Thread by @RickRieder

With respect to the data, #coreCPI (excluding volatile food and #energy components) came in at 0.6% month-over-month and at a high 6% year-over-year.

Meanwhile, headline #CPI data printed at a strong 0.6% month-over-month and came in at 7.5% year-over-year, the greatest increase over a 12-month period since February 1982.

Additionally, the @federalreserve’s favored measure of #inflation, #corePCE, increased 0.5% in December, bringing the year-over-year figure for the measure to 4.9%, as of that month.

Today’s blockbuster #inflation readings follow Friday’s blockbuster #employment report, in what has become an extraordinary string of data as the #economy once again works through and out of pandemic-driven conditions.

We see some signs of moderation in supply-chain stresses, but there are still multiple areas of stress, while #economic velocity is now gaining support from increased C&I and consumer lending, both of which can keep upward pressure on #prices for several more months.

Core PCE #inflation should migrate back to the 2.5% to 3.5% range by year-end, as commodity prices plateau, albeit it at elevated levels, and logistical bottlenecks loosen in time, alongside base-effect dynamics, yet elevated levels of inflation will clearly remain for a while.

Over the coming months, we are preparing for more headline-grabbing #inflation data points (like today’s) that could send the media and some #traders into a tailspin and make the #Fed’s job increasingly difficult…

…particularly as the #Fed is still infusing the system with #QE through the middle part of March.

In our view, the #Fed’s policy response to the pandemic was heroic, and its ongoing accommodation has been instrumental in enabling the real #economy to withstand waves of new Covid variants…

…but #MonetaryPolicy needs to migrate back toward a #neutral stance in fairly short order over the coming few months.

The #Fed has a #Goldilocks and Three Bears Problem, since moving quickly and persistently off of policy that is too easy clearly needs to happen…

Yet, policies that are too easy, and then too restrictive, should not be the appropriate course of forward policy-execution either.

Indeed, #Fed policy has been in nearly constant motion in recent years, but now that the #CentralBank has found itself behind the curve, we think policy needs to adjust quickly…

… but not necessarily too much in total amount, as the #Fed weighs data over time, since that would create significant risk for #markets and the #economy.

So, while the time has come (or did months ago) to move policy persistently and aggressively away from overly accommodative conditions, and toward a more neutral and appropriate stance, executing on this pivot is going to be a real challenge for #Fed policymakers.