Despite improvement in rent, the CPI rose another 0.3 percent in November. Here are the key numbers.
CPI Month-Over-Month Details
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent on a seasonally adjusted basis.
- The index for shelter rose 0.3 percent. Rent of primary residence rose 0.2 percent and owners’ equivalent rent was up 0.2 percent.
- The food at home index increased 0.5 percent and the food away from home index rose 0.3 percent over the month.
- The index for all items less food and energy rose 0.3 percent.
- The energy index rose 0.2 percent.
- Medical care commodities fell 0.1 percent and medical care services rose 0.4 percent. This is another bit of bad news because services have a much bigger weight than commodities, 6.5 percent vs 1.5 percent.
It seems reports that the price of Thanksgiving dinner falling were more than a bit exaggerated.
CPI Year-Over-Year Percent Change
Year-Over-Year Details
- CPI: 2.7 percent
- CPI Excluding Food and Energy: 3.3 percent
- Rent: 4.4 percent
- Shelter: 4.7 percent
- Food and Beverages: 2.3 percent
- Medical Care Services: 3.7 Percent
That’s roughly how the average economist views things. The next chart is how the average person views things.
CPI Indexes
Fed Mission Accomplished?
Apparently so.
Yesterday, I commented Fed Rate Cut Odds in December Are 85.8 Percent Despite CPI Estimates
The Bloomberg Econoday consensus CPI estimate is 0.3 percent month-over-month and 2.7 percent year-over-year, up from 2.6 percent.
Are We No Longer Data Dependent?
Looking ahead to March, the market expects two more cuts in January and March.
Based on current inflation data, the Fed should not be cutting at all. But tomorrow is another day.
If the data does not warrant these cuts, but the Fed cuts anyway, expect yields on the long end to rise in revolt.
The consensus estimates were spot on. Nonetheless, Rate cut odds for December rose from 85.8 percent yesterday to 94.7 percent today.
And the odds of two or more cuts by March of 2025 rose slightly as well.
Thus ….
3.0 Percent is the New 2.0 Percent
~2.7 percent year-over-year and monthly increases of 0.3 percent (over 3.6 percent annualized) are the new inflation targets. Let’s call that ~3.0 percent.
The Fed and the markets are perfectly fine with inflation running above the Fed’s long stated goals of 2.0 percent.
“The Fed” and “The Markets” may be fine with 3.0 percent but I’m not so certain “The Masses” are fine with it.
The crushing weight of the continued rise in costs is slowly burying even the higher end of the middle class.
3.0 Percent is the New 2.0 Percent
Does the bond market know? 3% inflation means the 10 year might need to at least be around 5% to compensate holders (3% inflation + 0.5% – 1% real yield + ~1.5% term premium)
The Federal Government can only tolerate a 0% (or negative) FED Funds rate. I know of $37 trillion r easons why.
If the 10 year treasury even tries to go north of 5%, the FED will increase their balance sheet, the piggy bank, via a Y.U.G.E. QE Operation Twist.
3% is the new 2%. Then 4%, then 5%, then OBLIVION.
No way out.
After the December cut, the Fed isn’t likely to make another move for at least 2-3 months into 2025. Like everyone, they’ll take a wait & see approach to what Trump announces & how quickly he moves. Inflation is definitely going to rise in 2025. The only questions are by how much & how quickly. It will be very interesting to see what happens with mortgage rates & the CME FFR Watch starting in January. Like most here, I think the Fed has painted themselves into a corner, and I wouldn’t be surprised to see Trump make a move on Powell, once the first rate hike takes place.
Reminder to all that the Fed’s legal mandate is “stable prices”, that is 0% inflation. (… Consistent with maximum employment and moderate long term interest rates.)
The 2% they talk about is a bit of Big Lie propaganda.
Thanks, can you send a link for the legalese of the “stable prices” that were defined by Congress in creating the Federal Reserve Act of 1913? Much appreciated
https://fraser.stlouisfed.org/title/federal-reserve-reform-act-1977-1040
“Stable Prices” was in the language of 1977. Note also that the mandate has 3 parts yet the Big Lie of the Fed is “dual mandate”… they gloss over “moderate long term interest rates”.
P.S. I’m not an expert on the original 1913 law, but there would have been no need to define “stable prices” during the Gold Standard era, when a dollar was a fixed weight of gold.
