Inflation fever is finally breaking. The Fed's soft landing may be in sight
If Fed Chair Jerome Powell were any less buttoned up, he'd be well within his rights to call a press conference, stride up to the lectern in a T-shirt and board shorts and say three words — 'soft landing, jerks!' — before dropping the mic and walking out.
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If Fed Chair Jerome Powell was less buttoned-up, he would be perfectly within his rights call a news conference, walk up to the podium in a T shirt and board shorts, and say three simple words: 'Soft landing, jerks' Before dropping the microphone and walking away, Powell dropped his mic.
Jay wouldn't do it, of course. I can't imagine him silently fist-pumping when he heard the latest inflation figures.
ICYMI, the Consumer Price Index (CPI) measured annual inflation at 3% in the last month. This is the lowest rate for more than two-years and the 12th month consecutively of declining prices.
To put things in perspective, the CPI peaked last year at 9.1% - the highest inflation rate for more than 40years.
Bill Adams, Comerica Bank's chief economist, wrote that after a long period of price increases, "the fever has broken."
This is definitely a fan-freakin'-tastic movie.
Many Twitter users argued that the CPI report on Wednesday was not a complete success. Core inflation, which excludes energy and food prices, remains uncomfortably elevated at 4.8%. We are objectively better off today than a year ago and all signs indicate that inflation will continue to decline.
For the record, the Fed's inflation target is 2%. While the CPI is the most popular inflation indicator, central bankers prefer a different measure, the Personal Consumption Spending Price Index. The latest core PCE index was 4.6% for May.
Jay Powell and Co. can't probably go on vacation just yet.
Lael Biden, the top economic advisor to President Biden, said: 'We have seen repeated predictions of a recession, but the data has shown that the economy is still resilient.' The US has defied expectations that the inflation rate would not fall without significant job losses.
Brainard's resilience is:
The labor market remains stable, despite the fact that rising rates are usually a problem. Even though wage growth hasn't kept pace with inflation for most of the last two years, it appears that this is changing. In June, wages were up by 4.4%.
The Fed could actually achieve the soft landing -- lowering the inflation rate without destroying the economy -- which few thought possible even six months ago.
Dan Alpert told me that the odds of a soft landing had increased dramatically. 'I am not saying that there will not be a recession. I just believe the recession won't happen in 2023.
Jamie Dimon of JPMorgan Chase, who warned last year that an economic "hurricane" was on its way, has now reassessed. In a recent interview with The Economist, Dimon said that the storm clouds were only partially present.
Bottom line: the CPI gave us a rare bit of good news. The Fed deserves some credit for the relatively easy disinflation - sans mass layoffs - over the past 12 months. The markets still expect the Fed to raise rates again later this month. However, they are now expecting that it will be the final tightening.