Investors Shrug Off More Inflation Data

Investors Shrug Off More Inflation Data

  • The PCE index came in today at 6.76% Year-Over-Year growth, up from May’s 6.32% Year-Over-Year print.
  • The chart below plots the PCE index vs. the CPI in terms of the Year-Over-Year percentage change as measured each month.
  • The consensus amongst investors seems to be that the Fed will pivot in Q1 2023. We are not so sure. Why would Powell & Company (i.e. the Fed), raise rates through year-end 2022 only to pivot in Q1 2023? Why not simply apply the brakes now?
    • Our view is that Chair Powell does not wish to be the second coming of former Fed Chair Arthur Burns (famous for executing a premature Fed pivot in the 1970’s which allowed inflation to catch a second wind), and will continue to raise the Fed Funds Rate into 2023 (although not aggressively enough).
  • Thus far the Fed has failed to leverage QT – a powerful tool – as its Balance Sheet essentially remains unchanged.
Click here to access the chart: https://fred.stlouisfed.org/graph/?g=ShUA