The Fed is not in a good spot.
Please consider Cyclical and Acyclical Core PCE Inflation by the San Francisco Fed.
The personal consumption expenditures price index (PCEPI) is one measure of U.S. inflation that is considered particularly useful for identifying underlying inflation trends. It tracks the change in prices of a particular basket of goods and services purchased by consumers throughout the economy. The “core” measure of PCEPI excludes food and energy products, whose prices tend to be volatile.
Cyclical components include those categories where prices tend to be more sensitive to overall economic conditions. Acyclical components include those categories that are more sensitive to industry-specific factors.
Cyclical items include housing, rent, food, and gasoline. Acyclical items include healthcare services, financial services, insurance, and clothing.
The key acyclical item, health care services, has not shown up in the reports, but it is already impacting people.
Health care rates spiked in January, but is not visible in the data yet.
Cyclical and Acyclical PCE Contributions
The Fed’s preferred measure of inflation is core PCE which excludes food and energy.
Contributions to Core PCE
- Cyclical Core Components: 1.21 percentage points
- Acyclical Core Components: 1.60 percentage points
- Health Care Services Portion of Acyclical Core: 0.49 percentage points
If I am correct, health care services will jump by 1.5 to 2.0 percentage points in 2026, mostly with the January data.
We will not see this jump in CPI data because of the way the BLS smooths things. The delay with the CPI will be a year or more.
When Will We See the PCE Impact?
- For consumers, right now.
- But health care will not show up in official data until the January PCE report by the BEA. That is currently scheduled for March 13, 2026.
The next PCE report is February 20, 2026. But that is for December 2025 data.
Mid-March, the BEA will tell us what consumers feel right now.
Understanding My Expected Jump
- Health care services is about 17 percent of the PCE
- I expect to see health care services costs to rise by about 10 percent
- The portion paid by employer health care plans may phase in over a few months, but the Medicare and ACA (Obamacare) hikes will be immediate.
- 10 percent of 17 percent is 1.7 percentage points. I expect a jump of 1.5 to 2.0 percentage points.
I am the only one I know harping on this point, so perhaps I am crazy.
But we will not see such a huge spike in the CPI data which comes out first.
Anything Else?
Yes. Utility bills are not in the core CPI. Neither is gasoline.
I believe the price of gasoline has bottomed and will add to month-over-month inflation.
Utility bills are already heading higher. I don’t see an end to that given AI demand for electricity.
So, unless the price of rent drops substantially, non-core PCE inflation may be more stubborn than the Fed thinks.
Weakening Jobs
Undoubtedly, the labor market is cooling fast. It does not show up in continued unemployment claims because people have exhausted their benefits and are no longer counted.
You have to collect benefits to be counted in a claim, not just be unemployed. The unemployment numbers are also skewed because illegal immigrants are not answering phones are participating in surveys.
I discussed all of these ideas in more detail in recent posts.
Related Posts
January 27, 2026: Trump Cheers a Plunge of the US Dollar “I Think It’s Great”
“Look at all the business we are doing,” says Trump.
January 30, 2026: PPI Producer Price Index Inflation Jumps 0.7 Percent Led by Services
Yesterday, Jerome Powell prematurely praised a decline in services inflation.
January 31, 2026: Competing Claims, How Much Labor Market Weakness Is There?
Some see “No Signs of Labor Market Weakness”. Others strongly disagree.
For a look at what health care will do to the PCE price index, please see Expect a Big Divergence This Year Between CPI and PCE Inflation
Rent and Healthcare go different ways in 2026. Plus there are huge timing issues.
The problem is that acyclical inflation is insensitive to monetary policy. Healthcare will go up even if rate will be raised to 20%. The Fed just needs to stop adopting this silly model of inflation driven only by debt supported demand.
The Fed is on the path to keep failing.
Correct
The two big problems are failure to meet inflation and employment targets
Healthcare spending has to be suppressed. I don’t know how. The Republicans’ plans for HSA’s and “shopping around” seem to me mere tinkering around the edges. Providers charging different amounts based upon the method of payment should be prosecuted, but that seems highly unlikely. Medicare For All might be wasteful, but it couldn’t be any worse than the shit show we have now with a hodgepodge of private and employer – paid “insurance” that pays almost nothing. I’d be wiling to try Medicare For All just to be rid of the Pfizer ads and ads for Ozempic and various antipsychotics.
My solution is simple, ditch the whole system altogether and go get your healthcare anywhere outside the U.S. as it costs 1/10th or less of what you pay here.
There is no healthcare in the U.S., it’s only billable events.
This.
