Flash Macro: U.S. Inflation

The January CPI report strengthens our view that growth and inflation will be more resilient this year, even more than we previously thought. Against that backdrop, we expect fewer Fed cuts.

We continue to argue that we are in a Regime Change where there is a ‘higher resting heart rate’ for inflation this cycle. This report confirms our view that investors have been overly optimistic about the Fed cutting rates into an environment that is defined by low growth, low inflation, loose monetary policy, and tight fiscal policy. That environment is one that we have permanently exited, we believe. Key to our thinking is that four drivers – more fiscal stimulus, a messy energy transition, heightened geopolitics, and tight labor markets – will make this cycle different.

EXHIBIT 1: There Is Some Seasonal ‘Noise’, But Supercore Services Is Not Giving Policymakers Confidence

Core Services Ex-Shelter, Energy, Health Insurance, 3-Month Moving Average, % Annualized