Interest rates. Is the Fed almost done tightening yet? Gonna cut rates soon maybe?

Is the Fed almost done tightening yet?
Not it they were telling the truth when they said 2% is the inflation target.

Of course it’s the Fed and they can renege anytime they want.
Chart below shows the 2% target and the overall CPI (light blue).

Since shelter is 34.4% of CPI (Dec 2022), there are only two ways the Fed can achieve its stated goal
1.) Hold firm, until the purple and dark-blue lines (the two measures of shelter inflation) come way down to 2% and stay there, or
2.) Hold firm, until everything-else-inflation, food, healthcare, electric bills, insurance, college tuition, Netflix subscriptions, automobiles, and meals at McDonald’s, falls substantially below the 2% mark.

Bottom line:
If the Fed cuts rates now or in the near future, it will not achieve its stated goal.

Can you handle the truth?

1 Like

If they cut rates, there will be higher inflation without regulatory eases.

Typically, yes.

In fact lower interest = higher inflation so often the case it is a general rule of thumb accepted in every economics textbook.