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  • US CPI Featured and Why the Fed may Still Hike by 50 bp

    From marctomarket.com

    The most important economic report in the week ahead is the US December Consumer Price Index on January 12. To be sure, the Federal Reserve targets an alternative measure, the deflator of personal consumption expenditures. However, in this cycle, when households, businesses, investors, and policymakers are particularly sensitive to inflation, CPI, which is reported a couple of weeks before the PCE deflator, has stolen the thunder. In explaining the surprise acceleration to 75 bp rate hikes in the middle of last year, Fed Chair Powell cited the CPI (and the preliminary results of an inflation expectations survey ... (full story)

Fed will not hike by 50 bp. It is over and doesn't make sense. They will move by 25 bp, maximum 2 more times and then start watching. Commodity prices are not either ranging in sideways or on a downtrend. Personal wages are not moving up that fast to create 7-8% inflation so expect inflation to move to 4-5% in 6 months. Fed made the mistake of sitting idle for too long and there were other factors adding up to the price moves. But there is no reason now to hike 50 bp and keep raising rates and create a credit crunch.
Quoting Namli
Fed will not hike by 50 bp. It is over and doesn't make sense. They will move by 25 bp, maximum 2 more times and then start watching. Commodity prices are not either ranging in sideways or on a downtrend. Personal wages are not moving up that fast to create 7-8% inflation so expect inflation to move to 4-5% in 6 months. Fed made the mistake of sitting idle for too long and there were other factors adding up to the price moves. But there is no reason now to hike 50 bp and keep raising rates and create a credit crunch.
You have nailed it
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Hmm, much has been made of the fact that "Inflation has peaked", and the market is celebrating. A year ago, much was made of the fact that Inflation was transitory, and the market celebrated. CPI is still above 7%, and if it does reduce to 4% orso, it will signify demand destruction and recession. History shows us that Inflation is sticky, and slow moving when reducing due to the large number of factors involved. But, it seems from where I am looking, people are still partying like it's 1999. In my opinion, both Inflation, and the stock market are going to track sideways for a lot longer than people think. Also, just because we have not seen strong evidence of a wage/price spiral from indicators, that is not to say that it is not happening, there are time lags involved here.
The market is pricing in about a 1 in 4 chance of a 50 bp hike. The consensus as Namli and Dotzxac007 argue is for two 25 bp hikes. If two 25 bp, then my suggestion is the risk of doing 50 underscores the Fed's push back against premature easing of financial conditions. As KC Fed George argued even if inflation has peaked, it is still too high and the Fed does not went it to get embedded into expectations. If the "Fed made the mistake of sitting idle for too long" and has egg on face for inflation is transitory, the risk is over-correcting. In the probabilistic world, my argument is really that the odds of a 50 bp move is greater than the market has discounted.
Quoting MarcChandler
The market is pricing in about a 1 in 4 chance of a 50 bp hike. The consensus as Namli and Dotzxac007 argue is for two 25 bp hikes. If two 25 bp, then my suggestion is the risk of doing 50 underscores the Fed's push back against premature easing of financial conditions. As KC Fed George argued even if inflation has peaked, it is still too high and the Fed does not went it to get embedded into expectations. If the "Fed made the mistake of sitting idle for too long" and has egg on face for inflation is transitory, the risk is over-correcting....
You are right, the Objective of FED is to get price stability at 2% target which 7.1% is still far. If somehow Actual CPI fall below 7.1% but above consensus, USD will go up as higher chance for 50bps hike will be price in. However, if CPI YoY fall below 6.5% say 6.1-6.3%, market will move a higher probability to a 25bps Interest hike of which will experience a dovish disappointed on FEB 1 with FED delivering a 50bps hike (to get to their target of 2%)
We can define trading in one word: "Balls!"
Coming month cpi come soon
Quoting Namli
Fed will not hike by 50 bp. It is over and doesn't make sense. They will move by 25 bp, maximum 2 more times and then start watching. Commodity prices are not either ranging in sideways or on a downtrend. Personal wages are not moving up that fast to create 7-8% inflation so expect inflation to move to 4-5% in 6 months. Fed made the mistake of sitting idle for too long and there were other factors adding up to the price moves. But there is no reason now to hike 50 bp and keep raising rates and create a credit crunch.
time will tell that you are completely wrong and they hike 50 bps and they planned
Quoting somparraa
{quote} time will tell that you are completely wrong and they hike 50 bps and they planned
I don't totally ignore that but I could surely bet on inflation expectations. And that will make such a move unnecessary. mostly they are late to any move. the world moved to nowcasting and forecasting using ML models but CB's are still using MA's
do we sell or do we buy the usd at the core cpi time?
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