Tomorrow’s CPI Print. It Will Be There If Powell Wants It.
The U.S. Bureau of Labor Statistics will publish August CPI figures tomorrow morning at 8:30am ET. Our view is that we will get a flattish month-to-month Headline CPI figure and something in the 3.6% range for the year-over-year Headline CPI figure. Energy ought to have ticked up month-to-month as oil prices lifted from July to August. Year-over-year Core CPI will likely remain in the 4.5-4.7% range. Therefore, should Powell wish to inch the Fed Funds rate 25 BPS higher on September 20th, he will have the narrative to do so. The consensus is that Powell will hold rates at the Fed’s Sept. 20 FOMC meeting.
The advantage of inching the Fed Funds rate higher now is that when the Fed eventually pivots, it will have more wiggle room to work with as it lowers rates.
Our view is that the Fed has already lost the war on inflation given that prices for goods and services rose so dramatically as measured by the CPI (and real world measures), from 2020 through today. Who cares that prices are flattening? The damage is done. The consumer is far worse off. Inflation is a tax that Americans do not get to vote on (10-year CPI chart below).