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Kashkari Three And Six Month Inflation Data “Basically There”

FED
  • Kashkari (non-voter) notes that inflation data over the past three- to six-months has been surprisingly positive, meaning good news.
  • We’re not quite there yet on the Y/Y basis but 3-month and 6-month rates are “basically there” at 2%.
  • I don’t want to say we’re done yet and will glide all the way to 2%, but fingers crossed the data is looking positive.
  • Building on yesterday's essay on supply side factors: Inflation has come down so quickly because instead of the Fed raising rates so much that we’ve put both feet on our brakes to slowdown the economy, what I think has happened is that we are braking but there’s been a surge in supply in the economy. Over the past year or so, supply chains have mostly healed from the pandemic, the services economy has reopened and a lot of workers have come off the sidelines to produce a lot more goods and services. My gut tells me that most of the disinflationary gains have been because the supply side has healed so quickly – in that context, it turns out we haven’t slammed our feet on the brakes as hard as we thought.
  • It’s also an explanation of why the yield curve is not at reliable an indicator of recession in this current episode, because in prior cycles the disinflation was caused by the Fed.
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