulnerable to correction.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

All commentary is on the record and may be quoted without further permission required from ACY Securities or Clifford Bennett.

This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.