Friday, August 10, 2018

July 2018 CPI

Well, for two months in a row, non-shelter core inflation has been near a 2% annualized rate.  That's something.  If it's a trend, then maybe the Fed isn't ahead of the curve in their efforts to tighten up.

I still expect this to increase the Fed's confidence about rate hikes, leading to overtightening.  In fact, today the yield curve has flattened on the news.  Interestingly, market estimates of Fed hikes have pulled back slightly.  I might have expected the short end of the curve to move up while the long end moves down.

4 comments:

  1. - Nonsense. Contrary to common believe inflation DOES NOT drive interest rates.
    - To prove that inflation drives interest rates every man and his dog point ot the 1970s. Yes, in those years both e.g. oil and rats went higher.
    - But then take e.g. the 2000s. Between the year 2001 and mid 2008 the US 10 year yield went down from about 6.25% to about 4.5% in mid 2008. In spite of oil prices going up from $20 to $ 140 in mid 2008 and the CRB going up threefold. If inflation drives interest rates then those rates should have higher like in the 1970s.
    - From about mid 2007 short term yields went down from about 5.25% to say 2% in mid 2008, in spite of oil (more than) doubling.
    - The yield curve is already in the process of steepening. To see that one has to look at the right ratio.

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  2. - I think the chance of the FED lowering rates is much larger than raising them.

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