Experts react to January’s CPI report
HAS TAKEN ANOTHER STEP, AS YOU CAN SEE, IN SOME OF THESE YIELDS AND SOME OF THE OUTLOOKS FOR RATE CUTS, TAKEN ANOTHER STEP FORWARDS THE FED HERE. >> LET’S TALK A LITTLE BIT MORE ABOUT IT. E.J., DO YOU WANT TO WEIGH IN ON WHAT YOU THINK IS HAPPENING HERE, AND HOW BIG OF A PROBLEM THIS IS GOING TO BE FOR THE ECONOMY, FOR THE MARKETS THAT HAVE BEEN WAITING FOR A CUT. >> WELL, IN TERMS OF THE ECONOMY, I THINK THIS IS A REALLY BIG PROBLEM, BECAUSE WHAT WE’VE SEEN IS M-2, FOR EXAMPLE, NOT DECLINING,
NOT FLAT LINING, BUT GROWING EVER SINCE OCTOBER. THE FED IS ALLOWING IT TO GROW, BECAUSE THEY’REALLOWING ALL OF THIS MONEY TO MOVE OUT OF STERILIZATION, TO BOOST BANK RESERVES, THAT’S CAUSING EQUITIES TO GO UP. AND IT’S ALSO CAUSING BANK CREDIT TO EXPAND. THE OTHER THING THAT WE HAVE TO REALLY, REALLY WORRY ABOUT HERE IS THE FACT THAT THE CPI IS ACTUALLY UNDERSTATING INFLATION. WE TALK ABOUT HOW THERE’S THIS LAG IN HOUSING AND RENTS, FOR EXAMPLE, BUT WE DON’T SEEM TO BE TALKING ABOUT THE FACT THAT THE CPI IS ONLY MEASURING RENTS. EVEN THE COMPONENT OF
THE CPI FLIES TO ESTIMATE THE COST OF HOME OWNERSHIP STILL RELIES ON RENTS. AND BECAUSE THE COST OF HOME OWNERSHIP HAS RISEN FOUR TIMES AS FAST IN THE LAST THREE YEARS AS
THIS IS LIKE THE NIGHTMARE SCENARIO, STEVE. THE PROFESSOR THOUGHT THAT THEY’RE TIGHT RIGHT NOW. BUT LET’S SAY THE ECONOMY JUST ISN’T COOPERATING. AND NEITHER IS INFLATION. SO YOU’VE GOT TO STAY TOO TIGHT FOR TOO LONG. EVEN THOUGH MAYBE THEY SHOULD BE CUTTING, THEY STAY TIGHT AND EVENTUALLY WE GET A SLOWDOWN OR A RECESSION. THAT’S LIKE A BLAST FROM THE PAST, ISN’T IT? WHERE THEY CAN’T GET IT UNDER CONTROL. EVEN THOUGH CONDITIONS ARE ALREADY TOO TIGHT. IS THAT HOW WE GET A RECESSION, EVENTUALLY, RICK? >> WELL, LOOK, I THINK THAT THE FED, KEEPING RATES WHERE THEY’RE
AT, HIGHER FOR LONGER, IS THE RIGHT DECISION. I DO HERETHINK THAT THERE ARE CERTAIN ASPECTS WITHIN THE ECONOMY, WHERE PRICES WILL REMAIN STICKY, BUT THE ISSUE IS, JOE, THAT THE FED CAN’T REALLY HELP THOSE AREAS. WHETHER IT’S FIRE INSURANCE, AUTO INSURANCE, AUTO REPAIR, THE COST OF AUTOS, EV ISSUES, ALL OF THESE THINGS MOVING FORWARD ARE NOT GOING TO BE SLOWED DOWN IN A DRAMATIC WAY, NO MATTER WHERE THE FED PEGS INTEREST RATES. MUCH OF IT IS GOVERNMENT POLICY. AND GOVERNMENT POLICY GOES AGAINST ECONOMICS, HENCE WE HAVE MANY OF THESE ISSUES. I THINK STICKY INFLATION IS
GOING TO REMAIN, BUT I THINK IT’S COMPLETELY DIFFERENT ANIMAL THAN THE TYPE OF INFLATION THAT WE’RE MOST FEARFUL OF IN THE ‘ ’70s. >> SCANDA, GO AHEAD. YOU RESPOND TO WHAT YOU THINK ON THAT QUESTION, TOO. >> I THINK IF WE JUST TAKE A STEP BACK INTO STEVE’S ORIGINAL POINT, JANUARY IS ALWAYS A PRETTY VOLATILE MONTH. ESPECIALLY IF WE COMPARE IT TO WHERE WE WERE 12 MONTHS AGO, 6 MONTHS, EVEN ON THE YEAR OVER YEAR COMPARISONS, WE’VE MADE A LOT OF PROGRESS. IT’S TRUE THAT IS A SPIKIER PRINT THAN WHAT WE’VE SEEN OVER THE LAST
COUPLE OF MONTHS, ESPECIALLY AFTER RELEASES HAVE BEEN REVISED, BUT NEVERTHELESS, I WOULD SAY, THERE ARE STILL BROAD TRENDS OF PROGRESS. IT’S TRUE THAT WE HAVE SEEN MAYBE ON THE SERVICES SIDE OF CPI, A LITTLE BIT MORE STRENGTH FOR THIS MONTH. GOODS DEFLATION IS CONTINUING. RENT IS TAKING A WILD BEAT IN, BUT THE PROGRESS ON INFLATION HAS HAPPENED, EVEN AS THE LABOR MARKET HASN’T BROKEN, AND THAT IS ITSELF VERY GOOD NEWS. WE’LL SEE ABOUT THE MONTHS AHEAD, ABOUT PROGRESS. JANUARY AND FEBRUARY TEND TO BE ESPECIALLY VOLATILE MONTHS. BUT I WOULD BE A LITTLE BIT MORE CAREFUL
ABOUT HOW TO PARSE NUMBERS AROUND JANUARY AND FEBRUARY IN PARTICULAR. THESE ARE ESPECIALLY VOLATILE MONTHS, WHERE SEASONAL ADJUSTMENT IS DOING A LOT OF THE WORK ALONGSIDE, THIS IS OBVIOUSLY A PLACE WHERE PRICES TEND TO BE RAISED AROUND THE TURN OF THE CALENDAR YEAR. SO — I WOULD JUST URGE SOME LEVEL OF CAUTION AND TAK