I’m afraid to go to the doctor. After I paid him, I had to pay another doctor $95 just to talk before I got my procedure done which cost $400 if I recall correctly. (Because I actually had insurance. God knows how much it’d cost without.) And they sent me to different places 20 miles apart after making me go back and forth because the person at the desk couldn’t figure out how to enter something. And this was the cheapest clinic chain. Both the patients and the staff looked like scary foreign freaks. What has our country devolved into.
Are you in Queens NYC? Much of the Borough resembles a third world country with the whole faking of not being able to speak proper English
I’m becoming increasingly convinced that the purpose of the pharma ads is to legally funnel money to the mainstream media, to bribe them not to publish stories about the problems with their drugs.
medicaide for all, is even easier than medicare for all. you can keep both. hell, i’m a dual enrolled in both.
More rigged BLS data coming our way soon, due to “government shutdown”, even though the data has likely already been collected and processed by automated systems at this point.
What the Fed, JP Morgan, Goldman Sachs et al did on JAN 30, 2026 PROVES that the US stock market, COMEX and the US bond market are nothing but FRAUD. I sold all my paper assets and took all my money out of the banks. GET OUT OF THIS DEN OF VIPERS NOW. All banks, our government, the Fed and the Feds; they all declared they are the enemy of the 90 percent of the American people. We are under occupation. GET OUT NOW!
Creating false jobs numbers doesn’t create jobs. Todays ISM is pumped up
Another anecdote, maybe a bit more significant:
I subscribe to the WARN layoff notice for my state. There’s usually been 1 a week or so, representing a few dozen works.
This morning I got 4 messages, representing ~3500 people.
Are the MAGA hat factories in your state?
No, I’m not in China.
I watched Cristophe Barreaud on Bloomberg. According to him, rent prices going down will start to matter next may and send fed rates lower (thus offsetting medical expenses).
Health care is 17 percent of the PCE
Housing is 16 percent.
Is rent going to decline 10 percent?
Where are rents going down? Both rent and home prices have risen by double digit percentages each of the last 4 years in the entire NYC metropolitan area
The fed will continue to do what it always does; print more money. Markets expect the new fed chair to fall in line with lower rates that is being priced in. The melt-up continues unabated.
When I first saw the title of this article I mistakenly saw the word Acrylic, and immediately thought,” what the heck” is there now a metric on how plastic, manipulated and phony the economy really is. Reading the article clarified my confusion, but there really ought to be a phoniness index.
I am expecting more and more future acquisitions and consolidations to pick the bones clean of otherwise unhealthy companies.
It looks like all the Silver gaps for 2026 have been filled. There is another gap in 2025 which might get filled around 62. It wouldn’t surprise me. Precious Metals Booms seem to occur adjacent to Economic Downturns and lack resilience.
Correction, there is still one more 2026 silver gap to close at $70.56
The Permanent Portfolio, designed by Harry Browne in the early 1980s, is a conservative, long-term investment strategy, as described on the Investopedia website, designed to provide consistent growth and low volatility across all economic conditions—prosperity, recession, inflation, and deflation. It utilizes a 25% equal-weight allocation across four core asset classes: stocks, long-term bonds, cash, and gold. PS harry was a good libertarian, in spite of his sticky fingers.
Interesting, thanks for the link. It certainly looks simple to maintain.
de nada, amigo.
What does this with ICE? If I want economic analysis, I go elsewhere.
You can select, so stop selecting ALL or Economic and you’ll be fine…
LOL!
You should go read Cramer.
It actually does have to do with the economy. When the US gets a cold, the world gets the flu. At this time our Constitution and the Bill of Rights are being trampled by a group of untrained thugs and they are just starting to kill people. Massive warehouses are being built to house people captured off the streets. Many are legal citizens and yes, many are “Bad Guys” and should be deported.
This shift to a government consistent with the definition of fascism is being noticed all over the world.
In reality one has to consider if our economy can survive without the group of laborers that were performing unskilled labor or labor intensive work.
It is also worth keeping a finger on the pulse of society regarding potential social unrest.
I prefer the Obama style of 2x deportations that were with due process and without clear or documented violence, the deaths of protestors or massive protests.
Trump’s first term and the Biden administration were both responsible for the rush of immigrants. Inhumane treatment without due process is not what America is about. If you want to spend billions deporting unskilled immigrants, do it properly.
correct frosty
Since year 2000, the US has been on the downslide. Much of the middle class has been levitating on cheap credit (emergency rates for years) and deficit spending programs like stymie checks. Now, the cracks are showing, 5 trillion in extra demand pumped into the economy by Trump and Biden supporting covid shutdowns have given us an inflationary bias while the jobs market contracts. It’s time for austerity both on a personal level and a government level.
