2/14/24
Notable today is that two prominent Fed executives issued surprisingly dovish commentary, following yesterday’s higher than forecast CPI.
Former Boston Fed President, Eric Rosengren, on the X platform this morning: “Market overreacted to the CPI report. While above analysts expectation, monetary policy is not set to analyst expectations. Nothing in the report indicates anything other than a continued trend towards lower inflation. March cut was already off the table, little impact on May”.
Chicago Fed President, Austan Goolsbee, “Even if inflation comes in a bit higher for a few months (as many forecasts suggest), it would still be consistent with our path back to target,” he said. Also, later in his statement: “I don’t support waiting until inflation on a 12-month basis has already achieved 2% to begin to cut rates,” said Goolsbee, adding that the central bank’s current policy stance is “quite restrictive.”
While neither of these individuals votes on policy decision (Mr. Rosengren is a former Boston Fed President), we find the dovish commentary this morning noteworthy, after yesterday’s higher than forecast January CPI. Two key takeaways: First, the Fed inflation target is 12-month core PCE, not CPI. There can often be a wide spread between the two. Second, we believe that if 12-month core PCE continues to trend lower, as it has over the past 12 months, that the Fed will have enough data to start the rate cutting process in the May-June 2024 window. The Cleveland Federal Reserve Bank has a real-time forecast for 12-month January Core PCE at 2.74%, and February at 2.60%. November 12-month Core was 3.20% and December was 2.90%, so the trend continues lower. If the pace of descent for 12-month core continues, May-June 2024 should be ideal timing for the first rate cut.
Larry Tentarelli
Chief Technical Strategist and Founder
Blue Chip Daily Trend Report, LLC
Blue Chip Daily Trend Report
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