US
Federal
Reserve
Chair
Jerome
Powell
attends
a
“Fed
Listens”
event
in
Washington,
DC,
on
October
4,
2019.
Eric
Baradat
|
AFP
|
Getty
Images
A
hotter-than-expected
consumer
price
index
reading
rattled
markets
Wednesday,
but
markets
are
buzzing
about
an
even
more
specific
prices
gauge
contained
within
the
data
—
the
so-called
supercore
inflation
reading.
Along
with
the
overall
inflation
measure,
economists
also
look
at
the
core
CPI,
which
excludes
volatile
food
and
energy
prices,
to
find
the
true
trend.
The
supercore
gauge,
which
also
excludes
shelter
and
rent
costs
from
its
services
reading,
takes
it
even
a
step
further.
Fed
officials
say
it
is
useful
in
the
current
climate
as
they
see
elevated
housing
inflation
as
a
temporary
problem
and
not
as
good
a
gauge
of
underlying
prices.
Supercore
accelerated
to
a
4.8%
pace
year
over
year
in
March,
the
highest
in
11
months.
Tom
Fitzpatrick,
managing
director
of
global
market
insights
at
R.J.
O’Brien
&
Associates,
said
if
you
take
the
readings
of
the
last
three
months
and
annualize
them,
you’re
looking
at
a
supercore
inflation
rate
of
more
than
8%,
far
from
the
Federal
Reserve’s
2%
goal.
“As
we
sit
here
today,
I
think
they’re
probably
pulling
their
hair
out,”
Fitzpatrick
said.
An
ongoing
problem
CPI
increased
3.5%
year
over
year
last
month,
above
the
Dow
Jones
estimate
that
called
for
3.4%.
The
data
pressured
equities
and
sent
Treasury
yields
higher
on
Wednesday,
and
pushed
futures
market
traders
to
extend
out
expectations
for
the
central
bank’s
first
rate
cut
to
September
from
June,
according
to
the
CME
Group’s FedWatch
tool.
“At
the
end
of
the
day,
they
don’t
really
care
as
long
as
they
get
to
2%,
but
the
reality
is
you’re
not
going
to
get
to
a
sustained
2%
if
you
don’t
get
a
key
cooling
in
services
prices,
[and]
at
this
point
we’re
not
seeing
it,”
said
Stephen
Stanley,
chief
economist
at
Santander
U.S.
Wall
Street
has
been
keenly
aware
of
the
trend
coming
from
supercore
inflation
from
the
beginning
of
the
year.
A
move
higher
in
the
metric
from
January’s
CPI
print
was
enough
to
hinder
the
market’s
“perception
the
Fed
was
winning
the
battle
with
inflation
[and]
this
will
remain
an
open
question
for
months
to
come,”
according
to
BMO
Capital
Markets
head
of
U.S.
rates
strategy
Ian
Lyngen.
Another
problem
for
the
Fed,
Fitzpatrick
says,
lies
in
the
differing
macroeconomic
backdrop
of
demand-driven
inflation
and
robust
stimulus
payments
that
equipped
consumers
to
beef
up
discretionary
spending
in
2021
and
2022
while
also
stoking
record
inflation
levels.
Today,
he
added,
the
picture
is
more
complicated
because
some
of
the
most
stubborn
components
of
services
inflation
are
household
necessities
like
car
and
housing
insurance
as
well
as
property
taxes.
“They
are
so
scared
by
what
happened
in
2021
and
2022
that
we’re
not
starting
from
the
same
point
as
we
have
on
other
occasions,”
Fitzpatrick
added.
“The
problem
is,
if
you
look
at
all
of
this
[together]
these
are
not
discretionary
spending
items,
[and]
it
puts
them
between
a
rock
and
a
hard
place.”
Sticky
inflation
problem
Further
complicating
the
backdrop
is
a
dwindling
consumer
savings
rate
and
higher
borrowing
costs
which
make
the
central
bank
more
likely
to
keep
monetary
policy
restrictive
“until
something
breaks,”
Fitzpatrick
said.
The
Fed
will
have
a
hard
time
bringing
down
inflation
with
more
rate
hikes
because
the
current
drivers
are
stickier
and
not
as
sensitive
to
tighter
monetary
policy,
he
cautioned.
Fitzpatrick
said
the
recent
upward
moves
in
inflation
are
more
closely
analogous
to
tax
increases.
While
Stanley
opines
that
the
Fed
is
still
far
removed
from
hiking
interest
rates
further,
doing
so
will
remain
a
possibility
so
long
as
inflation
remains
elevated
above
the
2%
target.
“I
think
by
and
large
inflation
will
come
down
and
they’ll
cut
rates
later
than
we
thought,”
Stanley
said.
“The
question
becomes
are
we
looking
at
something
that’s
become
entrenched
here?
At
some
point,
I
imagine
the
possibility
of
rate
hikes
comes
back
into
focus.”
