Equity and fixed-income investors were shocked during the week by the release of the official US inflation data, which confirmed a massive re-acceleration in services inflation in March, with the annualised trend now running at an
Following no less than four consecutive upside surprises in the monthly US CPI prints, lackadaisical investors have been compelled to discard their ‘hopeium’ and now anticipate only 42 basis points of cuts from the Fed, which they think will not commence easing until September or October. The Fed’s dovish pivot last year, predicated on ephemeral goods price deflation as supply chains reopened, was profoundly misguided, particularly in light of the fact that it precipitated the mother-of-all risk rallies as evidenced by soaring equities and house prices, amongst many other things.In the central banking lexicon, this was an easing of financial conditions that served as de facto interest rate cuts at the worst possible time.
The biggest mistake central banks always make is the vainglorious attempt to construct grand intellectual narratives that presuppose they can accurately divine their own destinies. Think the RBA’s 2020 promise—enshrined by its 2024 yield curve target—not to raise the cash rate off its 0.1 per cent lower bound until 2024 .The Fed’s dovish pivot, which hinged on the bet that transitory goods price deflation would be superseded by mean-reversion in services prices, was another rubbery vision.
US Inflation Services Inflation Core Inflation Labor Market Wages
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