It feels like government waste, fraud, and abuse has increased dramatically over that time period. I have heard that average incomes in the Washington DC area are higher than anywhere else in the country. No accountability at all.
Understanding My Expected Jump:
– Health care services is about 17 percent of the PCE > I totally agree that Healthcare will only be going up in the very near future, and perhaps beyond, if some things don’t get ironed out by Both Parties, and that result is no guarantee.
– I expect to see health care services costs to rise by about 10 percent > Services will rise with the overall rise, as well as anything else healthcare related. This rise will touch everything in the healthcare world imo.
– The portion paid by employer health care plans may phase in over a few months, but the Medicare and ACA (Obamacare) hikes will be immediate. > Not so sure companies will simply fork over more cash supplements. Many are hurting right now, and a huge bump in benefits could place some in a very painful situation. Are there legal ramifications if they don’t? If not, then it becomes like every benefit, when shopping for a job. The sicker will only work for the ones that have excellent coverage and vice versa.
– I am the only one I know harping on this point, so perhaps I am crazy. > Not crazy, but very observant about the upcoming Healthcare Debacle coming via a payment plan by You, to allow people to get things taken care of. More Debt!
Anything Else?
– Yes. Utility bills are not in the core CPI. Neither is gasoline. > Utility Bills will be the same as healthcare cost, and will skyrocket thanks to AI and Data Center requirements. Gas can’t keep going down, as the oil fields are less viable for what’s needed. Forget shale as that has run its course as a major player.
– I believe the price of gasoline has bottomed and will add to month-over-month inflation. > Agreed, but it may take a bit ro notice.
– Utility bills are already heading higher. I don’t see an end to that given AI demand for electricity. > Agreed!
– So, unless the price of rent drops substantially, non-core PCE inflation may be more stubborn than the Fed thinks. > Rents don’t drop like they used to. I think some of the reason is contributed to people buying and flipping. Those now bought up homes were in the rental pool in many cases. I have a Friend that’s been flipping for years, and just retired and is selling all of them he was renting. More inventory gone! It’s prevalent where I live!!
Weakening Jobs
– Undoubtedly, the labor market is cooling fast. > This could be the most unseen issue facing this Country, and very soon. The loss of jobs not coming back, the jobs that are available are not mostly good jobs, but required jobs. We could be facing evictions, repossessions etc. like in the past. Makes for a very somber atmosphere.
Health care and utilities are the big ones but commodities beyond oil are blowing up too. Copper has been exploding and we’ve seen the gold/silver moves. Bad winter is going to impact food at some point beyond soaring nat gas.
Too many wildcards right now:
-what will China do with exports?
-what will Trump do with tariffs?
-what will USD do? Fed rates?
-will Japan pull the Treasury plug?
-what will the world do to prepare for deglobalization?
-what happens when Comex defaults on metals?
Everything we’re seeing are huge cracks in the foundation of financial systems. Will it be a partial collapse or a total collapse?
History shows that self-preservation and self-interest usually takes the lead. Everyone just needs to make sure they are not on the wrong side of the transaction.
Got cash?
“Cash is King” again! Watch the sellers of those precious metals explode, as they grab the cash!!
You’re right. There’s been a big shift from other liquid deposits into demand deposits.
harry browne permanent portfolio is the best. i substitute income r/e for bonds
Japan’s Bond Market Has a Warning for America – Bloomberg
I PERSONALLY ADHERE TO THE MONETARY VIEW. THE REST OF IT IS ALL ABOUT SUPPLY AND DEMAND OF SERVICES AND GOODS………BMCC
Shocks, like oil prices, are accounted for by rebalancing spending patterns. without more money it’s impossible to drive up the general level of prices
yup. pork jerky at home, fresh made from organic butcher in small hudson valley city………. instead of a Tbone at some nice steakhouse in manhattan…….
If velocity increases no extra money is needed for prices to rise, right?
Mish,
Over the past year or so, the $US has declined by about 10%, comparable to the magnitude of tariffs (net of exemptions & avoidance). Should that not also impact measured & expected inflation to a similar extent?
Declined 10% relative to what? Canadian Dollar? Euro? Yen? Peso?
Remember China Pegs it’s currency to the US dollar so their money has also declined by the same 10%.
Basically imports from countries whose currency has appreciated vs the US dollar would impact things. But not imports from countries whose currencies have not (China, I don’t think Canada either and those are the 2 biggest trading partners with the USA) won’t.
gold is money. the other stuff is just currency. hat tip JPM himself
the price of gold does not matter. just how many ounces or pounds one owns………in a safe jurisdiction unlike, amerika. i keep a little here for WAM. walking around money
You walk around with ounces of gold in your pocket? Who accepts them and can give change when you buy a loaf of bread?