U.S. inflation cools again, giving Fed room to downshift on rates

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&gt;The data, when paired with prior months’ lower-than-expected readings, point to more consistent signs that inflation is easing and may pave the way for the Fed to downshift to a quarter-point hike at their next meeting ending Feb. 1.<p>I hope not. There&#x27;s an absurd amount of dumb money floating around, and YoY inflation is still at 6.5%. Higher interest rates are going to force companies and investors to actually post profits instead of functioning as giant leeches on the economy.

Note this is CPI, which is not the measure the Fed uses for gauging inflation.<p>The Fed uses PCE. It is likely to behave similarly to CPI, though part of the reason the Fed has been as aggressive as long as it has is that PCE diverged more than is historically common from CPI during the inflation spike, spiking higher and coming down more slowly..

Annualized over the last 6 months inflation is now under the 2% target. I would be surprised if we see anything more than a quarter-point at the next meeting.

Of course, the investing class is front running the fed. That&#x27;s why the financial press always wants to push Fed to lower rates.

Cash is trash. It’s headed toward zero in the long run.<p>They’ve barely unwound any of the Feds balance sheet. I think it’s ridiculous for the markets to assume the fight is over and position for a pivot.<p>Imagine what would happen if the fed started selling $100B+ in treasuries per month. EVENTUALLY we’re gonna have to address that plus our enormous congressional deficit.

The Fed can&#x27;t lower rates if only because it needs to maintain its credibility. The financial press has been cranking out opinion pieces disguised as serious analysis nonstop in an attempt to wish a change of monetary policy into being. If the Fed backs down anytime soon, it could decrease the effectiveness of future increases. The next time the Fed raises rates, consumers, asset holders and businesses can just tell themselves that this increase will be brief and the Fed will soon lower rates. The Fed is engaged in a game of psychological brinkmanship with asset holders and businesses who think they can ride this out. Only when the latter capitulate - by selling houses for lower prices for example - can the Fed begin to consider lowering rates. The Fed needs to hammer home the message that you can&#x27;t fight the Fed.

&gt;Excluding food and energy

We are going to hear about “recession” fears from the corporations who continue raising prices by 6%

not surprising. now that the covid related spike is far enough in the past I expect inflation to be down drastically since the throttle that was low rates is no longer being pressed on. question is, will the Fed stop raising rates soon enough?

To me the data is more or less meaningless. I keep a notebook of my own inflation record for food and fuel.