Consumer Prices Fell 0.1% Last Month and Are Up 6.5% Over the Last Year…The numbers were right in line with expectations.
What it means— The cost of goods fell, led lower by gasoline, while prices for services grew at the fastest rate since the 1990s. Rents as measured by the U.S. Bureau of Labor Statistics (BLS) jumped 0.8% last month, although real-time measurements from Apartmentlist.com and others show rents flat at year-end, which suggests we’ll get lower readings from the BLS this spring.
The big issue with the Consumer Price Index was that it did not come in lower than expectations, which would have signaled a possible pause in rate hikes by the Fed. It didn’t come in higher than expectations, which would have encouraged the Fed to take the terminal rate over 5%. Unfortunately, we’re still left waiting for more data before we get a clear sense of what the Fed will do at the February 1 meeting and beyond.
Nearly two-thirds of consumer spending goes into services which are +7.5% from last year. Services include housing, insurance, healthcare, education, travel and hotel bookings, subscriptions, streaming, telecommunication, haircuts…. And this is where inflation is now raging.
Fed Chair Powell Tells Audience that the Central Bank Will Not Make Climate Change Policy… Responding to calls from several U.S. lawmakers, Powell made the statement during a panel discussion at a conference hosted by Sweden’s central bank.
What it means— This smacks of the Wizard of Oz, when the “wizard” told Dorothy and her friends to pay no attention to the man behind the curtain. Who you gonna believe. The Fed already has up and running several internal committees focused on climate change and will run a pilot program with six large U.S. banks early this year to test their readiness for climate-related disasters. Banks, like governments, pay nothing. Clients pay everything. The only way for banks to be “ready” for climate change is for them to determine which of their clients pose the greatest risk, and then either charge them more for financing or cut them off. It doesn’t matter how Chair Powell couches it, when the Federal Reserve “asks” you to examine something like climate change for risk, then the Federal Reserve is taking a policy stand.
By the way, the Federal Reserve has already addressed this issue. The Federal Reserve Bank of New York published a research paper in November 2021 that showed banks actually benefit from natural disasters due to the relief money that pours into the areas afterward and also showed that the knowledge of local bankers helps them stay out of the riskiest sectors. But don’t count on seeing this paper highlighted in the mainstream media.
Jobless Claims and Continuing Claims Remain Tame at 205,000 and 1.63M, respectively… The number of workers filing for first-time unemployment claims eased from 210,000 to 205,000, and the number of people filing for benefits beyond the first week of joblessness declined from 1.7M to 1.63M.
What it means— Unemployment is not rising yet, no matter how many sob stories we hear about workers being fired in mass at Twitter and other tech companies. As we’ve discussed over the past six months, these workers appear to be getting new jobs soon after they lose the old ones. The Fed has identified employment as the main factor that will give the central bankers the confidence to plateau or pivot. They expect rising unemployment to ease inflationary pressure in the months and years ahead. They likely will not get their wish. It appears more likely that inflation will ease even as unemployment remains near 50-year lows.
Nick Timiraos of Wall Street Journal Writes that Latest Inflation Data Suggests 0.25% Hike in February… Timiraos is considered the journalist that the Fed calls to clarify its message to the markets, and his articles are now called “Nikileaks.”
What it means— Timiraos hasn’t been wrong on a Fed call since, well, ever, so unless something major happens over the next few weeks, we can expect a rate hike of 0.25% lifting the range to 4.50% to 4.75%.
The question is, what comes next? If housing costs as measured by the BLS decline over the next six weeks, the ISM Services Manager Index is right in calling for a slowdown, and we’re right in that the employment rotation from goods back to services is all but done, then this should be the last Fed hike before the central bankers take a break. Don’t expect them to lower rates until at least the end of the third quarter.
‘Porn-Sniffing’ Dog of Weber County, Utah, Dies at 8 Years Old… To be clear, the dog didn’t exactly sniff out porn. Instead, he was a pro at sniffing out electronic storage devices, like USB drives stuffed into closed baby food jars and memory files hidden in walls. The dog, appropriately named URL, even found a USB drive in the shape of a key that was on a large key ring. URL started life as a pound puppy. He was labeled untrainable, loud, not good on a leash, and a biter. After training, he worked with Utah officials for six years before retiring in January 2022. He had a success rate of 22% and recovered dozens of pieces of evidence that people missed, which helped authorities convict those involved in child sexual exploitation or child sexual abuse.
Data supplied by HS Dent Research
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