No, “they” (the Fed) don’t gloss over the third mandate. That’s why 0% ‘stable prices’ (never increasing prices) are impossible. You can’t have “maximum employment” and “stable prices” and “moderate long-term interest rates” if inflation is actually 0% forever. That’s why Congress did not define it explicitly that way
But those that that study this know that. Only illiterate know-it-all lawyers-wanna-be post about it online as if a hundred years+ of congressionally-mandated Fed actions are some big scam or conspiracy
You must work for the Fed or something, or you’d get this. Do a web search on primary documents and here’s what you’ll see:
Every Fed public website, public speech and formal policy document says dual mandate, mentioning low “unemployment” and “2% inflation”. Find me even one that mentions moderate long term interest rates! Or stable prices for that matter…. The Fed has done everything it can to suppress its official legal mandate (the 1977 language of Congress) and propagandize the alternative “dual mandate” framing which it prefers.
Second, “maximum employment consistent with stable prices” is an actual economic concept, the same idea as NAIRU (the rate of unemployment consistent with not accelerating inflation) – a goal which the Fed claims it is currently targeting via the mythical never-before-seen “soft landing”. Everyone knows that in the context of the Federal Reserve Act, the goal of maximum employment is tempered by the need for stable prices and moderate interest rates.
The Fed’s own justification for ignoring the third leg of the legal mandate, “moderate long term interest rates” is by asserting without evidence that such rates will occur when the inflation and employment goals are being met. But that claim is demonstrably untrue per the historical record. The rates must be managed by managing credit growth.
In fact, if you read the Fed act of 1977 carefully, you’ll note that the Fed is empowered to manage growth of monetary and credit aggregates commensurate with long run economic growth potential … in order to achieve stable prices, max employment and moderate long term rates. The management of credit growth is explicitly called for.
The Fed today is not living up to that legal mandate, it is in fact schizophrenic in its actions. The Fed has for the first time ever actually decoupled interest rate policy (currently easing) from money supply policy (currently tightening). Which (if any) of these is actually in service to the legal mandate (and why do you think so)?
If you don’t think the Fed focuses enough on its third mandate of moderate long-term interest rates, that’s your opinion and you’re entitled to it.
But this thread started because you said the Fed has a legal mandate of 0% inflation. And I wanted to point out to the other readers this is false. Congress could have written that specific number or goal into law any time within the past century, but it did not. It chose to empower the experts at the Fed to define and seek the goal of “stable prices”.
If you don’t like that fact, write your Republican Congressman. They have control of the Presidency, the House and the Senate. So they can ‘correct’ the law to make your 0% goal mandatory for the Fed.
But I would not hold my breath. There’s long-existing economic theory for why that’s not compatible with “maximum employment” too (much less the moderate long-term interest rates). These are competing interests/goals.
Fine … You are willingly choosing to ignore the universally accepted definition of “stable”.
Inflation at any value other than zero is not price stability. 2% inflation results in prices doubling from one generation to the next. Prices are up 20-50x since the end of the gold standard in 1972, and up 10-20x since the Fed was given a mandate for “stable prices” in 1977. That is a colossal failure.
How many cuts did “consensus” have coming into 2024? Nine?
“The next chart is how the average person views things.”
The rate of increased prices subsiding is not the same as aggregate prices falling.
I’m unsure why anyone puts much faith in “the market” successfully prophesizing the actual future monthly votes of the FOMC (a week out is different). This collective group was pretty far off the mark for at least the last year and a half.
The Bank of Canada furiously cut rates to 3.25 into the hot-hot housing bubble that makes the US look tame. This is the same rate gurus said at the onset of GFC, gasp, then chairman Bernanke would have to cut.
Now it’s a matter of course, and crystal ball readers are in high demand, or should be, because this bunch of crooks certainly doesn’t know any better.
The Fed is a reckless, serial-bubble blowing, currency value destroyer.
They will cut rates down to 3%, inflation be damned.
I am glad that I already own so much gold and silver.
Worse! The Fed will follow the Bank of Canada and cut by 50 basis points regardless of CPI and PPI. They might even cut 100. The Fed needs to have an excuse to jack rates once Trump gets in. They need to destroy the US economy under Trumps watch. Its politics not economics folks!
Oh in case no one has figured this out sell bonds because the curve is going to want to go vertical Maverick.
