QE and interest rate repression inflated the Everything Bubble. Now QT and rate hikes are deflating it. It was the most predictable thing in the world. It only surprised the tightening deniers.
But markets were busy fighting the Fed, which can get very expensive in a hurry, and now they’re finding out.
in California people going to get stimulus checks, I mean inflation checks, to pay for all this inflation, hahahaha. Up to $1,050. They start going out in October. The state is sitting on a record amount of money and doesn’t know what to do with it, so it’s going to get spent one way or the other. Other states, and cities too, are similarly flush with cash. And this cash will get spent and it will continue to stimulate the economy. The Fed is gnashing its teeth. This inflation will be a long and tough slog to get rid of because all this stimulus is still circulating and will continue to do so////
Turns out this much-ballyhooed month-to-month “core PCE” reading in July of “0%” was just a one-off event. In August, according to the BEA today, the core-PCE inflation index jumped by 0.6%, same as the multi-decade records in June 2022 and in April 2021 (all rounded to 0.6%). As Powell had said during the FOMC press conference: Underlying inflation is just not slowing down.
This “core PCE” is the lowest lowball inflation index the US government provides. But it is crucial in figuring out where the Fed’s monetary policy might go, and how far the Fed might go with its rate hikes, and when it might pause.
Compared to a year ago, the “core PCE” price index rose 4.9% in August, up from 4.7% in July.
This year-over-year measure is what the Fed uses for its 2% inflation target. But given the huge volatility in inflation last year, Powell said that they would be looking at month-to-month developments to get a feel of where inflation might be headed. They’re looking for “compelling” evidence that inflation is headed back to the 2% target.
In terms of overall inflation, “core PCE” doesn’t mean much because it is geared toward measuring some underlying inflation beyond the most volatile items that end up dogging consumers the most. But it is very important in terms of understanding what the Fed is looking at when it decides where to go with its rate hikes.
