Stubborn Core Inflation Remains Too High for Comfort While Markets Bet Prematurely on Imminent Fed Rate Cuts
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Core CPI accelerated slightly and was in line with expectations, but remains stubbornly high at nearly 5% annualized over the past 3 months. This is well above the Fed's 2% target.
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Energy prices were the largest contributor to CPI acceleration this month, representing upside risk going forward if oil prices rise from current low levels.
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Core goods prices continue to deflate from supply chain improvements, but this effect is expected to fade or reverse in 2024.
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Housing components will likely drag CPI down throughout 2024, but as this is lagging data it could mask a reversal in the current disinflation trend.
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Markets are overly optimistic about 2024 Fed rate cuts given stubborn inflation. Hawkish Fed rhetoric likely forthcoming to temper expectations.