- 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.
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