Financial Markets See Core Inflation as the Problem Right Now: CHART OF THE DAY

Markets now see stubborn core inflation—not volatile energy prices—as the binding constraint on Fed rate cuts...

A nice chart from Torsten Slok: Financial markets are treating the recent decoupling of oil prices and bond yields as evidence that the Fed’s problem has shifted from headline to core inflation, meaning cheaper oil alone no longer moves expectations about interest-rate cuts…

Financial markets have quietly changed the story they’re telling about inflation.

One thing I think Torsten Slok misses here: The price of oil on the high seas has a downward trend. The price of energy to American consumers definitely does not. The datacenter boom and tokenmaxxxing have entered the chat.

Plus: Trump’s war on Iran continues, with no real ceasefire, and with ships passing through the Strait of Hormuz depending on Iran getting enough cash week by week for it to feel that it is still getting the better of the deal by letting ships out:

Torsten Slok: The Decoupling: Energy Down, Yields Up <https://www.apollo.com/wealth/insights-news/insights/daily-spark/the-decoupling-energy-down-yields-up>: ‘When oil and yields stop moving together, it signals the Fed’s problem has shifted from headline to core, see chart below. With tariffs, a tight labor market and firm services prices still in play, the market expects core inflation to stay sticky even as energy costs fall. The bottom line is that cheaper oil alone won’t open the door to cuts, and the Fed is likely to stay on hold at its next meeting until it sees core inflation convincingly cooling…

<https://www.apollo.com/wealth/insights-news/insights/daily-spark/the-decoupling-energy-down-yields-up>

No. The Federal Reserve has no business thinking about cutting interest rates right now. Even with a chair for whom a 2.9%/year PCE-basis inflation target is as good as a 2.0%/year one. and that is a 3.4%/year CPI-basis inflation target. And someday, if things go on as they are, the fiscal theory of the price level really will crest the Kurosawa horizon line and enter the chat as well .

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