The economy is strong and inflation is coming downI was open to the idea that we could front-load and the inflation data during blackout pushed me in that directionCPI and PPI will feed into core PCE; which will be somewhere around 0.14%Over the last four months, core PCE running at 1.8% with very high housing-services inflationIf you strip out housing services, core PCE would be running under 1% over the past four monthsI can think of several scenarios that will determine the pace of cuts. If it’s fine you can imaging going 25 bpsIf data comes in softer, you can see going at a faster paceWe could even pause depending on the dataWhat’s got me more worried is that inflation is running softer than I thoughtIf the data comes in soft, I would be much more willing to be aggressive on rate cutsWe’re doing exactly what we thought at the start of the year, it just took longer because of Q1 high inflationInflation has reversed on us before, it could reverse againInflation is on the right path as long as we don’t let it get too low
Quotable:
“The committee sees a lot of room to move down over the next 6-12 months. That’s really what we should be focusing on.”
This is some dovish stuff from a guy who often delivers a more-hawkish message.
This article was written by Adam Button at www.forexlive.com.
