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TF
tf/economics
234
tf/economics•Posted by u/macro_man•

Sticky services inflation will force the Fed to keep rates higher for longer

Latest CPI came in at 3.2% headline, 3.6% core. Everyone looks at the headline but the real problem is the detail:

  • Services ex-shelter: +4.8% YoY — no improvement in 4 months
  • Shelter: +5.2% — the lag from real rents is enormous
  • Supercore (services ex-shelter): +0.5% MoM — worst in 6 months

The Fed needs supercore below 0.2% MoM for 3+ months to cut. We're far from that.

My read: no cut before September 2026 at the earliest. The bond market is right, the stock market is in denial.

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forex_sarah·edited

The shelter lag is the key point. Real rents have been declining for 8 months (Zillow data) but CPI uses data with a 12-month lag. When it catches up, CPI will drop mechanically.

89
macro_manOP·edited

Yes but even stripping out shelter, supercore is still hot. The problem is broader than housing. Service sector wages are growing at 4.5%/year. As long as the labor market holds, services inflation won't come down.

56
commodity_chris·edited

Macro question: are we reliving the 1970s with inflation in waves? First peak, temporary decline, higher second peak? Because Volcker had to hike to 20% to kill the beast.

67
macro_manOP·edited

No, the 70s were supply shocks (oil) + incompetent monetary policy (Burns). Today it's mostly excess demand post-COVID. Structurally different. Powell is not Burns.

45
swing_king·edited

Concretely, if no cut before September, what impact on small caps? They're the most sensitive to cost of capital and the Russell 2000 has been flat for 18 months.

43