I get that the equities market wants to see a rate cut, but I don't understand why increased inflation means that the fed is "more" likely to cut. Didn't we just go through a period where rising inflation meant the fed should raise rates? I mean looks like employment is getting bad too, but its not significantly higher. Anyone care to explain?
Why does inflation being up mean that fed is more likely to cut rates?
byu/apoptosis66 ininvesting
Posted by apoptosis66
17 Comments
It’s up but not too much so rates could be cut
The employment market is really bad. It’s REALLY bad. The belief is that rate(s) will stimulate the job market into expanding.
It seems as if they’re willing to risk a slight bump in inflation in return for possible job market improvement.
Core inflation was not bad, so apparently the market thinks a rate cut is still on.
Rates should be ~100bps above inflation. So argument could be made it’s 50bps too high right now
The fed has two mandates – keep inflation in check, make sure people are employed. If inflation isn’t horrific then they can drop rates a bit to stimulate economy add hopefully add jobs. Right now, inflation isn’t as bad as jobs numbers.
It doesn’t. Inflation being up and good job market would mean fed is less likely to cut rates might even raise rates.
Inflation while up is not terrible the way the job market is. If inflation had skyrocketed well that would be a bit tricky. However for the last couple months employment is getting worse significantly faster than inflation is rising. That combination bodes for a rate cut.
25 bps is all but guaranteed and the fed may need another 25 bps before the end of the year.
It’s weird that interest rates are being blamed for growing unemployment instead of the tariffs, which are a much bigger issue.
Where did you hear this? There’s an NY Times headline right now that says “Rise in inflation likely to keep Fed cautious on pace of rate cuts” so… the exact opposite of what you’re saying
>I don’t understand why increased inflation means that the fed is “more” likely to cut.
This is not true. It is the opposite.
At Jackson Hole Powell made it clear the Fed’s priority now is jobs, not inflation.
The concern is that hot CPI will lead the Fed to cut 25 basis points next week instead of the 50 that the market wants.
The Fed is in a tough spot. It will be hard to avoid a recession if jobs keep cooling, but if they cut rates too far inflation will get hot again. Then we’re in the stagflation scenario everyone is fearing.
Raising inflation does not mean that the fed is more likely to cut rates. The question is wrong!
It has to be pretty hard to run a business when tariff rates seem to change monthly and, in some cases, daily or weekly because a country says or does something this administration doesn’t like.
Core PCE is the fed’s preferred metric, Core CPI tracks it closer and was in line, PPI was cool yesterday.
We had months of downward inflation surprises, and last month was warm largely due to [portfolio fees](https://pbs.twimg.com/media/GyZYxMoWMAUP8Jn?format=jpg&name=900×900)—which [happens](https://pbs.twimg.com/media/GzhVb6aWwAAYN9H?format=jpg&name=medium) when stocks surge—which happens when you have inflation that undershoots and decent to hot [growth](https://www.atlantafed.org/-/media/Images/cqer/research/gdpnow/gdpnow-forecast-evolution.gif).
Core goods account for less than 6% of the total PPI index and 20% of CPI. This is also true if you measure by GDP, employment, sales, etc. And only a fraction of that is from overseas. Maybe the “bolus” from that 6% everyone is waiting for is still to come, but everyone has figured out tariff boluses (or any tax) are, by definition, one time step-ups and small compared to the other 80-94% of the economy. Tariffs as the main macro driver has been over for months.
Weekly and monthly jobs was cold.
Overall this just confirms the Fed can focus on the employment side of their mandate, which markets have been sniffing out for a while.
So they can pad the economy with consumer debt so that when everyone loses their jobs to AI, the banks and corps will inherent the defaulted assets for resale. Same as always.
Market is pumping because the inflation wasn’t bad enough to affect the Fed’s decision, not because bad = good. It just wasnt bad enough to offset how bad the labor market is
It actually now makes a .50 cut less likely, more likely just .25.
Why do you think high inflation means the Fed will cut? They are cutting because of really bad jobs numbers and horrific economic conditions due to the idiotic tariffs, inspect of inflation not because of it.
Inflation up by an amount that is deemed more acceptable than the amount unemployment is up by
It’s the jobs market that’s pushing for a rate cut. The inflationary numbers have the opposite effect but a cut is due.