Thread by @RickRieder

A week ago, after hearing #ChairPowell’s testimony before Congress, all eyes were set to be on today’s #inflation data, which presumably would help market participants better understand the #FOMC’s policy reaction at its March 22nd meeting.

What a difference a week makes these days! Of course, all eyes are still on today’s data, but now there are many other things we need to consider (such as #FinancialStability concerns), when judging the reaction function of the @federalreserve.

As we have long contended, #markets tend to be fairly myopic and lacking in patience, so having to focus on more than one news item at a time causes tremendous #uncertainty and thus greater market #volatility.

In the short-run, today’s #inflation data may do little to settle markets, or reveal with more clarity the direction Fed policy will take in the wake of recent turmoil, but it’s abundantly clear that inflation remains stubbornly elevated and the #Fed’s job is still not over.

Turning to the data, #coreCPI (excluding volatile #food and energy components) came in at 0.45% month-over-month and rose 5.54% year-over-year.

Meanwhile, #headlineCPI data printed 0.37% month-over-month and came in just over 6.0% year-over-year, with declines in used car and medical care costs being offset by solid gains in #shelter and food indexes, which each rose meaningfully on the month.

Additionally, the #Fed’s favored measure of inflation, #corePCE, increased 0.6% in January, bringing the year-over-year figure for the measure to 4.7%, as of that month.

Finally, another measure that’s worth looking at, the @DallasFed’s trimmed mean measure of PCE inflation, printed at 4.6% year-over-year in January.

Without question, #financial stability concerns are an issue #investors need to keep a careful eye on, but if recent policy moves assuage markets, then we think #inflationary pressures could again become the main concern.

In our view, part of what produces whipsaws in opinion is an excessive focus on survey-based #data, which can gyrate wildly as peoples’ views can be fickle.

However, the fact is that the underlying hard #economic data has been far less #volatile than survey-based data points, and moreover, it’s displayed some remarkable resilience in recent months.

As a case in point, #LaborMarkets continue to display some impressive flexibility, even as it’s quite likely that the pace of #jobs growth will slow in the year ahead.

At the same time, the U.S. #consumer is in reasonable shape, in the aggregate, although some lower-income cohorts have begun to display signs of stress.

In fact, when looking at the #debt burden of U.S. households, relative to #income, we see that the debt-service ratio is still near historic lows. Also, #consumers are choosing to pay off credit card balances in full at record levels, which we think signals strong wherewithal.

In the end, we think there are a multitude of crosscurrents that both #policymakers and market participants are dealing with today, which clearly makes for very challenging and volatile #markets.

For the #Fed, the real challenge will be to slow #inflation without damaging many of the good things that are happening in the labor market, or risking further #financial instability.