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Quick comment on CPI and Fed

Published on June 13, 2023

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By

Gerard MacDonell

The details of the CPI were roughly in line with the simulation I mentioned yesterday.  That simulation was not my own forecast but just a discussion of the implication of roughly the consensus take on the detail, which has on balance been confirmed.  Net the noise from used cars and the badly lagging government rent data, the core CPI was easily low enough to support the Fed skipping tomorrow.  I will leave to others how the CPI and PPI detail will map to the core deflator, because my experience is that back of the envelope reasoning does not work in that particular application. I would point out only that the medical services CPI was on the low side and does not enter into the deflator. 

With this potential source of surprise now behind us, I guess the implication for tomorrow is that the median interest rate dot for the end of this year comes up 25 basis points and that the risk of it rising 50 is largely eliminated.  The Fed can easily go another 50 this year, but there is no need to signal that now.  For reasons I do not quite understand they do seem to signal a meeting ahead, but beyond that they are not guiding.  For example, if I am right about tomorrow, then they will have changed the dot corresponding to the end of 2023 seven times for a total of eight guesses.  That guy who says just go with what the Fed tells you means data

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