Notes from the Desk – US Inflation
Chairman Powell is certainly earning his $190k salary, dealing with a battle on two fronts.
- Just a few days ago, the market was 100% certain that the Federal Reserve (Fed) was hiking next week with the debate being whether it would be 25 bps or 50 bps.
- Following the spectacular collapse of Signature Bank and SVB, the odds shifted to 50/50 between no hike and 25 bps.
Today’s CPI data makes things a little more difficult for Chairman Powell as both headline and core CPI met expectations.
- YoY CPI: 6%
- YoY Core CPI: 5.5%
The main cause for concern is that the monthly gains on ex-shelter core (what Powell is concentrating on) accelerated from 0.36% to 0.5%. The Fed will not be too pleased with this.
In isolation, today’s inflation data would support at least a 25 bps hike next week. But given the acuteness of the problems with US regional banks and fears of contagion, we think the decision hinges on whether there are deeper problems here. For now, the balance of CPI and financial stability has the market tilting the odds towards a 25 bps move.