Good News.
October’s Consumer Price Index (CPI) print came out this morning cooler than expected.
Meaning CPI was lower than the estimates and that might imply the hikes are taking effect.
CPI inflation continued to drop for the 4th straight month. The core number–which excludes energy and food–fell to 6.3% on the month from 6.6%.
More focuses are on the month-over-month numbers with a welcome slowdown from the core number, 0.3% on the month from 0.6%.
This a HUGE deal. Here are 3 reasons why:
#๐ญ ๐ ๐๐ฐ๐ต ๐ผ๐ณ ๐๐ต๐ฒ ๐๐ผ๐ฟ๐๐ ๐ถ๐ป๐ณ๐น๐ฎ๐๐ถ๐ผ๐ป “๐๐ต๐ผ๐ฐ๐ธ” ๐ถ๐ likely ๐ฏ๐ฒ๐ต๐ถ๐ป๐ฑ ๐๐.
The U.S. stock market has pulled back ~20% and entered a bear market on the fears of inflation and economic growth.
The stock market is a ๐ญ๐ฆ๐ข๐ฅ๐ช๐ฏ๐จ indicator of the economy, and much of the selling the past year has been due to the fear of the current inflationary environment and slowing economic growth.
The Market is rallying this morning, with futures soaring over 3% in the Nasdaq.
If inflation is under control, the Federal Reserve can stop raising interest rates, and that has a HUGE impact on the market.
#๐ฎ Core Inflation came in at 6.3% YOY and .3% over October
Inflation is broken into 2 parts- Headline & Core Inflation.
Headline inflation is primarily used in comparing purchasing power year over year, however, it includes food & energy prices.
Core inflation ๐ฐ๐ฎ๐ช๐ต๐ด food and energy prices, which are highly volatile in price.
Core inflation is the preferred metric in predicting ๐ง๐ถ๐ต๐ถ๐ณ๐ฆ inflation rates.
Both numbers are not good currently – but 6.3 is a better read for where we can see inflation trending in the near-term future.
#๐ฏ ๐๐๐ฒ๐ฟ๐ ๐ถ๐ป๐ณ๐น๐ฎ๐๐ถ๐ผ๐ป๐ฎ๐ฟ๐ ๐ฝ๐ฒ๐ฟ๐ถ๐ผ๐ฑ ๐ถ๐ป ๐ต๐ถ๐๐๐ผ๐ฟ๐ ๐ฒ๐๐ฒ๐ป๐๐๐ฎ๐น๐น๐ ๐ฒ๐ป๐ฑ๐. (๐๐๐ฒ๐ฟ๐ ๐๐๐ผ๐ฟ๐บ ๐ฟ๐๐ป๐ ๐ผ๐๐ ๐ผ๐ณ ๐ฟ๐ฎ๐ถ๐ป)
It is very hard to predict the future.
The greatest economists, investors, and writers alike have never been able to fully pin a market bottom or price top perfectly.
The only constant in all of our historical inflationary data is that it does eventually stabilize.
It’s still too early to tell when we will see inflation back at “normal” levels.
But this too shall pass.
#4 How did the Mortgage Rates React to October’s CPI Report?
The Fed has been raising rates to slow inflation. Since housing is a key transmission mechanism for Fed policy, the housing market has slowed dramatically as the Fed raised rates (and mortgage rates increased).
Mortgage Rates have trended lower today driven by lower than expected increase in inflation.
#5 Will the Federal Reserve stop the Fed Rate increase?
With inflation still so high, the data reaffirm our expectations of a Fed rate hike on 14 December 2022 of at least 0.50%. Today’s report does not dispel the chances of a 0.75% Fed rate hike, but it lowers the chance somewhat.
