CPI pops -- no surprise to me

Investment Analysis Clubs Macro Economic Trends and Risks
1

Inflation Heated Up in January, Freezing the Fed

Consumer prices rose 3%, as fight against inflation continues to face headwinds

By Jeanne Whalen and Nick Timiraos, The Wall Street Journal, Updated Feb. 12, 2025

image
image1110×781 41.2 KB

image
image1198×792 42.3 KB

…Trump said in a social-media post Wednesday, just before the data release, that interest rates should be lowered. Some of Trump’s economic advisers have recently struck a different tone, arguing that the Fed needs to get inflation fully under control before lowering rates…

After three consecutive rate cuts late last year, the Fed last month hit the pause button on further cuts, entering a new wait-and-see phase.

“We’re in a pretty good place with this economy. We want to make more progress on inflation. And we think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further,” Federal Reserve Chair Jerome Powell told members of the Senate Banking Committee… [end quote]

I’ll bet that President Trump wishes that he could send DOGE into the Fed to can all the Fed governors and cut the fed funds rate to zero. Fortunately, Jerome Powell’s position is protected by law and he would fight to keep it. Of course, DOGE has violated Congressional laws right and left, including at Treasury. But the Fed is a different story … I hope.

I expect inflation to rise because the amount consumers can spend on goods and services is rising rapidly. Also, transfer payments are rising along with the federal deficit. The Federal Deficit [-] as Percent of Gross Domestic Product is currently -6.3% and getting worse.

Trump’s policies of expelling immigrant labor and imposing tariffs will inevitably worsen inflation. Also, the bird flu is raising the price of eggs which impacts the CPI (though not the core CPI).

If Trump and Musk succeed in disrupting the Fed – that would be a black swan event that would cause a financial crisis. Even with the Fed functioning smoothly the stock and bond markets will fight downdrafts as inflation refuses to subside (or, more likely, gets worse).

The stock market tends to have a hissy fit if the Fed refuses to cut the fed funds rate when the speculators have bet on it. The options market already has cut back on expectations.

My money is on rising inflation. That’s why I buy TIPS instead of Treasuries. There is no reason to cut the fed funds rate with the current situation. If inflation rises the Fed may raise later this year.

Wendy

21 Likes
2

Probably a pretty safe bet. That 0.4% MoM rise in core inflation is a bad number to see in the month before the imposition of tariffs. The removal of migrant workers who pick produce, wash dishes, build homes, and landscape is only just beginning and the current policy of dealing with bird flu by stick one’s head up one’s trump is probably going to be ineffective.

Still early but it is difficult to see how inflation is going to slow. I suppose consumer spending might falter since consumer confidence is declining and if a million federal employees become unemployed. But rising unemployment and disgruntled consumers don’t win elections.

Governing is hard.

Does anyone believe that occupying Gaza is going to allow the federal deficit to stop growing?

7 Likes
3

Paul Krugman has observed that Trump may corrupt BLS-produced inflation data, so that he can claim that inflation is low. @pkrugman.bsky.social on Bluesky

If this happens, TIPS won’t provide the inflation protection you’re expecting.

8 Likes
4

Yep, I think I have reached the point where I don’t see that the juice is worth the squeeze. I might be giving up some upside potential but there are so many headwinds and risks when compared to the risk free return, that I am pulling the trigger on selling my most aggressive investments.

With the NASDAQ turning positive, I am out. Just sold 100% of my QLD holdings - about 1/3 of my self-directed investments.

Edit: Just sold all my UPRO too - so now more than half cash.

3 Likes
5
  • USA investment climate for next 2 years, looks bad.
  • Looks good.
  • Looks muddled
0 voters
6

There is a track record to look at. iirc, it was August 2020, when the methodology for measuring unemployment was changed, without restating past reports, using the new methodology, so there was no way to tell if unemployment was improving, vs earlier in the year, or not.

Steve

1 Like
7

Why gosh, with advanced statistical analyses like that we might, at last, be catching up with where Romania was in its golden age of steady improvement in eonomics and morality under the glorious unforgettable Ceaucescus….

6 Likes
8

My money is on deflation. The tariff war is just getting underway.

9

Deflation or disinflation?

DB2

10

Deflation

1893
1921
1922
1929

tariffs enacted deflation

11

Talk is just that–talk. Wait for the tariffs to actually start to impact pricing throughout the US. THEN the fun begins.

1 Like
12

How inflationary is the $4 Trillion they want to borrow to fund the billionaire tax cuts? I don’t see that on your list?

intercst

6 Likes
13

The President sees the stock market as his approval rating. He’ll do what’s necessary to maintain/inflate it’s value.

intercst

1 Like
14

It does look like we are going to continue on the path started under GW Bush 25 years ago. Deficit spend to infinity. The shutdowns of government agencies are a smokescreen and a power grab that have nothing to do with the budget.

And it no longer upsets me. I didn’t vote for it. It is not my fault.

1 Like
15

But if you voted at all, you did vote for it. Federal debt has expanded under every administration.

      Debt
1988   2.6 trillion dollars
1992   4.1
2000   5.7
2008  10.0
2016  19.6
2020  27.7
2024  35.5

DB2

2 Likes
16

Ideological tax cutters from Reagan to T2, are the primary cause of our national debt. The GW Bush tax cuts plus extensions, and the T1 tax cuts both added Trillions to the deficits and now we are going to accelerate those deficits by Trillions more with the new tax package which will have a name that will be the exact opposite of what it does - they will call it something like, ‘The Tax Prosperity Act’. I will more accurately call it the ‘Bankrupt America Act.’

12 Likes
17

Wiki has a more detailed discussion: History of the United States public debt - Wikipedia

18

That is not tariffs.

“I could shoot someone on 5th Avenue”.

He does not need to care about “rational” public approval.

1 Like
19

“Vote for me and you’ll never have to vote again”. Tells you all you need to know.

8 Likes
20

That’s because it hasn’t happened yet. As of today, the 2017 tax law is set to expire at the end of this year, going back to the higher taxes before that law was enacted. It’s possible that this plan will be enacted.

But not likely, as I’m sure you would agree.

I do agree with you that a major tax cut would be inflationary. But it hasn’t happened yet.
Wendy

2 Likes