Today’s #inflation report continued to reinforce the theme that gaudy #price gains are not standing in the way of demand.
It is a very rare time in history, in fact, most people operating in #markets haven’t seen this sort of demand outstripping supply in the real #economy in their careers, with some areas seemingly depicting a dynamic suggesting that “price is no object.”
Clearly, #inflation has been escalating for a number of months due to #shortages of supply in areas such as #housing, #commodities, semiconductors, new and used cars, etc., and those supply shortages are mostly still in place today.
Remarkably, though, #demand is showing very little let-up despite these #prices staying sticky high, with the rapid transmission of the Omicron variant of the virus making a return to normalcy a more extended process.
With respect to the data, #coreCPI (excluding volatile food and #energy components) came in at 0.6% month-over-month and 5.5% year-over-year.
Meanwhile, headline #CPI data printed at 0.50% month-over-month and came in at 7.0% year-over-year, the greatest increase over a 12-month period since mid-1982.
Today’s report continues a trend of #inflation prints that reside at multi-decade highs over the near-term, and we do not expect to see any letup for a few months, but some improvement to #inflation rates may be expected as spring/summer approach.
Clearly, the @federalreserve is on notice regarding this demand versus supply imbalance, which has been driving prices persistently higher for many months now.
Indeed, recent #Fed minutes and Chair Powell’s testimony clearly chronicle a Fed that is going to cut quantitative easing, raise policy rates and embark on quantitative tightening, all in a compressed time frame to deal with this level of #inflation.
We don’t think the #Fed will overreact to this condition, as easing and tightening are not symmetric #economic and market reaction functions, particularly when draining #liquidity from the #financial system.
We think the #Fed will raise rates shortly (probably in March) after ending #QE, but we think that the draining of #liquidity should only be initially designed to target the excess reserves recently created.
In our view, it would be a mistake to go significantly deeper at this point, as pressure on growth, #employment and financial #markets can react in a more extreme way than required to bring down inflation, which is likely evolving toward a lower trajectory in the coming months.

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More from @RickRieder

19 Oct 21
Anyone perusing the top articles of major media outlets last weekend would have read several pieces on the extraordinary #shortages being witnessed in the U.S. #economy today, and particularly those in the #labor market.
The tone of many articles was pessimistic, suggesting that the #supply-side #shortages and dislocations may be systemic, or long-term, but we think there’s evidence that the U.S. #economy will display considerably greater dynamism and resilience than the pessimists believe.
First, it’s vital to recognize that this is a #supply constraint problem, not one of #demand. Indeed, strong demand is being driven by a host of powerful influences: 1) household balance sheets never been cleaner and HH #wealth is $25 trillion greater now than pre-Covid level.
Read 12 tweets
13 Oct 21
With respect to today’s #inflation data, core #CPI (excluding volatile food and energy components) came in at 0.24% month-over-month and 4.04% year-over-year and was driven higher by strong increases in the #rent components, which have a tendency to be persistent.
Further, headline #CPI data printed at a solid 0.41% month-over-month and came in at 5.38% year-over-year.
Today’s data witnessed declines in used vehicles, #airfares and lodging, which should temper #market concerns somewhat, but we anticipate that these components are likely to see #prices bounce back in the months to come.
Read 10 tweets
8 Oct 21
September witnessed a somewhat disappointing nonfarm #payroll gain of 194,000 jobs, which was weaker than the upwardly revised August gain of 365,000 and was well below #economists’ consensus estimates of nearly 490,000 jobs.
Clearly, there are significant #labor supply issues limiting the pace of recovery. Further, the #unemployment rate declined meaningfully, from 5.2% to 4.8% in Sept, and average hourly #earnings saw gains of 0.62% m-o-m, which brings the measure to 4.58% greater on a y-o-y basis.
The most interesting part of today’s #JobsReport, and much of the other recent #economic/corporate data, is that it’s the supply of resources that’s creating systemic pricing pressure, as well as consequently dulling growth of an #economy not lacking demand in virtually any area.
Read 11 tweets
23 Sep 21
As expected, the @federalreserve’s Federal Open Market Committee continued to discuss its plans to reduce, or #taper, the pace of its #AssetPurchase program at yesterday’s meeting.
While the details of this discussion were fairly sparse, the Committee statement did state that: “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”
Further, at the recent #Fed conference in Jackson Hole, Wyo., and at the press conference, Fed #ChairPowell emphasized that both he and most Committee participants now consider the test of “substantial further progress” toward the #inflation mandate to be largely satisfied.
Read 10 tweets
14 Sep 21
In August we saw #inflation growth moderate further, for the second consecutive month, at least relative to the impressive rate of growth in #prices witnessed around mid-year.
Core #CPI (excluding volatile food and energy components) came in at 0.10% month-over-month and 3.98% year-over-year, which was considerably less than the consensus forecast and was driven higher by #shelter components.
Meanwhile, headline #CPI data printed at a solid 0.27% month-over-month and came in at 5.20% year-over-year.
Read 11 tweets
27 Aug 21
It was 73 degrees and sunny in #JacksonHole, Wyoming, today; a perfect day for all those who were there….
Yet, there were no #monetary policy officials present at the traditional location of the @KansasCityFed’s late-summer #economic policy symposium, since they were conducting a “virtual symposium.”
That symposium provided #ChairPowell the opportunity to lay out a reasonably sunny perspective on the U.S. #economy, but also one that was not out of the woods yet, in terms of Covid variant risk and a maximum #employment target still to be achieved.
Read 10 tweets

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