Believers in Goldilocks spin Friday’s PCE inflation report to say Fed will end interest rate increases “soon”

Believers in Goldilocks spin Friday’s PCE inflation report to say Fed will end interest rate increases “soon”

Friday’s PCE (Personal Consumption Expenditures) index, the Federal Reserve’s preferred inflation, measure gave believers in Goldilocks just enough to keep the fairy tale alive. The all-items index rose 0.3% in February. That works out to a 5% annual rate. The month-to-month increase was less than expected by economists surveyed by Bloomberg–who were looking for 0.4%. The core index, which excludes food and energy prices, also rose by 0.3% month to month. Again less than expected. That put the annual core inflation rate at 4.6%.

Goldilocks fails to capture the Federal Reserve (sort of)

Goldilocks fails to capture the Federal Reserve (sort of)

Goldilocks is just about the only thing keeping the current stock market afloat in the face of a storm of worry from a banking crisis, to stubbornly high inflation, and signs of a cooling economy. The Goldilocks story says, Don’t worry about all that. The Federal Reserve is about to pivot on interest rates. At its May 3 meeting, the Federal Reserve Open Market Committee might raise interest rates by 25 basis points but that will be the last interest rate increase. And then the Fed will move to start cutting interest rates in the second half of the year with financial markets pricing in as much as 200 basis points of cuts by the end of 2024. And all this will happen, too, without a recession, as the Fed engineers a successful soft landing of the economy and a significant slowdown in inflation.
If you believe that, you should be buying stocks. I don’t believe it. And more importantly, the bond market doesn’t believe it.

Fed chair testifies: So much for Goldilocks

Fed chair testifies: So much for Goldilocks

This morning–before the actual testimony by Fed chair Jerome Powell had ended but after Wall Street had read his prepared remarks–stocks moved ahead on Wall Street’s favorite story, Goldilocks. Powell seemed to be saying that economic growth was getting stronger,  but that it wasn’t so strong that it would force the Fed to act more quickly. But then as the market actually heard Powell speak, it began to reassess how this story comes out.

Goldilocks returns with January jobs report

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