US Rates - Time to Declare Victory?

Is it time for Mr Powell to move forward?

· The US CPI data released in September was deemed to be ‘hotter than expected’ because Core CPI came in at 0.3%, versus expectations of 0.2%. However, the chairman of the US Federal Reserve, Mr. Powell, is not about to announce that ‘interest rates have peaked’ and that the Fed will start to reduce them soon.

· With the US having more measures of inflation than Hydra had heads, he has a great deal of data to assess. The table above reflects some of those measures. 

· With the Fed’s objective to get inflation below 2%, most of those measures are now below 3%, with some below the 2% target.  Remember, we still haven’t seen all of the recent rate rises take hold, for they usually take 6-9 months to work their way into the economy.

· While Mr. Powell may declare that his decisions are data-driven, it would appear that he is, in fact, more reputation dependent than data focused. Having lost credibility in 2021, when he announced that inflation was ‘transitory’, there are greater odds that he will keep rates ‘stronger for longer’.

· While the US economy appears to want to keep on flying, as long as the Fed is prepared to risk a hard landing in order to achieve a soft one, the outlook for bonds will remain volatile and uncertain.