The Fed will look to Core CPI next week – not the Headline CPI number – to assess the level of its next rate tightening move. We have advocated for a 100 BPS increase should Core CPI grow versus last month as the Fed Funds Rate remains accommodative and the markets need to be shocked out of this pivot mentality.
Of course Headline CPI will be down as oil prices have plummeted;
Rents have yet to roll over and therefore “Shelter” is not likely to provide inflation relief;
Elevated food prices remain a concern of ours. While not part of the Core CPI calculation, elevated food prices negatively impact consumer discretionary spending.
We are not out of the woods with Energy as winter is coming. Home heating oil in the U.S. Northeast largely comes from Russia. Natural gas prices are likely to climb as well.
The obvious, logical solution to the high price of Energy is to remove the punitive taxes and regulations from fossil fuel producers in order to allow the U.S. to become Energy independent. Energy independence ought to be a strategic objective both from an economic and military standpoint. Clearly low-cost Energy for Americans over the near, intermediate and long-term is not a priority for those in Washington, both the Executive and Congressional branches.