CPI Cools, But Don’t Throw A Parade For 3.4% Inflation
- Headline inflation eased but core rate remains elevated, indicating persistent price pressures.
- Federal Reserve may have more time before raising interest rates further, though policy debate continues.
- Experts suggest reducing Fed's balance sheet as alternative to rate hikes to curb inflation.
CPI Cools, But Don’t Throw a Parade For 3.4% Inflation
A tame monthly Consumer Price Index report may have bought the Federal Reserve some breathing room, but Tony Katz made clear that Americans are not living in a spreadsheet where 3.4% annual inflation counts as a victory lap.
“What the hell kind of trend is that?” Katz asked after parsing the latest figures: headline CPI moved 0.1% for the month after a 0.4% decline previously, while core inflation — which strips out food and energy — rose 0.2% following a flat reading.
That is the tension buried inside the report. The headline number was mild enough to calm markets and ease immediate pressure for another rate hike. But the annual inflation rate remains 3.4%, well above the Fed’s 2% target, and core inflation annualized at roughly 2.4% is hardly a clean bill of health. Better? Sure. Finished? Not even close.
Katz argued that removing food and energy from the equation only makes the picture more frustrating. Energy prices have been rattled by turmoil involving Iran, yet the core measure still ticked higher. Translation: the supposedly cleaner inflation reading is not delivering the reassurance policymakers would like.
Economist Dr Matt Will, who joined Katz, said the report could give Federal Reserve Chair Kevin Warsh more time before making a move on interest rates. He pointed to airline fares, up 2.2% for the month, and health care, up 0.6%, as the two notable problem areas. Airline prices may be a temporary inventory squeeze, he said, while health care inflation remains the more persistent red flag.
Markets did not wait around for a perfect answer. The Dow and Nasdaq rose after the report, while two-year and 10-year interest rates declined — a clear sign investors saw room for the Fed to hold steady rather than reach for another hike.
Katz was less interested in declaring victory than in asking what comes next. Matt argued the Fed should reduce its balance sheet by selling assets such as Treasury securities and mortgages, pulling cash out of the economy instead of using higher rates as its primary inflation weapon.
That may be the policy fight ahead. For now, the CPI report gave Washington a little cover, Wall Street a little confidence and households the same old problem: prices are still too high.
Hear Tony Katz break it down live weekdays 12p ET on Tony Katz Today on WIBC 93.1 FM, or catch the full segment on-demand.
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