Core CPI is likely to remain flat to up when figures are released tomorrow at 8:30am given that “Shelter” – which carries a 34% CPI weighting – is reported on a significant lag. It is unlikely that tomorrow’s CPI print will have a significant impact on the Fed’s rate and Balance Sheet actions over the next month (the FOMC next meets on May 2nd and 3rd). CPI has been relegated to the background given that we have an ongoing financial crisis which has caused banks to tighten lending standards and further slow the economy. 2023 will not be a robust earnings year so long as credit is tight. Ditto for 2024.
The Fed is simultaneously running QE and QT programs. The Fed’s back door QE program is the Bank Term Funding Program (along with the FDIC’s efforts), the combined effort of which stands at $254 billion since mid-March. This bank bailout facility has almost eclipsed the Fed’s Balance Sheet runoff which totals $269 billion year-to-date.
The Fed has clearly been in QE-mode since mid-March given the BTFP. However, the banks have tightened credit and will ultimately curb price inflation through tighter lending policy (if the Fed does not ease rates before the banks finish the job of getting CPI back down to 2%. Don’t hold your breath).
Debt ceiling and more QE coming this summer. Don’t forget that the debt ceiling will be raised this summer. Janet Yellen will have to replenish the Treasury’s General Account to the tune of $500 billion or so, not to mention that politicians will undoubtedly work to pass another Federal Omnibus bill. 90% or more of the above will be subsidized by the Fed’s money printing machine (more inflation), given that there is not enough appetite across institutions nor foreign governments to absorb the spate of Treasury securities that will be issued this summer.