From/via ZeroHedge, July 11:
Wall Street Reacts To Today's Dovish CPI Shock: "It's Time To Cut"
In retrospect, what is happening was obvious to anyone with half a brain. Back in April, when CPI prints were still coming in hot, we said that it is only a matter of time before CPI starts missing month after month driven by the badly lagging Owner's Equivalent Rent, which would proceed to tumble for the "next 18 months, and since shelter is 36% of the CPI basket, inflation will soon appear low (even though real rents are rising again... so Fed is two cycles behind now)"
this is what the Fed is betting on: OER will keep dropping for the next 18 months due to the huge lag to current rents, and since shelter is 36% of the CPI basket, inflation will soon appear low (even though real rents are rising again... so Fed is two cycles behind now) pic.twitter.com/x9zBi1dvCd
— zerohedge (@zerohedge) April 5, 2024***According to UBS, this is a notable help for the FOMC in their quest to move inflation sustainably back to 2 percent. The Swiss bank agrees with what we have been saying for months, namely that "OER rose 43 and 42 bps in the preceding two months and had seen a notable stalling out of progress in slowing since last year. It is also a component where Chair Powell noted he expected slowing as far back as his 2022 Brookings speech where he outlined the buckets of inflation." The bank also noted that "if OER was going to remain as sticky as it had appeared, given the weight even in PCE prices, the FOMC would have little chance of getting inflation back to 2 percent." The rub, of course, is that real-time trackers of rental inflation are already rising, and as we warned in April, by the time the Fed is cutting rates to reverse the slide in OER (and its 12-18 month lag) rents will be already on their way up, assuring an perfect storm of easier conditions just as housing costs soar to all time highs.
Then again, by the time this dynamic is obvious to everyone it will be early 2025 and this will be Trump's problem to deal with, so nobody in the deep state will lose too much sleep about about this particular fallout.
With that in mind, we go straight to the Wall Street penguin parade, none of whom had the right take on what to expect (like the one above for example), but everyone is certainly willing to share their bombastic "splanations" for what just happened and what to expect next.
Nick Timiraos, Fed's WSJ mouthpiece:
The market is easing for the Fed on the heels of a mild June CPI, where the big story is shelter disinflation. A September cut is mostly priced in, as is a second cut by December. Market-implied probabilities of a third rate cut this year are rising
Bloomberg economist Molly Smith:
"The figures add to evidence that inflation has resumed its downward trend after a flare up at the start of the year, while broader economic activity appears to be slowing. In the wake of a report last week that showed a third straight month of rising unemployment, the data should keep the Fed on a path toward cutting interest rates later this year."
David Russell, global head of market strategy at trade station
“Investors have waited for a long time for shelter to soften and they got it in June. Given rising inventories in housing, this sizeable component of the price index is finally starting to give the Fed what it needs to see for rate cuts. Goldilocks is here and a September cut looks more likely than ever.”
Seema Shah, global strategist at Principal Asset Management
"The inflation numbers put the Fed fimrly on the path for a September rate cut. Having said that, a July policy cut is still off the table. Not only would it spark questions of ‘what do they know about the economy that we don’t know?’ but the Fed still needs to gather additional evidence of waning price pressures to be absolutely certain of the inflation path. For now, the combination of resolute jobs data and slowing inflation is an all-out positive for equities.”
Lindsay Rosner, strategist at Goldman Sachs Asset Management:
“One word: pivotal. With three inflation prints between this morning and September’s Fed meeting, today’s print was crucial in helping the Fed gain confidence inflation is still moving in the right direction. The economic data heat wave seems to have subsided as we are getting cooler inflation data on the heels of cooler labor market prints last week. Cooler temperatures forecast a Fed cut in September.”
Ira Jersey, rates strategist at Bloomberg Intel
“What this data does is give more confidence to the market that not only might the Fed cut in September, but that once they do the Fed will go more regularly.”
Ali Jaffery, an economist at CIBC:
"Core CPI ran at a 2.1% pace annualized over the past three months, well down from 3.3% as of May. That is a material resumption of progress and makes the Q1 flare-up in price pressures feel like a distant memory.”
Rubeela Farooqi, chief US economist at High Frequency Economics:
"A change of tone from the Fed will come at the July meeting. A further deceleration in prices combined with a softening in labor market conditions support a change in message from the Fed, at the July FOMC meeting, opening to the door to rate cuts as soon as the September meeting.”....
....MUCH MORE including three repetitions of the idea in the owner equivalent rent tweet and introductory/contextual material.
I like the "what is happening was obvious to anyone with half a brain" line, very inclusive.
Or at least I feel included. Tying it all together, here's the outro from May 10's "USDA World Agricultural Supply and Demand Estimates (WASDE): Food Inflation Down The Road":
These won't show up in the CPI or PCE deflator for months so in the meantime we should get a nice little inflation headfake lower from the housing component of the indices; setting up the next Presidential administration for a real mess in 2025 and 2026.
Not to put too fine a point on it but if I were Michelle Obama I'd tell Barack to put a sock in it for any idea of running for President before 2028.
See, if interested March 20's "Hotshot Wharton professor sees $34 trillion debt triggering 2025 meltdown as mortgage rates spike above 7%: ‘It could derail the next administration’":
This is the sort of stuff I was thinking about in the intro to March 6's "Michelle Obama's office says the former first lady 'will not be running for president' in 2024":
...On the other hand, I'm not sure you would want to be President during the next four years, there are so many problems that have been growing and metastasizing just beneath the surface of the daily news that the person in the hot seat could end up just plain reviled.If I were a Democrat strategist I would propose letting Donald Trump win a second term while concentrating on House and especially Senate (to bottle up judicial, including Supreme Court, nominees) races.
A Trump win would give an excuse for riots (for the visuals) and if he is handcuffed by the Legislative branch to limit the range of possible responses, you go beyond polycrisis to the omnicrisis. Throw in a bit of Frances Fox Piven with her "overwhelm the system" and "motor voter" strategies and you could see one-party rule for thirty years....