The only reason the long-end of the curve will go higher is if Trump does not reduce the deficit and inefficiencies of the federal government, as he promised
Once again, the fed is going to do whatever it can to assist the equity market as no doubt, these bureaucrats have similar investments in their “blind trusts,” not to mention the political aspect.
Two months into fiscal 2025, the US has already raked in a $624BN budget deficit.
That’s crazy isn’t it?
The borrowed money is hitting the Treasury Daily Statement & then is flying out the door. The TDS has been very stable around $800B over the last couple of months. I’m really surprised that that the Reverse REPO hasn’t pushed hard towards zero, since it’s been a major source of Treasury purchases over the last 2 years. The RRPO has been bouncing around the high $100B mark over the last several weeks.
The Fed / Treasury must be doing something funny, because the RRPO balance should have zeroed out by now. My guess is the ramp up in short-term borrowing has decreased demand from pulling RRPO monies out & putting them into Treasuries.
Data only matter when they serve to reinforce the desired goal. Why bother?
Isn’t that the sinister silliness of it all? If this data doesn’t give them a conundrum, and it appears it doesn’t, then why count anything ever? Jobs report–overstate it for 12 months and then revise it massively lower annually, only to resume the monthly flawed counting. Inflation numbers well north of anything their previously acceptable albeit fictional rate–no problem, we’re lowering rates anyway.
As long as the enrichment continues, the gap widens and the bankers, politically-connected class and the top 40% get theirs, well ta hell with the former inflation targets or those that suffer under the inflation. There will be a time when it matters and when it does I wouldn’t want to be a banker, politician or wealthy elite….it won’t be gentle like before.
On the data front, I can see coming in at .3 wouldn’t move the needle much but to move higher into more confidence of a cut…goodness. Here’s my question to the blog’s author and the Fed policy makers: what data would prevent them from the projected cuts in January and March if the numbers of the inflation ship aren’t turning south to any degree or confidence? Hell, end the charade and just cut 75bps while you’re at it at one go and let us digest that steaming pile of dung missile, it’s not like anyone here thinks the data matters. I mean at this point it’s clearly farse and folly.
Not positive I understand all the details of your tirade. But Mish has reported multiple times that the unemployment rate has increased from 3.4% to 4.2% over the past two years. Would you expect the Fed to keep short-term interest rates high (or even increase them) as this unemployment rate keeps increasing?
Sure, if inflation was above their alleged target, and at the same time unemployment was below what they considered the structural unemployment rate until like 10 seconds ago.
The majority of that increase in unemployment is due to two things:
#1 – As the labor market has tightened, people have tried re-entered the work force
#2 – illegals are causing the unemployment rate to rise.
The weekly, 4-week moving average & long-term unemployment rate haven’t jumped to any meaningful degree. If they had, we’d be in a recession. And once the unemployment rate drops to 3.4% which is incredibly low, it only has one direction to go. Less than 1% in two years is nearly negligible.
I’m sure those 2.0 million people (1.2%) that lost their jobs in the past two years are very sympathetic to your POV. Maybe you should instruct them to their ignorance while you serve them in the soup line (if you get get off your ass to help).
Indeed. These bubbly markets think everything is good and a reason to cut and feed the euphoria. I very much think the Fed should no cut, AND it would be nice in doing so that they would keep some powder dry. Waiting one month would not hurt, and likely would help stubborn CPI aspects (rent, housing, med).
Our inflationary depression continues. Real hourly wages negative over past 4 years.
From the dislocation (and inflation) of the COVID times?
Real wages have increased at least 3% on a fairly consistent pace in the past 2.5 years alone: https://ycharts.com/indicators/us_real_average_hourly_earnings?ref=tippinsights.com#:~:text=US%20Real%20Average%20Hourly%20Earnings%20is%20at%20a%20current%20level,1.44%25%20from%20one%20year%20ago.
4 more years of high inflation and record deficits ahead. It’s almost as if they’re correlated…
Correct observation and more than correlated
Getting really tired of US financial policy of monetizing fiscal profligacy on the backs of the working class
And where does that money disappear to? The accounts of the ultra wealthy, who now completely own the government.
They love the left vs right arguments while they quietly impoverish us all.
If all that money wasn’t flowing thrown the federal government we wouldn’t have that problem. I forget was it the left or right that generally speaking wants to run even more money through the federal sausage machine?
The left wants to take it from you and give it to them, and the right wants to cut their taxes and raise yours to pay for it.
I see little difference.