Great headline numbers!
CPI came in at 0.1% for the month (expectations 0.3%).
Core came in at 0.2% (expectations of 0.3%).
Energy prices were lower, explaining the difference and that is a trend likely to continue.
However, these low CPI prints were still too high, however, based on the 0.6% increase in shelter (largely owners equivalent rent).
OER was up 0.7%, just off of last month's allegedly record pace. Zillow, which publishes some data that I find more credible, had the lowest monthly rent increase, going back to 2015 (with the exception of the Covid lockdown).
Just look at the chart, below. Zillow peaked in the summer of 2021, which is far more logical than peaking in October 2022 (with November, apparently a close second):
The Fed Has the 'Air Cover' Needed to Go Into Stall Mode
A 50 basis point rate hike by the Fed is still likely Wednesday, but 25 bps is a real possibility.
We have seven weeks between this Fed meeting and the next one. Many say 50 for next meeting. I'm betting 0, but maybe it will be 25. I'm in the camp that Wednesday is the last hike in this cycle.
Lower terminal rates will be good for all markets. The front end and "belly" of the yield curve are still attractive. On the market's bounce Tuesday, I'm reducing exposure to long-dated bonds (taking profits).
I don't see how the Fed can be aggressive given the backdrop of so much overall weakness and inflation dropping. After all, the annualized headline CPI is less than 2%.
I've been arguing that there were many factors driving inflation:
Fed easy money policy. That is now deflationary.
Stimulus. The big, direct giveaways are long gone and the ongoing stimulus is relatively small and spread out.
Supply Chains. Supply chains, shipping, freight, unloading, etc. were all disastrous a year ago. There are still some issues, but on a scale of 1 to 10, with 10 being awful (and we were there) and 1 being easy, we are around a 3 or 4, according to most manufacturers I speak to. Even that might be too high.
War. Many have adapted to the ongoing war (sad, but it's the nature of life) and while the winter will be difficult (unless Russia's failures turn into some form of truce), come the spring, things should ease off again. Well past peak war impact, unless Russia does something with a nuke (highly unlikely) or the weather gets worse.
Disruption. The amount of money in crypto, private equity, disruptive companies (their employees, their shareholders and the companies themselves) fueled spending in an unprecedented way and that is over and will bleed into the economy.
Does Bad News Become Bad?
I'm guessing we have to make it through the Fed meeting before bad news can be bad. We need to hear Powell talk about waiting and seeing where things are headed.
I want to fade the move in longer-term bonds and equities, but I suspect the "2 Day Rule" is in effect. That is the rule that my former colleague "Goose" created: Wait two days after Tchir says to do something, because it will be right, but too early!
So, for now, watch stops kick in, watch markets rip and "dance to the music," but we are getting this data because something is rotten in the state of Denmark and that will matter sooner than later (the darn 2-day rule is bothering me a lot this morning).
More Wednesday after we hear from the Fed.